We Just Inherited the Family Cabin. How Ugly Can it Get if Someone Wants Out?

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Siblings inheriting the family cabin tend to do things informally together. Siblings also can make promises to each other that they may not be able to stick to later. One such promise is, “If I ever want out of cabin ownership, I will leave the ownership without compensation.”  Sadly, a well-intended handshake plan to have others exit ownership without paying them is unrealistic. Invariably, this solemn promise is broken later on. Things can get very ugly at that point.

One reason things can get ugly is that Wisconsin real estate law empowers the lone wolf against the wishes of the pack. When two or more people own real estate under a deed they are said to have “concurrent ownership.”  A popular form of concurrent ownership is as “tenants in common.”  You would need to review your deed to determine if you are in that boat. If you are in a tenancy in common, you are in a position right now that could lead to an expensive mess. The reason is that any one of the tenants in common holds a legal right called the “right to partition.”  The right to partition allows one owner to sell the property out from under the others.

Here is an example of what might occur: Imagine that four siblings own a cabin up north together.  They plan to enjoy the property together. They proceed to do this for quite a few years. One sibling hits on hard times. He is in need of money and realizes that his share of the cabin is the last valuable asset he possesses. With reluctance, he asks the others to buy him out for the fair market of his share of the property. The other two owners say no because you agreed verbally that you would not do that.  This rejected sibling then seeks the advice of a real estate attorney who describes the right to partition to him. The sibling, feeling he is cornered, files suit to partition the real estate. The judge rules that the land cannot be physically divided into many parcels and orders the land sold to satisfy the one sibling’s right to partition the land. The remaining siblings are stunned when they have to sell the cabin against their will or buy the other sibling out at fair market value.

A good cabin plan will allow family members to gracefully exit on terms that permit the rest of the family to afford to keep the property.  One way to approach the issue of buy-outs is to consider placing the land into a limited liability company or “LLC” owned by all of the current owners listed on the deed. This approach is used regularly for family cabins in Wisconsin as a way to cover issues such as the buy-out of a family member who wants out or to plan for successive generations owning a family parcel. A prime reason for creating a land LLC is to prevent any co-owner from forcing a sale by filing a partition lawsuit like the example stated above.

A carefully drafted LLC can be used to establish a reasonable value for any buy-out and a reasonable value would not be zero. Still, discounts on the fair market value of the seller’s interest in the LLC are often used to help maintain the family ownership of the property on a buyout.

You should not hesitate to contact a qualified attorney for answers on this cabin law issue.

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4 Responses

  1. Linda barnes says:

    Cabin law to buy out sibling. It was inherited in 2007. Sib wants out.

  2. Walter Shannon says:

    Hi Linda.

    Do not hesitate to give me a call if you have questions. Always good to review options when a sibling wants out.

    All my best.

    Walter Shannon

  3. Gail Combs says:

    Forming an LLC is just a creepy, cheap way to NEVER have to buy out a sibling, which to me, sounds very greedy and unfair, especially since some siblings are so pushy and demanding, that they nearly force a sibling to want out.
    EXAMPLE: If 4 siblings own a cabin worth $100,000, the 3 left who remain can split up the buyout. Each of them would only have to pay a buyout sum of $8,333 apiece. Not bad. If the remaining 3 are unwilling to make monthly payments to the “out” sibling, nor are willing to take a loan out to pay him/her, well sorry, then I think you ought to sell the cabin.

    • Walter Shannon says:

      Hi Gail.

      Thank you for your comment. You are absolutely correct that some LLC cabin agreements are unfair to the departing member. When it comes to buyout of a member wanting out, many agreements just set a lump sum amount in them. What might have seemed like a fair amount to pay a departing member in 1982 is not a fair amount to pay in 2017. It is better to have an appraisal or some other cost of living increase in any valuation used for buyouts.

      It is important that the folks consider all sides when drafting the agreement language used for the member’s departure. We see discounts used for buyouts (depending on the goal of the family…some want to make it more likely that he cabin stays in the family rather than have one member force a sale because they cannot afford to pay the departing members) …. but we advise against anything like what you experienced in your example.

      It is all in the agreement language my friend.

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