When you think of owning real estate, you probably think of owning it with complete undivided interest.
That is, the land has just one owner, and the process of buying, selling, and making decisions is relatively uncomplicated.
Yet, it’s more common than people think to have multiple owners for one piece of land.
For instance, related or unrelated business partners, heirs of land, or a married couple can all hold land together.
All of these relationships create a scenario where you may have more than one owner of a property, and co-ownership can quickly become complicated.
Whether you’ve opted for co-ownership (marriage or business) or it’s been thrust upon you (inheritance), it’s important to know how sharing real estate can impact your ability to act.
Particularly when undivided interest comes into play.
So, in this blog, we’re talking about undivided interests, what they are, and how you can free yourself from them if necessary.
Keep reading to learn more.
1. What is undivided interest in real estate?
In real estate, an undivided interest refers to a co-ownership scenario whereby each owner owns a percentage share in the property.
It occurs in situations where a piece of real property is held by two or more persons without being subdivided or divided among the owners.
Thus, the land itself is a single undivided parcel and every owner has an equal right to enjoy the entire property.
However, despite having an equal right to enjoy the property, each owner only owns a percentage share in the lot.
Thus, when thinking about undivided interests, you must consider the “interest” part carefully.
2. What are the three different types of undivided interest in real estate?
There are three types of undivided interest:
tenancy in common
tenancy by the entirety
We’ll detail each in the next three sections.
3. What is tenancy in common?
Tenancy in common is a form of co-ownership that is often used between unrelated individuals.
Often, tenants in common may own unequal shares of a property, but if they are not specifically designated (3/4 versus 1/4) then they are presumed to be equal or proportionate.
Tenants in common are said to hold “undivided” interests with the other co-owners.
In this case, each co-owner owns a proportionate interest in the entire property.
Instead of owning one physical half of the property (the west half or the east half), they are rather considered to own one-half of the interest in the entire parcel of land.
4. What is joint tenancy?
Joint tenancy occurs when two or more parties own property jointly.
That is joint tenants have equal ownership in the property.
Furthermore, joint tenancy means that when an owner dies, the owner’s rights and interests pass to the surviving owner(s).
This is called the right of survivorship.
The rules for joint tenancy vary from state to state, so be sure to check the laws locally.
5. What is tenancy by the entirety?
This type of ownership is available only to married couples.
It allows them to own a property as a single legal entity, and the right of survivorship exists in case one of the spouses dies.
The primary advantage of this type of tenancy is that only creditors of the couple can attach and sell interest in the property.
It cannot be used to pay an individual spouse’s debt, and a spouse may not get rid of his/her interest in the property without the consent of the other spouse.
6. What is community property?
This term applies to married couples who own property in any of the following nine states:
These are referred to as “community property states.”
Any property (cash, real estate, acquired assets, etc.) accumulated during a marriage is “owned” by both parties; it doesn’t matter whose name is on the ownership papers or deed.
Knowing this can be a good reminder.
While your spouse should ultimately be one of the most trusted people in your life, splitting property while divorcing will be difficult.
Purchasing property with another party is always a big decision, and you should consult legal and tax advisors to ensure you’re making smart decisions.
7. What are examples of undivided interest in real estate?
There are countless reasons people could own land collectively.
However, that doesn’t mean it always works out in everyone’s favor.
Here are some examples of undivided property in real estate.
Three siblings own two quarters (320 acres) of land together as Tenants in Common.
Sibling #1 farms the land and pays a pro-rata share of rent to siblings #2 and #3.
While the quality of the land is currently good, it would be improved with drain tiling, which removes excess water from soil below the service.
Drain tiling costs $1,000/acre.
As a result, the sibling farming the land is advocating to get the land drain tiled at a cost of $320,000.
This means that each sibling would need to contribute in excess of $100,000 in order to get the drain tiling done.
Because siblings #2 and #3 do not have sole ownership of the land, neither of them wants to make that type of investment
Five cousins inherit 12 acres of land when their grandpa passes away.
Shortly after the funeral, one of the cousins wants to sell the land because he is in financial trouble.
However, the other four cousins are content receiving rental income and do not have a desire to sell the land.
8. Can you sell your undivided interest?
The short answer is yes, and the long answer is how.
You have the legal right to sell your undivided property.
The problem is finding a market for it.
Others may not desire to step into your shoes and have co-owners of your property.
Often, people with undivided interests in real estate are handling those interests with relatives or other close associates, which can be tricky.
This typically isn’t a selling point for buyers.
If you’re not sure exactly what you can do the best thing to do is consult a real estate attorney, especially one who has handled undivided interests previously.
They can check the fine print and let you know under what circumstances you can sell your property.
You never know what could come up or make it especially complicated!
Openly and honestly discuss your desires pertaining to this land with your attorney.
They can give you some perspective about your options, and this can give you a path forward.
9. I’ve thought about keeping my undivided interest share, but I’m just not happy with that option. What are the alternatives if I can’t sell it?
Alright, so you know that it’ll be difficult, but keeping the land just isn’t in the cards for you.
What can you do to get out of the arrangement altogether?
Try to sell it to one of the co-owners of the same land.
Let’s face it.
Depending on what type of land this is, it’s likely to be more attractive to someone who already owns an interest in some of it or knows the people who own the other interest in it.
See if there’s someone in the group who would be willing to take on your share of the interest.
The logistics for this route will be minimal compared to almost everything else on this list.
Buy your co-owners share.
This is also a fairly simple solution.
If the main problem you have in the arrangement is the undivided interest (not the actual land-owning itself), then you could offer to buy out your co-owners.
This is a great solution if you are the most interested party in having or developing the land and your co-owners do not have the financial ability to acquire your share.
Partition the land through legal agreements and documents.
In this scenario, undivided interests become divided interests and create individual sole title owners.
Each owner will receive their share of deeded land with specific boundaries.
Unfortunately, we’re making it all sound a lot easier than it really is.
While the process can be neat and clean, it can also be pretty messy.
It ultimately depends on the willingness of the undivided interest partners to determine how easily the land can be divided, so everyone can receive their fair share.
Read more about what partitioning undivided interests looks like in #10.
Go to court to partition the land.
Yes, you’ll need to partition the land with legal agreements and documents anyway, but you may actually need to go to court to decide how to partition it.
This can happen if the owners of the land can’t get along.
Do what you can to avoid this, but if you’re in this position, make sure you have good legal counsel on your side.
Again, read more about this process in #10.
10. What is a partition action in real estate?
Above, we suggested that you partition the land through legal agreements and documents.
This is often done when you can agree with your fellow owners about how to use the land.
However, when this isn’t the case, the law offers something called a partition action, which can be brought to subdivide the property into individual shares among owners.
Instead of one person getting the last cupcake, you just cut it in half.
There are two types of partitions: voluntary partition and judicial partition.
Voluntary partitions occur when co-owners voluntarily agree to partition their ownership rights and divide the property.
However, sometimes not everyone agrees, and in this case, one owner may file a lawsuit.
If this occurs, then a judicial (or court-ordered) partition can occur.
It’ll be defended based on various legal principles like statutes of limitations, laches, and public policy.
It may go without saying, but it’s often in your benefit to avoid time and money spent in court.
If you’re able to work it out with co-owners outside of the courtroom, then that’s your best bet.
11. How do legal partitions take place?
If the land in question will be partitioned, it won’t be as simple as snapping your fingers.
Regardless of whether you have a voluntary partition or a judicial partition, the actual way your land is severed can occur by two methods: a partition in kind or a partition by sale.
Here’s what each of those mean:
Partition in kind:
This is known as an “actual partition.”
It severs the individual interest of each joint owner so that each party ends up controlling an individual and divided portion of the property.
This is a great option when parties get along but disagree about the use of the land.
Each person can take the divided land as their own and record that division with the county clerk.
Partition by sale:
This type of partition is known as “licitation” or “succession.”
It is done by selling the entire property and then dividing the proceeds among the owners.
It is often used when partition in kind is difficult to perform or when parties cannot agree.
When this occurs, each party has the opportunity to take their share of the proceeds and put it toward their own separate properties.
Undivided interests in real estate can cause conflict between those you’re closest with, and you want to come out ahead of it.
Don’t hesitate to get legal or financial advisors involved if you’re not sure what the best path forward is.
Also, please share any stories you may have about undivided interest in the comments.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.