Partner T is personally insolvent, owing $400,000. Personal assets will only bring $150,000 when liquidated. At the same time, T has a credit capital balance in the partnership of $85,000. The capital amounts of the other partners total a (credit) balance of $200,000. Under the doctrine of marshaling of assets, the personal creditors of T can collect up to ____.

Question

Quizplus · Accepted Answer

Under the doctrine of marshaling of assets, the personal creditors of T can only collect up to the amount that cannot be covered by the partnership capital balances of the other partners. In this case, the total credit capital balance of the partnership is $285,000 ($85,000 for T and $200,000 for the other partners). As T owes $400,000 but can only bring in $150,000 from personal assets, the shortfall is $250,000. Therefore, the personal creditors of T can collect up to $235,000 ($250,000 - $15,000 already covered by T's credit capital balance).

Partner T Is Personally Insolvent, Owing $400,000