Re: Partnership Disolution Dispute
Unfortunately, a one-sentence answer doesn't adequately answer the question.
First, there is a question as to what law applies to this partnership. California adopted the Uniform Partnership Act of 1994 in 1996. It is governing law for partnerships formed on and after that date. Partnerships formed prior to 1996 were governed by the (original) Uniform Partnership Act until 1/1/1999. The dissolution and termination provisions differ, and it is possible that prior law would apply to this partnership's dissolution, if any occurred.
Assuming the 1994 law applies in all respects, here's what happens when one of two or more partners "dissociates" (withdraws) from a general partnership, whether due to death, retirement, disinterest, etc.
(1) The dissociation of a partner does NOT produce an automatic dissolution of the partnership. This is a change from prior law.
(2) The remaining partner(s) decide whether to wind up and terminate the partnership or to continue its business.
(3) If an election is made to continue the business, the remaining partner(s) must buy out the dissociated partner's interest. The partnership must also indemnify the dissociated partner whose interest is being purchased against partnership liabilities arising before or after his dissociation, except liabilities incurred by the dissociated partner himself. The law governing the buy-out and the indemnity is somewhat detailed and cannot be recited completely in the space of a LawGuru reply.
(4) If, however, the remaining partner(s) take the other alternative (dissolution, winding up and termination of the partnership business), a different set of statutory provisions applies. It is a three-step process: dissolution, which basically occurs when the remaining partner(s) decide to dissolve rather than continue; winding up, which is the process of shutting down the business in a prompt but orderly fashion, such as selling the assets and paying the bills; then, termination, which occurs when the winding up is complete. After dissolution and during winding up, the partnership continues to exist, but ONLY for the purpose of winding up -- it cannot lawfully initiate new business deals.
So, I would guess that your spouse's partnership business was continued, and her or his estate would be entitled to the indemnification, at worst. However, many facts and many statutory provisions would bear upon possible liability, and especially if the amount is large, you should have a lawyer who really understands partnership law investigate and advise.
