Limited Partnership Pitfalls
Using partnerships for asset protection is complicated and subject to traps. Many people form family limited partnerships for asset protection purposes. Family limited partnerships require a general partner who is liable for partnership obligations whereas limited partners are not liable for acts or debts of the partnership. Wary of naming themselves, individually, as general partner where they could theoretically expose themselves to liability for the partnership, many people create a corporation to be general partner of their family limited partnership. The corporation acts as a shield which protects the client from liability for partnership obligations. In most cases, the client or client and spouse own the stock in the corporation. The problem is that if the client is sued individually, his limited partnership interests are protected from his judgment creditors (charging lien remedy), but his stock in the general partner corporation is fully exposed. The creditor will seize the stock in the general partner; gain control over the partnership; and thereafter, distribute partnership property where it will be seized by the creditor's charging order
A better solution is for the client to serve individually as general partner and then file a Statement of Qualification to make the partnership a limited liability partnership under Florida law.
