Judgment And Partnerships

August 11, 2023


What if your judgment debtor owns part of a property, business, or some other asset in a 50/50 general partnership with someone else? How can you get to the debtor’s share of that asset to recover your judgment?

One of many judgment articles: I am a judgment broker, not a lawyer, and this article is my opinion based on my experience, please consult with a lawyer if you need legal advice.

Unless your judgment is against the partnership itself (a partnership debt), the exclusive remedy for recovering the debtor’s share from the partnership is a charging order against only the debtor’s rights and interests in the partnership.

Usually, the relationship among the partners in a partnership, is governed by a partnership agreement. Partnership agreements are usually in written form, however may be verbal or implied. Partnerships may be formed for almost any reason to conduct any type of business.

Each state (In California, Corporation Code 16403) has laws and restrictions on partnerships. A typical law is that partnership agreements must be fair, and may not be restricted from any partner, etc. Without a legal written partnership agreement, legal statutes theoretically govern partnerships.

Usually, a partnership authority is filed by at least two of the partners with the secretary of state. A statement of partnership authority should contain the following:

1) The name of the partnership.

2) The street address of the headquarters, and also the office within the state, if any.

3) The names and addresses of all partners; or agents appointed by the partners to enter into transactions, sign documents, etc.

4) The name and address of partners authorized to execute transfers of real property on behalf of the partnership.

5) The authority, or limits on authority, of some or all of the partners to enter into transactions on behalf of the partnership.

6) The agent for service of legal process. The agent must reside in the same state as the partnership itself. In California, this is covered by corporation code 1505.

Generally, all partners are jointly and severally liable for the partnership’s obligations. Partnerships are liable for the debts the partners incur while running the partnership, but not any personal debts.

In California, and almost every state, charging orders are the only remedy for judgment creditors to attempt to go after their debtor’s interests or revenues (or liabilities) from their partnership interests.

For those with a judgment, it might be worth investigating the timeline of when the partnership was formed, relative to the judgment and cause of action for the judgment. To unravel a partnership formed for the purpose of thwarting a creditor requires an expensive court battle.

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