Often, business partnerships will include real estate among their assets. Perhaps you and your business partners own a commercial building in which your business is conducted. Perhaps you have purchased investment properties as part of your business plan. Perhaps you are holding a piece of real estate in reserve for future development. Such real properties will prove priceless to your partnership during your time working together. They will prove a nightmare when your working relationship ends. While other assets, such as inventory, can simply be divided among you and your business partners or inventory can be divided such as office equipment, in reality, real property will not split so nicely. A partition action Florida law will allow when you and your business partners have not been able to come to a mutually beneficial solution in dividing your ownership in a piece of realty.
The Valuation Problem
“Value of property” is a point of contention that ends more partnerships in a split-up than any other matter. Your partner thinks your joint building is worth $2 million. You think it is worth $3 million. A 50 percent difference in evaluation will not work since neither side will accommodate the other in a buyout. Early in your split-up, have an objective evaluation by using an independent appraiser. Use a reputable MAI certified Florida partition action appraiser with experience in your type of property. Share equally in payment of this evaluation cost. Beforehand, come to an agreement that both sides will abide by this evaluation in a buyout or settlement.
Organizing Feasible Buy
A problem can arise when one side elects to keep an interest in realty, and another side wants cash. Structured buys can offer solutions under such circumstances. The side retaining an interest in realty can elect to purchase an interest in the business from the other side, but payment terms can make it possible when cash is not immediately available. Seller financing gives the other side an option to repay over time rather than being forced to deliver cash immediately when closing a transaction. They are, in essence, creating a loan secured by a piece of realty and will receive a payment each month with interest over a series of years.
Tax Consequences
There are tax consequences. A dissolution of business partnerships with real estate investments leads to taxation implications which can significantly impact net gains for each partner. A transfer of such real estate among partners can be considered a taxable sale resulting in immediate capital gains tax liability. Alternatively, a transfer can be taxed in a tax deferred manner if certain conditions are met. The definitive tax treatment will depend on your partnership type under tax laws, time you have had ownership of such real estate, individual tax circumstances for each partner, and taxes being deferred based on how you can structure your dissolution of partnership. Engage a certified public accountant or tax attorney before making a final decision in a dissolution of a partnership . The impact of taxable treatment over a tax deferred treatment can make a critical difference in savings of tens or hundred thousands of dollars based on the fair market value of such real estate and tax rates applicable to each such partner.
Partnership Debt Complications
Real estate partnerships frequently have mortgages or other secured debt obligations with respect to the properties within a partnership. Such debt makes it very complicated to liquidate a partnership because debt obligations will take precedence over a partnership agreement. A person can’t simply transfer ownership of an asset if such transfer is not permitted under a debt obligation. Look over all debt obligations very closely to see which obligations you have and aren’t permitted to fulfill. A due on a sale clause is standard in most mortgages used in commercial enterprises. Such a clause gives a mortgage holder the right to demand immediate payment if an ownership transfer takes place. A mortgage holder would allow an ownership transfer if a new owner is creditworthy, but approval must be in writing.
Accounting for Unequal Contributions
A capital account of a partnership calculates each of the partners’ capital accounts based on their contribution to capital, their share of profit/loss allocated to them, and any withdrawals they have made over a period of time.
A capital account imbalance among partners may affect how the properties are to be divided. Where one capital account balance is greatly different from another, a one-sided division of properties may be necessary. One may end up getting more valuable properties or cash consideration in order to equalize the division, based on a capital account imbalance. Failure to take into consideration a capital account imbalance and simply dividing properties based on ownership percentage can be cheating for one in a partnership. Capital accounts will be considered by a court where a disagreement arises during a split-up of a partnership.
Third Party Sales as Clean Breaks
In some cases, the most direct way to resolve a dissolutioning a partnership is by selling all realty properties to third parties and dividing the money accordingly. Here, since a market with complete openness determines exactly how much everything is really worth, issues of valuing everything precisely will not arise at all. It will further benefit both partners by providing them with money they can all invest in their personal companies without any constraint in the future. A major drawback to this methodology is taking a very long time to complete a sale.
Conclusion
Although all attempts at negotiating and coming to a consensus have not worked, in some cases, dissolution of a partnership or a partition action in Florida can simply not be achieved. Should your business partner be unwilling to work with you in a mutually amicable way, if they have a demand which is simply unreasonable and can never have been meant seriously, or if they have violated their fiduciary obligation to your partnership, you may have to resort to a lawsuit in order to look after your own ends. A partition lawsuit will allow co-owners to allow a division of properties in a court setting if dissolution of a partnership fails completely. Florida judges have wide powers in regards to dividing properties for sale, transferring all property ownership to one side if they award ownership to one side, or partitioning a piece of land if it can be done.
