This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Wednesday, November 5, 2014
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. (3rd) 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 Unpublished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
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.
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.
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:
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.