Court of Appeals orders partition in kind

Posted on 10/20/2015 at 07:07 AM by Mollie Pawlosky

In February 2014, Iowa State University Extension and Outreach revised a 2012 study on Farm Ownership and Tenure in Iowa, reporting that people over the age of 65 own 56 percent of Iowa farmland; 30 percent of the landowners were over 75 years old. Based on these numbers, a turnover in land ownership is expected in the near future. The study reported that 63 percent of owners plan to will their farmland to family, with another nine percent planning to give their farmland to family. If family members disagree on land management, these property transfers may cause an increase in partition actions. In partition suits, the court either orders partition by sale, selling the land and dividing the proceeds among the owners, or the court orders partition in kind, dividing the land between the owners. In recent years, Iowa appellate courts have addressed increasingly more partition actions. Most recently, in Newhall v. Roll, the Iowa Court of Appeals reversed the trial court, holding that appellant Roll was entitled to partition in kind, rather than by sale, having met her burden of showing a property division that was both equitable and practicable. The parties in Newhall v. Roll were siblings who owned two parcels of land, one in Hardin County, the other in Butler County. Newhall sought partition by sale; Roll requested partition in kind. At trial, Newhall’s expert admitted that it was equitable to award Newhall the Hardin County land, Roll the Butler County land, and require Roll to give Newhall an equalization payment of $75,000. Roll’s expert also testified that if Roll were to receive the entire Butler County parcel, she would need to pay Newhall $75,000. Despite the experts’ agreement, the trial court ruled that partition in kind was not equitable or practicable because the case involved “too much guesswork,” and the experts had “widely divergent” appraisals of value. On appeal, the Court of Appeals applied Iowa Rule of Civil Procedure 1.1201(2), “Property shall be partitioned by sale and division of the proceeds, unless a party prays for partition in kind by its division into parcels, and shows that such partition is equitable and practicable.” The burden is on the party requesting the property be partitioned in kind to show that such a division is equitable and practicable.”  Iowa appears to be the only state in the country where the starting presumption is that partition will be accomplished by sale. This presumption is somewhat surprising, given other Iowa legal authority that recognizes the importance of land ownership. The Court of Appeals held that Roll had proven two equitable ways to divide the properties; however, only one of these solutions, the solution in which Roll received the Butler County property, paid Newhall $75,000, and Newhall retained the Hardin County property, was also practicable. Thus, Roll carried her burden of proof by demonstrating an equitable and practicable partition in kind. The Court of Appeals, therefore, reversed the trial court. In so reversing, Newhall v. Roll became the first time that an Iowa appellate court applied the concept of owelty of partition, where a payment is made to equalize values, a power that courts of equity outside of Iowa have exercised since “time immemorial,” according to Black’s Law Dictionary. Newhall v. Roll is significant for other reasons, as well. Iowa’s presumption of partition by sale went into effect in 1945, and Newhall v. Roll appears to be the first case where the party requesting partition in kind met their burden and will be allowed to keep their land instead of being forced to sell. Moreover, Newhall v. Roll demonstrates that in weighing the equities, courts can consider the tax consequences resultant from partition by sale; the Court of Appeals recognized that under Roll’s resolution, she would have no tax consequences and Newhall would have little to no tax consequences, whereas Newhall’s resolution would trigger significant capital gains tax consequences. Considering the likely transfers of farmland in the near future, the scarcity of Iowa case law awarding partition in kind, and the court’s willingness to allow an equalization payment and to consider capital gains consequences, Newhall v. Roll is an important decision.  For questions regarding Newhall v. Roll, contact Tom Hanson, the Dickinson attorney who tried and successfully appealed Newhall v. Roll, or Mollie Pawlosky, who also has experience in partition.

 

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