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 individual directly.
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 objectives.
Contact The Presser Law Firm, P.A. today for a complimentary preliminary consultation.
The Presser Law Firm, P.A.
6199 N. Federal Highway, Boca Raton FL 33487
(561) 953-1050 or e-mail Info@AssetProtectionAttorneys.com