Charging Order Controls Over Interest in Marital Property

Charging Order  Controls Over Interest in Marital Property

A recent decision from Illinois explores the interplay of the rights of a judgment creditor with a charging order vis-à-vis the rights of the judgment-debtor’s spouse upon divorce.  FirstMerit Bank, N.A. v. McEnery, 2014 Il. App. (3^rd) 130231-4, 2014 WL 5483039 (Ill. App. Unpublished Oct. 29, 2014).

 

William McEnery (“William”) defaulted on a promissory note to FirstMerit Bank (“Bank”), and Bank was awarded a charging order against his interest in a number of restaurant LLCs.  More than two years after the entry of the charging order, Margaret McEnery (“Margaret”), William’s spouse, sued for divorce.  She as well asserted that she had a martial interest in William’s LLC interests against which the Bank held a charging order.  While the trial court would agree that Margaret hold a marital interest in the LLC interests, it as well found that interest to be subordinate to the Bank’s charging order.  Margaret then filed this appeal.

 

As characterized by the Court of Appeals:

 

Margaret contends that the trial court’s order of March 27, 2013, granting FirstMerit’s motion for turnover conflicts with the trial court’s previous order of September 12, 2012, wherein the court found Margaret had at least a 50% marital interest in William’s distributional interests in the LLCs. Thus, according to Margaret, the March 27 order is null and void. Margaret’s rationale appears to be that the trial court lacked both authority and subject matter jurisdiction over the property on March 27, as it had already made a final and appealable determination of her marital interest. In that same vein, Margaret also contends that res judicata and/or the law-of-the-case doctrine barred the trial court’s March 27 order.

 

Margaret also argues that the trial court’s order subverts the purpose of the Illinois Marriage and Dissolution Act (750 ILCS 5/503(b) (West 2010)) for the equitable division of property. Finally, Margaret argues that the March 13, 2013, order goes beyond the scope of the pleadings.

 

Not exactly gently foreshadowing its conclusion, the Court of Appeals wrote:

 

We find all of Margaret’s claims to be without merit.

 

            The Court of Appeals found that the Bank’s lien on William’s interest in the various LLCs was superior to Margaret’s rights as a spouse:

 

[T]he contractual and/or lien rights of third parties are protected, and will not be diminished by the distribution of marital property.

 

In effect, divorce is not an opportunity to lien strip marital assets for the benefit of the spouse who is not the judgment-debtor.