{"concept_id":"ALTSS-LPA-005","slug":"no-fault-divorce","canonical_name":"No-Fault Divorce","aliases":["no fault removal","no-fault termination","without-cause removal"],"kind":"term","authority":"industry","facets":["GOV"],"domains":["FUND-TERMS"],"display_title":"No-Fault Divorce","search_aliases":["what is a no fault divorce clause","no fault removal of gp","no fault divorce private equity","lp right to remove gp without cause"],"one_sentence_definition":"A no-fault divorce clause is a fund agreement provision letting a specified supermajority of LPs remove the general partner, end the investment period or dissolve the fund without proving misconduct, usually on terms compensating the GP for lost future economics.","plain_english":"Sometimes LPs lose confidence in a manager without being able to prove wrongdoing: the team has changed, the strategy has drifted, or performance has collapsed. A no-fault clause lets a large majority of LPs end the relationship anyway. Because the GP has done nothing wrong, the clause usually lets it keep much of the carry it has earned, which makes the right expensive and rarely used, but its existence still disciplines both sides.","parent_concepts":[],"child_concepts":[],"related_concepts":["removal-for-cause","suspension-period","key-person-clause","lp-consent-rights","investment-period","clawback","limited-partnership-agreement","general-partner"],"comparison_concepts":[],"not_the_same_as":[{"slug":"removal-for-cause","distinction":"Removal for cause requires a defined cause event, such as fraud or a material breach, usually at a lower vote threshold and with harsher economic consequences for the GP."},{"slug":"suspension-period","distinction":"A suspension pauses new investments after a trigger and can be lifted; a no-fault termination of the investment period is permanent."},{"slug":"key-person-clause","distinction":"The key person clause operates automatically on a defined event; no-fault rights need no event, only a vote."}],"formula_ids":[],"worked_examples":[],"sections":[{"heading":"Forms of the right","paragraphs":["1. **Termination of the [investment period](/glossary/investment-period)**: the fund makes no new investments and manages the existing portfolio to exit. This is the mildest form and often has the lowest vote threshold.\n2. **Removal of the GP**: the GP is replaced by a new general partner chosen by LPs.\n3. **Dissolution**: the fund is wound up and its assets realised or distributed.","An [LPA](/glossary/limited-partnership-agreement) may grant one, two or all three, each with its own threshold."]},{"heading":"Thresholds and timing","paragraphs":["The vote is by a supermajority in interest of LPs, excluding the GP, its affiliates and often any defaulting LPs. Thresholds for no-fault action are set higher than for [removal for cause](/glossary/removal-for-cause), and many LPAs bar no-fault votes during an initial period after the first closing. The exact levels are negotiated and vary by manager and market. The Institutional Limited Partners Association (ILPA) recommends in its Principles 3.0 that a vote of two-thirds in interest of LPs be sufficient for no-fault removal of the GP or dissolution of the fund; that is ILPA's recommendation, not a measure of market practice."]},{"heading":"Economic consequences","paragraphs":["Because no fault is alleged, the removed GP usually keeps [carried interest](/glossary/carried-interest-carry) on investments made before removal, sometimes reduced or subject to a vesting formula, and its GP interest is often converted into an LP interest. Management fees stop, in some LPAs after a further fee payment. The [clawback](/glossary/clawback) is commonly tested at the removal date. ILPA Principles 3.0 ask that any removal, with or without cause, bring a meaningful forfeiture or reduction of carry, so that enough economics remain to attract a new manager. These terms decide whether the right is usable in practice: LPs must be willing to pay a successor manager while the former GP keeps much of its carry."]},{"heading":"Why it is rarely exercised","paragraphs":["Exercising the right means coordinating many LPs, finding a replacement manager willing to take over a portfolio, and accepting disruption to portfolio companies. In practice LPs more often use the existence of the right as leverage: to negotiate a restructuring, fee concessions or an early end to the investment period after a [key person event](/glossary/key-person-clause) or a change of control at the manager."]},{"heading":"US reporting","paragraphs":["Form PF section 6, in force since 11 December 2023, applies to advisers that file Form PF (SEC-registered advisers with at least $150 million in private fund assets under management at the end of their most recently completed fiscal year) and advise private equity funds. They must report to the Securities and Exchange Commission, within 60 days after the end of the fiscal quarter in which the event occurred, when a fund's investors remove the adviser or an affiliate as general partner, elect to terminate the fund's investment period, or elect to terminate the fund. A joint proposal by the SEC and the Commodity Futures Trading Commission of April 2026 would eliminate section 6; as of 2 October 2026 it had not been adopted."]}],"classification_rules":[],"calculation_rules":[],"common_mistakes":["Assuming a no-fault right is free to exercise. The GP usually keeps much of its earned carry.","Treating removal, investment-period termination and dissolution as one right; LPAs often grant them separately at different thresholds."],"edge_cases":["A no-fault vote held after a key person event may combine with the suspension mechanics, so LPs choose between reinstating the investment period and terminating it.","Where the GP has sold a stake in its management company, a change of control provision may give LPs a separate vote."],"external_standard_mappings":[],"source_ids":["SRC-ILPA-PRINCIPLES-3","SRC-US-FR-2023-09775","SRC-US-FR-2026-07993"],"citations":[{"source_id":"SRC-ILPA-PRINCIPLES-3","pinpoint":"pp. 19–20 (Key Person Triggers and Process to Resolve; GP Removal and Replacement)","supports":"ILPA recommends a two-thirds in interest LP vote for no-fault removal of the GP or dissolution, exclusion of GP-affiliated interests from such votes, and a meaningful carry forfeiture or reduction on any removal","source":{"source_id":"SRC-ILPA-PRINCIPLES-3","title":"ILPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited Partners","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/wp-content/uploads/2019/06/ILPA-Principles-3.0_2019.pdf","year":2019,"publication_date":"Third edition, released 27 June 2019","jurisdiction":"intl","status":"Current edition (no 4.0 found as of 2026-10-01)","last_verified":"2026-10-01"}},{"source_id":"SRC-US-FR-2023-09775","pinpoint":"88 FR 38146 (DATES: sections 5 and 6 effective and compliance date 2023-12-11); 88 FR 38163 (section 6 item on GP removal and investor elections to terminate the investment period or fund; within 60 days after a fiscal quarter-end); 88 FR 38188 (respondents: registered advisers with at least $150 million in private fund assets)","supports":"Form PF section 6 applies to all private equity fund advisers that file Form PF (registered advisers with at least $150 million in private fund assets); reports investor removal of the adviser or an affiliate as general partner and investor elections to terminate the investment period or the fund within 60 days after fiscal quarter end; effective 2023-12-11","source":{"source_id":"SRC-US-FR-2023-09775","title":"Form PF; Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers; Requirements for Large Private Equity Fund Adviser Reporting (final rule), Release IA-6297, 88 FR 38146","publisher":"U.S. Securities and Exchange Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2023-06-12/pdf/2023-09775.pdf","publication_date":"Adopted 2023-05-03; published 2023-06-12; sections 5 and 6 effective 2023-12-11; remainder effective 2024-06-11","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"}},{"source_id":"SRC-US-FR-2026-07993","pinpoint":"91 FR 22232 (summary, Release IA-6959, proposed 2026-04-20); 91 FR 22257 (section II.O: proposal to eliminate Form PF section 6 in its entirety); pending as of 2026-10-02","supports":"Pending SEC/CFTC proposal of April 2026 to eliminate Form PF section 6 private equity event reporting; not adopted as of 2026-10-02","source":{"source_id":"SRC-US-FR-2026-07993","title":"Form PF; Reporting Requirements for All Filers (joint proposed rules), 91 FR 22232","publisher":"U.S. Securities and Exchange Commission and Commodity Futures Trading Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2026-04-24/pdf/2026-07993.pdf","publication_date":"Proposed 2026-04-20; published 2026-04-24; comments due 2026-06-23","jurisdiction":"US","status":"proposed","last_verified":"2026-10-01"}}],"faq":[{"q":"Can LPs remove a GP without cause?","a":"Only if the LPA grants a no-fault right, and then by the supermajority it specifies, usually not during an initial period after the first closing."}],"seo":{},"first_published":"2026-01-10","last_reviewed":"2026-10-02","last_modified":"2026-10-02","content_version":"2.0.0","url":"https://altss.com/glossary/no-fault-divorce","json_url":"https://altss.com/reference/concepts/no-fault-divorce.json","title":"No-Fault Divorce","formulas":[],"sources":[{"source_id":"SRC-ILPA-PRINCIPLES-3","title":"ILPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited Partners","authors":"Institutional Limited Partners Association","publisher":"ILPA","document_type":"guidance","url":"https://ilpa.org/wp-content/uploads/2019/06/ILPA-Principles-3.0_2019.pdf","year":2019,"publication_date":"Third edition, released 27 June 2019","jurisdiction":"intl","status":"Current edition (no 4.0 found as of 2026-10-01)","last_verified":"2026-10-01"},{"source_id":"SRC-US-FR-2023-09775","title":"Form PF; Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers; Requirements for Large Private Equity Fund Adviser Reporting (final rule), Release IA-6297, 88 FR 38146","publisher":"U.S. Securities and Exchange Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2023-06-12/pdf/2023-09775.pdf","publication_date":"Adopted 2023-05-03; published 2023-06-12; sections 5 and 6 effective 2023-12-11; remainder effective 2024-06-11","jurisdiction":"US","status":"in force","last_verified":"2026-10-01"},{"source_id":"SRC-US-FR-2026-07993","title":"Form PF; Reporting Requirements for All Filers (joint proposed rules), 91 FR 22232","publisher":"U.S. Securities and Exchange Commission and Commodity Futures Trading Commission (Federal Register via govinfo)","document_type":"release","url":"https://www.govinfo.gov/content/pkg/FR-2026-04-24/pdf/2026-07993.pdf","publication_date":"Proposed 2026-04-20; published 2026-04-24; comments due 2026-06-23","jurisdiction":"US","status":"proposed","last_verified":"2026-10-01"}]}