No Fault Divorce

Don't Lose Faith

Like many terms in the investment world, this is a bit of a misnomer. A "no fault divorce" clause gives limited partners the right to cease making additional capital contributions to an investment partnership if a super-majority of them (typically 75%) "lose faith" in its general partner's abilities. In some cases, they can also elect to terminate the partnership. Not surprisingly, general partners detest this clause and, when pressed to provide a means for the disaffected LPs to act on their feelings, will offer them instead the right to replace individual principals.