Case Summary:
Chapter 7 Debtors Timothy and Pamela McCarthy sought an exemption for what they alleged were closely held business interests, under Wis. Stat. § 815.18(3)(B)(2), in a partnership which they claimed to have formed to operate a duplex which they purchased with their son. The Chapter 7 Trustee objected to the exemption, arguing that both the McCarthys’ formation of an LLC to operate the duplex and their failure to file partnership tax returns established that they had not intended to form a partnership. As to the former, citing McDonald v. McDonald, 192 N.W.2d 903 (Wis. 1972), the Court held that nothing prevented the McCarthy’s from utilizing an LLC as an “instrumentality of the partnership.” As to the latter, in light of the fact that the McCarthys introduced evidence establishing, per Wisconsin’s four part test for establishing the existence of a partnership discussed in Tralmer Sales and Service, Inc. v. Erikson, 521 N.W.2d 182 (Wis. Ct. App. 1994), that (1) they intended to form a bona fide partnership; (2) they had a community of interest in the capital employed; (3) they had an equal voice in the partnership’s management; and (4) they shared and distributed the partnership’s profits and losses, the Court found that “failure to file partnership tax returns, though marginally relevant, [was] insufficient to defeat the McCarthys’ assertion that they operated a partnership.”