What is a Charging Order?

A charging order is, in essence, a lien filed against the LLC or limited partnership’s earnings.  After winning a case and getting a judgment, the judgment creditor wants to get paid. He goes to court and gets a charging order, which ‘charges’ him with the right to receive distributions. When profit allocations are made by either entity to their members, a portion would be paid to the judgment creditor to pay down the judgment.  Having a charging order placed against an LLC or a limited partnership does not convey voting rights, so creditors cannot take control of the entity and through that control, reach the assets.  In addition, in a situation where the entity is profitable but management decides that the profit needs to be re-invested into the entity or to pay an owner for services rendered, no distributions of profit will be made at all, frustrating a creditor.  Holding real property in either of these entities can be a great deterrent against nuisance litigation and claims.

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