I have to side with the paladin, the weapon is evil and must be destroyed, it has proven how evil it is by clearly effecting the weak moral characters and breaking the group apart.
Does the party have a contract on how goods are to be broken up, did the party say all items found will be put into a pot, sold and gold be handed out? I don't know why so many DMs do not ask for this? No! Who kill the minotaur, it is his by right of combat? If that character does not want the item it goes into the pot, if another character wants the item he gives up his share of the pot for it.
If the paladin (player) agreed to a contract he is bound by his word/code/oath to sell the item. It would then be up to him to purchase the item and have it destroyed.
If I was N or CN in the party I would agree with the paladin and then sell it and not tell the paladin. Just saying it was done away with.
House rule in my game is that it is against the law to sell known evil weapons.
Does the party have a contract on how goods are to be broken up, did the party say all items found will be put into a pot, sold and gold be handed out? I don't know why so many DMs do not ask for this? No! Who kill the minotaur, it is his by right of combat? If that character does not want the item it goes into the pot, if another character wants the item he gives up his share of the pot for it.
If the paladin (player) agreed to a contract he is bound by his word/code/oath to sell the item. It would then be up to him to purchase the item and have it destroyed.
If I was N or CN in the party I would agree with the paladin and then sell it and not tell the paladin. Just saying it was done away with.

House rule in my game is that it is against the law to sell known evil weapons.