Creditor Cannot Reach Assets

Now, let’s see what happens if there is a lawsuit against either Husband or Wife. Assume that Husband is a physician and that there is a malpractice judgment against him for $1 million. The plaintiff in the action is now a judgment creditor, and he will try to collect the $1 million from Husband.

The judgment creditor would like to seize Husband’s bank accounts and investments in order to collect the amount which he is owed. However, he discovers that Husband no longer holds title to any of these assets. In fact, since all of these assets have been transferred to the FLP, the only asset held by Husband is his interest in the FLP. Can the creditor reach into the partnership and seize the investments and bank accounts?

The answer is no. Under the provisions of the Uniform Limited Partnership Act, a creditor of a partner cannot reach into the partnership and take specific partnership assets. The creditor has no rights to any property which is held by the partnership. Since title to the assets is in the name of the partnership and it is the Husband partner rather than the partnership which is liable for the debt, partnership assets may not be taken to satisfy the judgment. For example, California Corporations Code Section 15907.03 (f) states this clearly:

No creditor of a partner shall have any right to obtain possession or otherwise exercise legal or equitable remedies with respect to the property of the limited partnership.

It is important to note however that a charging order or a foreclosure of a partner’s interest in the partnership may be an equally powerful remedy of a creditor.

Fore more details see Foreclosure of FLP Interest