How Does The Limited Partnership Protect Personal Liquid Assets?
Right now, if you own any liquid assets (stocks, bonds, cash, brokerage
accounts, checking, savings, CD’s, etc.) in your personal name and
you are sued, you can los every penny. However, if you own these assets
in a Limited Partnership, you can’t lose them. The short answer
for this is that a limited partnership interest cannot be claimed by the
debtor-partner's creditors. The creditor can only obtain a charging
order which entitles the creditor only to whatever profit distributions
are made to the debtor-partner. But this is usually an empty remedy since
few Limited Partnerships make profit distributions when one partner has
a charging order creditor.
What exactly is a charging order? The charging order is a statutory provision
of law under the UPA, ULPA, RULPA, and Revised Uniform Limited Liability
Company Act (RULLCA) which provides a creditor of a company's partner
or owner may attach company distributions made to that individual. However,
this is generally the
only remedy available to the creditor. This is so because it would be unfair
to the other partners – or to the partnership itself – if
a creditor were able to disrupt partnership business. This would harm
the other partners who are not parties to the debt. Consequently, the
charging order does
not allow the creditor to control the entity, attach the entity's assets,
or become a partner or owner of the entity. Of critical importance is
the fact that, since a charging order holder cannot control the entity,
they cannot control its profit distributions. In other words, if the entity
never makes a distribution to the debtor-partner, then the creditor never
receives a distribution. Their charging order then is essentially worthless.
But a note of caution here: It is not a good idea to make distributions
to all partners
except the partner whose interest has been assigned to a creditor via a charging
order. A judge might see this as an overt attempt to thwart the creditor
from receiving his due. In such an instance, it is conceivable that a
judge could view such circumstances as being akin to a fraudulent transfer
which might then lead the court to force a distribution from the entity.
If someone wishes to have distributions made to the other partners or
owners while keeping his distribution out of the hands of his creditors,
then before the creditor threat arises, the partner should place his partnership
interest in another entity that is also protected by the charging order.
The distributions will then be made to the second entity and not to the
There are many other benefits and protections afforded by the Limited Partnership,
and you can easily restructure a Limited Partnership to maximize your
lawsuit protection, minimize estate taxes and achieve other estate planning
Contact The Presser Law Firm, P.A. today for a complimentary preliminary
The Presser Law Firm, P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(561) 953-1050 or e-mail Info@AssetProtectionAttorneys.com