Last month, in McGoldrick v. Murphy, 2020 Pa. Super. LEXIS 79 (Feb. 6, 2020), the Pennsylvania Superior Court addressed how sale proceeds from the former personal residence of a separated unmarried couple should be distributed between them.

In McGoldrick, Megan Murphy and Joseph McGoldrick, a couple engaged to be married at the time, purchased a home together in Royersford, Pennsylvania, the opinion said.

According to the opinion, since McGoldrick had the financial wherewithal to close on the home and Murphy was more creditworthy than McGoldrick, they agreed that McGoldrick would withdraw the needed money from his retirement fund to purchase the home and Murphy would solely enter into the mortgage note.

Prior to closing, McGoldrick separately withdrew $5,000 and $47,000 from his retirement account that was applied to the home purchase, the opinion said.

As part of the mortgage loan application, Murphy's bank required McGoldrick and her to execute a gift letter to document the source of each payment he made to her and to verify that her receipt of these payments constituted a gift to be applied toward the home purchase and should not constitute a loan between them, the opinion said.

In the gift letters, McGoldrick confirmed that his relationship to Murphy as "fiancé" and that the payments should be deemed a "gift is to be applied toward the purchase of the home" and that "no repayment of the gift is expected or implied in the form of cash or by future services of the recipient," the opinion said.

After the home purchase, they began sharing all home-related expenses. Murphy ultimately ended her engagement to McGoldrick and moved out of the home but continued to pay all home-related expenses.

McGoldrick then filed an action for partition with the Common Pleas Court in order to compel a sale of the home.

Soon thereafter, the parties entered into a stipulated court order specifically providing that they "expressed their agreement to list the home for sale and further agree that the proceeds of the sale shall be placed in escrow with the title company" and "absent an agreement between the parties, the trial court shall be notified upon the sale of the home at which time chambers shall promptly schedule this matter for a one-hour hearing to address division of assets."

After the home sold, the sale proceeds were placed in escrow, the opinion said.

As the parties could not agree on the division of the sale proceeds, the trial court held the agreed-upon hearing.

After the hearing took place, the trial court entered an order dividing the sale proceeds by awarding a sum equal to half of the money Murphy paid on home-related expenses in excess of what McGoldrick did to her and a sum to McGoldrick for the remaining sale proceeds to account for the gifts he made to her when they initially purchased the home together.

Murphy appealed the trial court's ruling to the Superior Court.

Murphy first questioned whether the stipulated court order should ultimately have been interpreted as an order of partition requiring an equal distribution of the proceeds received from the sale of the home, subject to an equitable adjustment in her favor based upon her overpayment of the home-related expenses.

As noted by the Superior Court in McGoldrick, Rules 1551 through 1574 of the Pennsylvania Rules of Civil Procedure govern "the procedure in an action for the partition of real estate."

In Pennsylvania, the Superior Court in McGoldrick noted that the Pennsylvania Rules of Civil Procedure are split into two, distinct parts—Rules 1551 through 1557 (Part 1) and Rules 1558 through 1574 (Part 2).

Under Part 1, the trial court must ascertain whether the parties jointly own the real estate in question and, if so, what fractional legal interests in the property does each party hold.

Rule 1557 dictates that "the trial court shall enter an order directing partition that shall set forth the names of all the co-tenants and the nature and extent of their interests in the property" and "no exceptions may be filed to an order directing partition."

After an order of partition under Part 1 has been issued, under Rule 1570, the trial court may "divide the partitioned property among the parties, force one or more of the parties to sell their interest in the land to one or more of the parties, or sell the land to the general public and distribute the proceeds among the parties."

Murphy contended that the stipulated court order that "memorialized the parties' agreement regarding the sale of the home and the distribution of the sale proceeds followed by the actual sale of the home abrogated the need to record a Part 1 partition order, but nevertheless served the purpose of a Part 1 partition order."

Once the sale occurred, Murphy argued that "the joint tenancy was terminated … and the proceeds turned into a tenancy in common—the same result as a recorded Part 1 order."

Murphy then stated the hearing which occurred afterward "constituted the Part 2 hearing where the parties presented 'evidence of monetary contributions as set-offs toward owelty.'"

In doing so, Murphy sought one-half of the sale proceeds plus a sum equal to the overpayment of home-related expenses that she was already awarded by the trial court.

The Superior Court in McGoldrick flatly rejected Murphy's argument.

In essence, the Superior Court in McGoldrick concluded that the parties preempted the issuance of a Part 1 order by agreeing "to sell the home and, if need be, allow the trial court to divide the sale proceeds, which the agreement was memorialized in the court order."

According to the Superior Court in McGoldrick, "when the home sold, Murphy and McGoldrick no longer had legal interests in the home" and "consequently, and despite Murphy's insistence to the contrary, at the time of the sale, the procedural rules, as well as the case law, that govern an action for the partition of real estate ceased to apply simply because the sale of the home extinguished the parties' legal interests and there was no longer any real estate to partition."

"Murphy next claimed that the trial court erred when it concluded that the $52,000 McGoldrick contributed to purchase the home was a conditional gift in contemplation of marriage because the plain language of the gift letters executed by the parties constituted an express waiver of repayment that trumps case law on conditional gifting."

In Pennsylvania, gifts made in contemplation of marriage must be returned to the donor regardless of who was at fault for ending the relationship, as reiterated by another panel of the Superior Court in Nicholson v. Johnston, 855 A.2d 97 (Pa. Super. 2004).

Murphy nonetheless asserted that the execution of the gift letters issued by McGoldrick when Murphy applied for and obtained a mortgage loan in connection with the purchase of the home constituted a waiver by McGoldrick that his gift of $52,000 toward the purchase of the home was conditioned on marriage because the gift letters that they signed state that "no repayment is expected or implied."

The Superior Court in McGoldrick was unpersuaded by this assertion and instead emphasized that McGoldrick made "the $52,000 gift for the purpose of purchasing a marital residence for them to live in as husband and wife and the gift letters were necessary to achieve that purpose and did not extinguish the condition upon which the gift was given—the occurrence of marriage."

Lessons Learned

The underlying circumstances encountered by the litigants in McGoldrick are not too uncommon. Nowadays, many individuals who are romantically involved purchase homes together before they are married. When the relationship sours before they ever marry, they suddenly face the prospect of a real estate divorce (i.e., a partition action).

In order to avoid the outcome of the litigants in McGoldrick, the unmarried couple should seriously consider entering into a written agreement setting forth how monies used for their home purchase would be accounted for at the time of separation and the responsibilities of the parties for home-related expenses while they are residing at the home together.

Alan Nochumson is the sole shareholder of Nochumson P.C., where his law firm's primary practice areas consist of real estate, litigation, land use and zoning, business formation and general counseling and appellate advocacy. He is also president of Bear Abstract Services, where his title insurance company offers comprehensive title insurance, title examination and closing services. He can be reached at 215-399-1346 or [email protected].