Inheritance, divorce: how to get out of joint ownership

You and your siblings have inherited the family home. You have just been through a divorce and are required to share your assets with your ex-spouse. Some of these assets will be jointly owned, meaning that you will own them with other people. How does this work and how can you get out of this situation? myLIFE has a few tips.

What is joint ownership?

Joint ownership is a legal situation in which several people collectively own one or more assets (the jointly owned property).

In practical terms, this situation may arise, for example, when several heirs inherit the same estate (undivided estate) or in the event of divorce (post-community joint ownership). Until partitioning has taken place, the assets (house, furniture, bank accounts, etc.) are in joint possession. They belong, without distinction, to all beneficiaries, referred to as “joint-owners” (heirs or ex-spouses), who each have rights to the property.

Let’s take the example of Thomas. Following the death of his parents, he and his two brothers inherited a house on the banks of the Moselle. No one brother is the exclusive owner of the property. They are all co-owners of the family home.

This means that they can each benefit from the home, provided that they respect the other co-owners’ rights and the property’s purpose (a residential property cannot be transformed into commercial premises, for example). They will be responsible, collectively, for any related expenses (charges, taxes, etc.), in proportion to the shares they hold in the joint ownership.

NB: if one of the co-owners benefits exclusively from the indivisible property – for example if one of Thomas’ brothers wishes to make the family home his main residence – he will have to pay compensation to the other co-owners.

What are the conditions for managing a jointly owned property?

There are strict rules to adhere to throughout the period of joint ownership. This is especially the case for decisions related to how the jointly owned property is managed.

“Acts of disposal” (sale or gift of the property to a third party) and “acts of administration”, relating to its day-to-day management (taking out home insurance, renewing or terminating a lease, etc.), must thus be agreed upon unanimously.

On the other hand, decisions concerning “acts of conservation” aimed at safeguarding the assets (urgent repair work, payment of charges, etc.), can be taken individually, without the need to obtain the agreement of the other co-owners. Joint ownership funds can be used to cover any costs (if no funds exist, the co-owners may be required to contribute towards any expenses).

If Thomas wishes to rent out the family home (act of administration), for example, or if the youngest sibling plans to sell the property to recover the money from the transaction, they must obtain permission from the other two brothers. If one of the siblings does not agree, the situation will reach a deadlock.

In the case of post-community joint ownership, the same rules apply. A couple who bought a house together find themselves in joint ownership during the divorce proceedings. As the property is owned jointly by both ex-spouses, decisions must be taken jointly (for acts of disposal and administration). This situation may be a source of conflict if the ex-spouses do not get along or if one of them wants to sell the property, while the other wants to keep it.

No one may be forced to remain in joint ownership and partition may always be provoked (…).

How to get out of it

The law specifies that “No one may be forced to remain in joint ownership and partition may always be provoked, unless it has been suspended by judgment or agreement” (Article 815 of the Luxembourg Civil Code).

This means that it is possible to get out of joint ownership at any time and to impose the partition of undivided property, unless agreed or ruled otherwise.

This process can take place out of court (where the co-owners come to an agreement) or by means of legal action. Several solutions are then possible.

• Distribution in kind: the assets are distributed fairly and divided into lots of value equivalent to the rights of each joint owner. If one of them receives a lot of lower value than his rights, he can ask for a balancing payment (a sum of money to compensate for the inequality). In our two previous examples, partition is physically impossible since the indivisible property is a house that cannot be split.
• The sale of the property: all joint owners agree to sell the undivided property and have found common ground regarding its value. The proceeds of the sale will be distributed in proportion to the shares they each hold.
• The sale of a share: when a single co-owner wishes to leave the joint ownership, they can either sell their shares to another co-owner or transfer them to a third party. In the event of sale to a third party, they are obliged to inform the other co-owners of their intention and to specify the conditions of sale (surname, first name and home address of the buyer).

Pre-emptive right: each co-owner can oppose the sale to a third party (to keep the property in the family or to avoid having to manage a property with a foreigner, for example) by exercising their pre-emptive right. The co-owners then have priority during the sale. The offer must however be aligned with that of the buyer, and the sale completed within two months. If several co-owners wish to purchase the share for sale, they can do so according to their respective rights (unless agreed between them).

Useful info: in an international context, the end of joint ownership can also have tax consequences, which can be significant depending on the country in which the property is located or the owners’ place of residence (tax on capital gains, payment of a droit de partage, etc.). This situation varies from country to country and it is important to engage the services of a notary and/or tax lawyer.

When the co-owners fail to agree on the principle of partition or sale and/or on its terms, they will have no choice but to go to court.

How to resolve disagreements

When the co-owners fail to agree on the principle of partition or sale and/or on its terms, they will have no choice but to go to court.

Depending on the situation and subject to conditions, the judge may force joint ownership to be maintained for a limited period or order a partition by sale through a bidding procedure (auction).

At this stage, the co-owners still have the possibility, under certain conditions, to oppose the auction and request a sale by mutual agreement (directly with a buyer).

Useful info: a creditor may also obtain a sale enforced by a court order in the event of debt: on the undivided property (bank mortgage on the divorcing couple’s house) or of an undivided co-owner (if Thomas owes several month’s rent to his landlord, for example). In the latter case, the procedure can be stopped if the debt is reimbursed by the other co-owners.

It is always better to find an amicable solution to get out of joint ownership. Court cases can be lengthy and expensive affairs (costs of lawyers, bailiffs, experts, etc.), and they could jeopardise relations between the co-owners.

As this is a complex topic and there are many possible scenarios of joint ownership, you are strongly advised to contact a notary or a lawyer specialising in this area in order to best protect your interests. These experts will also be able to provide information on the legal and tax implications of your decisions. Good luck!

Our thanks go to Maître Dekhar, solicitor and partner at the firm SD Law, for contributing to this article.