Thoughts On Partnership Asset Protecton
There is confusion among clients and attorneys regarding asset protection of a general partnership interest. A limited partner's interest in a limited partnership is shielded from creditors by virtue of the limited creditor remedy afforded by Florida statutes. The statutes provide that the creditor of a limited partner can get only a charging lien against distributions of cash, if any, which the general partner makes to the limited partners. There is widespread agreement and understanding that in a general partnership, where all partners are general partners and equally liable for partnership debts, the charging lien restriction does not apply. The Florida statutes do not limit a creditor of a partner in a general partnership to a charging lien, and court decisions have permitted a creditor to seize and foreclose a partner's interest in a general partner. What seems to be misunderstood and subject of disagreement is the right of a creditor of the general partner in a limited partnership. Is this interest treated as a general partnership interest or a limited partnerships interest with charging lien protection. Upon researching the issue, I believe that the interest of a general partner in a limited partnership enjoys the same protection afforded to the interest of the limited partners, that is, the charging lien is the creditors only collection remedy. Here's why:
The Florida Limited Partnership Act (FLPA) states that the creditor of a "partner" can get nothing more than a charging lien against the partner's interest in the partnership. The same Act defines a "Partner" as "a limited partner or a general partner." One of the leading cases on partnership protection, the Givens case from the Fifth District Court of Appeals in 1999, discusses the charging lien remedy as applicable to limited partnerships (not limited partners), and the court said that general partnerships (not general partners) do not have the same asset protection status. Therefore, both the express provisions of the FLPA and applicable case law suggests that it is the nature of the partnership itself and not the nature of the partnership interest which determines the creditor's remedy.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
