Charging Order Procedure

Topic Procedure TopicsProcedureRules

One of the biggest flaws with the charging orders is that, except for California, the states have not enacting coordinating procedures in their Enforcement of Judgments Laws. This has forced courts nationwide to consider motions for charging orders on an ad hoc basis — quite literally, making up the procedure as they go.

by way of example, the simple California procedure follows:

CCP § 708.310.

If a money judgment is rendered against a partner or member but not against the partnership or limited liability company, the judgment debtor’s interest in the partnership or limited liability company may be applied toward the satisfaction of the judgment by an order charging the judgment debtor’s interest pursuant to Section 15907.3, 16504, or 17705.03 of the Corporations Code.

CCP § 708.320.

(a) A lien on a judgment debtor’s interest in a partnership or limited liability company is created by service of a notice of motion for a charging order on the judgment debtor and on either of the following:

(1) All partners or the partnership.

(2) All members or the limited liability company.

(b) If a charging order is issued, the lien created pursuant to subdivision (a) continues under the terms of the order. If issuance of the charging order is denied, the lien is extinguished.

While simple, the California procedure thus provides for the following:

1. A noticed motion for charging order;

2. Service both upon the D/M and the target entity;

3. A temporary lien created upon service of the motion (analogous to a lien being created on an asset that is the subject of a levy); and

4. The lien becomes permanent if the motion for charging order is granted, or the lien is extinguished if not.

At least these provisions should be incorporated into the Harmonized Acts. Arguably, there should also be a provision allowing a creditor to obtain a charging order on an ex parte basis, without notice to the D/M or the entity, where there is a showing that the D/M may attempt to transfer the interest before service is made.