Family Settlement for Property Disputes – Part II

Family Settlement for Property Disputes – Part II

Irrespective of the social or economic status of families, disputes over property are common. Most people prefer rushing to court rather than making efforts to solve these issues in amicable manners. Family settlement on the property is more advisable and definitely a better way to resolve these issues.

Read: Family settlement for property disputes in India – Part I

This process involves a logical and peaceful adjustment that members of a family make so that they may avoid court cases. This could be related to both property and movable assets.

How does the Legal settlement on property in India work?

  • Now, before a case is filed in court for property partition, a legal notice has to be sent to the other co-owners of the property regarding family property partition/settlement.
  • The statutory notice for partition action must declare the shares of each co-owner, complete details of the property in dispute and the requisite action required to be taken.
  • If there is no reply from the co-owners or the response is insufficient, legal notice or a partition suit can be filed in the court.
  • A partition case is filed when none of the co-owners agrees to the terms and conditions of property partition, and one or more co-owners wish to distribute the property as per their shares.
  • A suit for partition is filed in that court which has jurisdiction over that area where the property is.
  • The court first decides whether the person who has filed the partition suit has a rightful claim in the property or not.
  • When the share is confirmed, no additional inquiry is required and the court then assigns individual ownership of the property to the rightful owners.
  • If the property fails to be distributed on the partition suit, the court can call for interrogation and give a preliminary decision for electing a commissioner who will then assess the property and submit a report.
  • The court after that decides the share of each co-owner by the given report and divides the property as per the share of each co-owner.

What are the legal requirements of family settlement on property?

  • Few legal formalities must be performed to ensure that the agreement is valid.
  • The settlement document has to have signatures of all the family members.
  • A single signature missing can become ground for disputing the document in court at a later date.
  • The document can be attested by two witnesses, though it is not mandatory.
  • The next step is to register the agreement.
  • The Indian Registration Act, Section- 17 a family settlement that implies to assign immovable property must be mandatorily registered, or the deed would be invalid.
  • Stamp duty applies to such deeds, and the amount would depend on the value of the property involved.

Partition of Property Amongst Family Members

Partition of Property Amongst Family Members

Ever since the beginning of time, the property is deemed to be a mark of high economic status. Numerous displays of family disputes over property in movies and novels, only go on to prove this point. The partition of property amongst family members may be:

Contested – In this case, a lawsuit may be filed in the court, and the decree passed by the court on the basis of the inheritance document or facts of the case, will be binding.

Uncontested – In this case, the following may be drafted:

Partition Deed – It allows a joint division of the family property, amongst its members, as per the law applicable to them, so that each member becomes an owner of the share allotted to him.

Family Settlement – It does not require registration and stamping like a partition deed, however, as per Halsbury’s Laws of England- It is an agreement of compromising the doubtful or disputed property rights and avoiding litigation to save the family honour. In Lala Khunni Lal v. Kuwar Gobind, the Privy Council held that courts must give full force to family settlements, which are bona fide and without fraud.

Advantages of family settlements

  • Capital Gains tax does not arise because such transaction is not treated as a transfer.
  • Clubbing provisions of land will not be applicable on the same.
  • There is equitable distribution of property, rather than claiming as per laws applicable.
  • Registration of oral agreements is not necessary.

Essentials for family settlements

Registration is necessary when you are doing partition of property amongst family members where the terms of the family settlement are reduced to writing, and any unregistered document shall not be admissible as evidence in the court. However, there is a difference between the document containing terms and recitals of the family settlement and a memorandum prepared for the purpose of record or information of the court for making necessary mutation.

Features of the divided property

  • It acquires a new title and each owner gives up his interest in the share of the co-owners.
  • Each owner may sell, transfer, exchange or gift his property as its absolute owner.
  • The property in share is inheritable.
  • If an NRI or Person of Indian Origin (PIO) inherits such property, wealth tax will not be attracted to it.
  • If the division is done by way of a partition deed, it is necessary to register it in the office of the sub-registrar, as it creates new owners of the property. The deed should also contain the date from when the partition is effective and names of parties with respective shares.

Not everything is shared so easily – Especially not property!

shared ownership of property in India

The need for legally entering into a Partition suite arises when there has to be a distribution of shared ownership of property among the potential shareholders, whether they are family members and relatives.

A partition, by simple definition, is a division of assets owned collectively by either family members or relatives so that each person gets a share and becomes the owner of the share. The division is done as per the shares to which each of the members is authorized according to law. While undergoing the same, keep in mind the following aspects:

When shared ownership of property is in family members/relatives 

The partition can be performed by mutual consent or via court:

Property Dispute and Family Settlement

  • If division is opted by mutual consent, it is executed by the family/relatives themselves. It is to be noted that the act of division should be registered at the office of the sub-registrar of the place where the estate is located. More than one person may jointly own the assets.
  • The mode of partition is different when the division of shared ownership of property is not desired by all and only one or more of the members want the estate to be distributed. In such a scenario the suit is filed in the appropriate court of law. The deed must be executed on a stamp paper and drafted clearly and explicitly. The share of each person should also be mentioned specifically.

Explicit Partition Deed:

  • A partition deed makes new owners of the assets, and it should be listed at the sub registrar’s office to make it legal and obligatory.
  • The deed must mention the date from which the distribution is potent.
  • The names of the people of the family and relatives with their respective shares should be explicitly declared.

Distributed assets get a new ownership:

  • The shared ownership of property is distributed as decided and each share is subject to a new ownership.
  • Each shareholder gives up his/her interest in the property in favor of other shareholders.
  • Therefore, a division is an aggregate of surrender and transfer of individual rights in the estate.
  • The transferee can deal with the assets in any way he/she shall desire. It can be sold, transferred, exchanged, gifted, etc. by the individual just as an absolute owner would.

Inheritance law plays a significant role in the Partition of Asset:

  • Different rules can be applied for separation of belongings.
  • However, distribution of shared ownership of property is also subject to the laws of inheritance applicable to a particular person.

In this competitive world, everyone wants individual ownership of everything one owns. With increasing nuclear families, the trend of shared ownership is gradually disappearing. The distribution of any property, whether among co-owners or family members, can be done either by gaining mutual consent or by filing a case in an appropriate court. It is, however, preferred to solve such matters mutually without dragging the case to the court of law.