Partners Deviated From Statutory Default Of Equal Ownership Based On Tax Returns And Other Evidence

Posted: December 1, 2025 / Written by: Jeffrey M. Eilender, Joshua Wurtzel, Channing J. Turner, Thomas A. Kissane, Samuel L. Butt / Categories Commercial, Trial

Partners Deviated From Statutory Default Of Equal Ownership Based On Tax Returns And Other Evidence

On October 17, 2025, in Levine v. Platzer, Swergold, Levine, Goldberg, Katz & Jaslow, LLP, Index No. 652616/2021, Justice Jennifer G. Schecter, in a Decision After Trial, rejected defendants’ contention that plaintiff had only a 25% interest in the firm. Defendants relied on Partnership Law § 40(1)’s default rule that partners “share equally in the profits and surplus remaining after all liabilities” and that an unequal agreement on the division of income does not necessarily govern the partners’ percentage equity interests. The Court disagreed, concluding plaintiff’s interest was 40.362% explaining:

Plaintiff contends that he has a 40.362% interest in the Old Firm based on his K-1s and NYC Schedule Cs, which reflect this percentage interest since 2019 (Dkt. 411 at 6-7; see, e.g., Dkt. 433 at 5). This includes the 2021 K-1 that plaintiff was provided in September 2022 after this action had been commenced (see Dkt. 507 at 2), and the cover letter indicates that it reflects plaintiff's "distributive share" but "may not correspond to actual distributions" (id. at 1; see Dkt. 519 at 9 ["The 2020 IRS Partner’s Instructions for Schedule K-1 state that the 'ending percentage share shown on the Capital line is the portion of the capital you would receive if the partnership was liquidated at the end of its tax year by the distribution of undivided interests in the partnership's assets and liabilities'"]). Notably, typically when a partner left the Old Firm, the parties entered into a separation agreement that referred “to the former partner’s then 'equity interest' and that such 'equity interest' was the same as the 'share of profits, losses, and capital'" reflected on the most recent Schedule K-1 (Dkt. 519 at 10; see Dkt. 514 at 86-100; see also Dkt. 411 at 8-9). The partners, moreover, had a fairly-consistent method of distributing excess cash—they did so in accordance with the percentage stake set forth on the partners' K-1s (see Dkt. 514 at 89-91).

In this case, it is undisputed that income did not correlate to equity. The court finds that the tax returns, separation agreements, method of distributing of excess cash, and plaintiff's credible testimony on this topic are convincing evidence that the partners had an agreement on their equity interests that deviated from the statutory default of equal ownership (see Kalaijian v Grahel Assoc., LLC, 193 AD3d 832, 833 [2d Dept 2021], citing Czernicki v Lawniczak, 74 AD3d 1121, 1125 [2d Dept 2010]; see also Livathinos v Vaughan, 121 AD3d 485, 486 [1st Dept 2014]). The court therefore finds that plaintiff has a 40.362% interest in the Old Firm.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning partnership interests.