Dissociation

What it means

Families expect a partner's death to end a partnership. Under the uniform act most states have adopted it usually does not. The partner is dissociated, the partnership carries on, and the partnership is obliged to buy the departed partner's interest out.

The list of events causing it is longer than death. Withdrawal, expulsion under the agreement, bankruptcy, and — the one nobody plans for — the appointment of a guardian or conservator, or a judicial finding that the partner can no longer perform their duties, all produce dissociation on the same footing.

That last group matters because a family can trigger it themselves. Seeking a conservatorship for a partner who is losing capacity is often the right thing to do for their welfare and is simultaneously the event that ends their partnership.

A change of executor or of trustee is expressly not one of the events. What dissociates an estate holding an interest is distributing that interest, not substituting the person who holds it.

Why it matters

It is the difference between inheriting a business and inheriting a claim for the value of a share in one, which is usually what actually happens.

It also puts a date on everything: the buyout price is measured as at the date of dissociation, so the date matters as much as the amount.

When you are likely to meet it

• When a partner dies and the surviving partners keep trading.
• When a conservatorship is being considered for somebody who is still a partner.
• When an estate is told it holds a right to be paid rather than a share of a business.

How this varies by state

Nearly every state has enacted a version of the uniform partnership act. Which events the agreement adds, and what it may change, is set by the agreement within limits the state sets.

Related terms

• ConservatorshipA court appointing somebody to manage the money and property of an adult who cannot manage it themselves.
• Estate accountingA statement of everything that came into the estate and everything that went out, presented before the estate can be closed.
• Fair market valueWhat a willing buyer would pay a willing seller, neither under pressure and both knowing the facts.
• Governing instrumentWhichever document actually controls an asset — a will, a trust, a beneficiary form, a deed, a partnership agreement.
• Operating agreementThe document setting out how a limited liability company is run — including what happens to a member's interest when they die.
• Share transfer restrictionA limit on who may hold shares in a private company — enforceable only if it is written on the certificate.

Sahvelo guidance that uses this

• Business succession