The only way I found to stop iframe from eating the mouseup event is to hide the iframe when the mousedown event is fired on the splitter.
This removes the issue completely, but i'm not satisfied with this answer.
see the working example in jsfiddle
HTML
<div id="container">
<div id="top">
<iframe class="col-md-12" id="player" frameborder="0" allowfullscreen="1" title="YouTube video player" width="200" height="100" src="https://www.youtube.com/embed/OnoNITE-CLc? enablejsapi=1&origin=http%3A%2F%2Flocalhost%3A8000"></iframe>
</div>
<div id="drag"></div>
<div id="bottom"></div>
</div>
CSS
#container {
width:200px;
height:500px;
}
#top {
height: 50%;
width: 100%;
background-color: green;
}
#bottom {
height: 50%;
width: 100%;
background-color: blue;
}
#drag {
height:10px;
width:100%;
background-color: grey;
cursor: row-resize;
}
JS
$("#drag").mousedown( function (e) {
$("#player").hide();
$(document).mousemove( function (e) {
newHeight = e.clientY
$("#top").height(newHeight);
$("#bottom").height($("#container").height() - newHeight);
return false;
});
$(document).mouseup( function (e) {
$("#player").show();
$(document).unbind();
});
});