Friday, October 09, 2009

Disposition of Partnership Property that Isn't in the Name of the Partnership

A recent case from the Iowa Court of Appeals helps illustrate the importance of putting business matters in writing. In the Matter of the Estate of John Liike, John and his brother had inherited some land from their parent and had operated the land as part of a partnership for several years. The land was never actually placed in the name of the partnership, but kept in their individual names as tenants-in-common. Eventually, they entered into a written partnership agreement which provided that when one of them died, the other partner would have the option of purchasing the partnership property. No changes were made to the title of the land.

After John died, John's widow and John's brother did not see eye-to-eye, with each wanting John's one-half interest in the farmland. The trial court found, and the Iowa Court of Appeals affirmed, that even though the land was not titled in the name of the partnership, the facts and circumstances clearly found that the land was meant to be partnership property and permitted John to purchase the land from the estate.

What does this mean? As a result, John's brother will be able to keep the farm that he inherited and he is not forced to split the farm with his sister-in-law or forced into some business relationship with her. Message to others? Formalize your business arrangements by putting your affairs in writing and establishing what happens in the event of your death. The Liike brothers did some written planning, but a little more thorough planning may have avoided this costly lawsuit.

Aren't families grand?

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