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Gold v. Ringel

A-3318-01T3 (N.J. Super. App. Div. 2003) (Unpublished)

PARTITION; PARTNERSHIPS—In partitioning property, a court should take tax consequences into account, but should not confuse one party’s emotional attachment to a property with the interests of the public or of the community surrounding the property to be partitioned.

Two men were involved in a pair of partnerships. Their relationship was contentious and, in a much earlier case, one of them sued the other to partition the assets of one partnership. In response, the second partner sought to partition the assets of the other partnership. In that much earlier matter, the court refused to permit joinder of the actions. The first partition action was tried to conclusion and its resolution resulted in one of the partners receiving one of the partnership’s real properties and cash. The receipt of cash triggered a capital gains tax for that partner, while the other partner, who received no cash, “incurred no tax liability as a result of the partition.” The partner with the tax bill appealed, “contending that the assets of both partnerships ... should have been partitioned in one action.” When that claim reached the Appellate Division in that earlier action, it was ruled that two separate partitions were appropriate.

Thereafter, the second partition action was tried and the Court awarded the property to the partner who had not borne any tax liability in the first action, giving him a period of time in which to buy out the other partner’s interest. In doing so, it “noted that managing the shopping center was a major part of [the life of the partner who was given the right to buy the shopping center] and that his management style would ‘better serve the tenants, the customers and the community-at-large.’” The partner who was ordered to sell the shopping center appealed, “contending that it was fundamentally unfair to permit [his partner] to receive in-kind distributions in both partition actions while shouldering him with the tax burdens associated with the receipt of cash.” In that earlier action, the Appellate Division reversed, “concluding that to the extent possible ‘[the partner with the initial tax burden] was entitled to receive a distribution in kind that will leave him as nearly as possible, in the same position as if the properties of both partnerships had been partitioned in a single proceeding.’” Also, in that earlier action, the Court “noted that the tax implications of the manner of partition were an appropriate factor to be considered in determining an appropriate technique” and “expressed the view that [the partner with the] emotional attachment to the shopping center was ‘entitled to little weight’ in light of the fact that [the shopping center] had been ‘acquired for investment and operated for the profits of the partners.’” At that point, the matter was remanded to the lower court for further proceedings.

In those further proceedings, the lower court ruled that the partner who had borne the tax burden in the partition action dealing with the other partnership should receive a cash payment representing half of the stipulated value of the shopping center, plus an adjustment for tax liability. The matter then returned to the Appellate Division for the case in hand. The Court acknowledged “the extraordinary lengths to which the trial court went in its efforts to achieve economic fairness to the parties.” Nonetheless, it felt that the lower court misunderstood the distinction between considering a party’s “emotional attachment” to a property and the weight that should be given to the benefit of tenants and the community. The partner who had not originally borne the tax burden had been managing the shopping center. The other partner had no interest in managing the shopping center. Apparently, he “was more interested in seeing that [his partner] did not own the shopping than he was in owning it himself.” This struck the Court “as anomalous that, in attempting to be fair, a court of equity [] unwittingly furthered such an inappropriate motive of spite.” Further, the Appellate Division would not disregard the fact that the shopping center adjoined the apartment complex that had been previously distributed to the partner who had been denied ownership of the shopping center by the lower court. It struck the Appellate Division that a decline in the condition of the shopping center under the hands of the “spiteful” partner could “adversely affect the value of the adjoining apartment complex.” Given that the partners had not spoken directly to one another for 25 years and had been engaged in litigation for more than 23 years, the Appellate Division thought that it would be “more desirable to have the parcels owned by the same individual.” While the Appellate Division was “most reluctant to reverse,” it did so. It remanded the lower court’s decision and ordered the lower court to calculate an appropriate price for the shopping center and award the shopping center to the partner who had managed it even though he had not incurred any tax burden in the earlier partition action.

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