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Litigation Issues Associated with Family Limited Partnerships

As the family limited partnership gains popularity as an effective business vehicle for the reduction of transfer taxes and the protection of assets, high net worth individuals and business owners will continue to use the business structure for their business organization.

The family limited partnership is not without its drawbacks, however. In fact, if the family limited partnership is not structured properly, or the business organization is hastily created, nasty and contentious litigation can result.

Common Causes of Family Limited Partnership Lawsuits

Family limited partnership lawsuits often occur as a result of personality conflicts between the family members involved. In some cases, the family member who started the business or earned the money will feel entitled to additional control over the family limited partnership’s assets. In other situations, sibling rivalry can lead to disagreements regarding control, investments, and other business decisions.

The allegations involved in family limited partnership litigation can run the gamut, but some causes of action and allegations are more common than others. Some of the more common business disputes associated with family limited partnerships include allegations of:

  • Lack of mental capacity. A person must be able to appreciate the effect of the business transaction and understand the nature of the business transaction in order to have the necessary mental capacity to enter into the family limited partnership.

  • Undue influence

  • Duress

  • Fraud and misrepresentation

  • Mistake. In some cases, a mutual mistake of fact may be asserted to rescind an agreement, including a family limited partnership.

  • Invalid contract. If the documents effectuating the family limited partnership are too complicated for the individuals to understand, a party might dispute the contract as invalid.

  • Breach of fiduciary duty. Fiduciary obligations associated with investments in a family limited partnership can include the duty of loyalty, the duty of disclosure, the duty to avoid self-dealing, the duty to avoid conflicts of interest, and the duty to diversify investments.

With offices in the Oak Brook area in Elmhurst and in Wilmette and Chicago, the business litigation law firm of Lubin Austermuehle focuses on representing clients with a wide array of business litigation, including litigation involving family limited partnerships. We will conduct a thorough review of the facts and circumstances surrounding your dispute in order to develop a sound legal strategy.

In order to provide our clients with the most effective legal advice, we are equipped to call on the services of forensic accountants, certified fraud examiners, and business valuation experts, to evaluate your family limited partnership dispute.

If you are involved in a family limited partnership dispute, the Chicago business litigation lawyers at Lubin Austermuehle have the skill, knowledge, and experience you can trust. Contact us today at 630-333-0333 to discuss your family limited partnership lawsuit.


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