Target layer: Polygon

Description: Drag a selection box. All polygons intersected by the box will be analyzed for overlaps and if present the overlaps will be converted into new polygons. 

Advantages: 

• Removes some topological problems from a polygon dataset 
• The license of ArcGIS does not matter (ArcView is good enough)

Attribute Updates: The attributes of the original polylines are preserved. The attribute values for the overlap polygons will be empty.

Notes:

• Use the Draw Overlaps tools beforehand to visualize the overlaps beforehand, then clean overlaps for the problem areas only.
• Since ArcGIS (all current versions) has problems with overlay operations performed on polygons defined with true arcs, internal ArcGIS errors might occur if there are true arcs polygons in the dataset.
• To improve the performance of the tool, apply it on small portions of your data (about 500 polygons) at a time.
• If there are multiple overlapping polygons at the same location, the function might go through several iterations.

Example:  

Before

Draw Overlaps

After Clean Overlaps