Arizona Charging Order Held Subject to Garnishment Limits

Arizona Charging Order Held Subject to Garnishment Limits

 

       Applying Arizona law, it has been held that a charging order is limited by the 25% threshold applied as to wage garnishments.  United States of America v. Alexander, No. CR-05-00472-001-PHX-DGC, 2016 WL 2893406 (D. Ariz. May 18, 2016).

      Alexander, the sole member of an LLC, owned millions of dollars in restitution (the opinion does not address that nature of those claims.  In order to collect on that debt, the government sought a charging order against the distributions made to Alexander by his single-member LLC.  Alexander responded that the charging order could not attach to more than 25% of the distributions, an argument accepted by the court:

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But the charging order is limited to the garnishment permitted by Arizona law. The fact that a charging order is entered, however, “does not deprive any member of the benefit of any exemption laws applicable to his interest in the limited liability company.” A.R.S. § 29-655(B). Arizona law limits garnishment to 25 percent of a garnishee’s disposable earnings. A.R.S. § 33-1131(B). “Earnings” are defined broadly to include “compensation paid or payable for personal services, whether these payments are called wages, salary, commission, bonus or otherwise.” A.R.S. § 12-1598(4). “Disposable earnings” is defined as the “amount remaining from the gross earnings for a pay period after the deductions required by state and federal law.” A.R.S. § 12-1598(3). As the sole member of E-Logic, Defendant receives distributions equivalent to the LLC’s annual income. These are provided as compensation for his personal services to E-Logic. These distributions qualify as earnings and are protected by the personal property exemption. The charging order therefore cannot deprive Defendant of more than 25 percent of his disposable earnings. (footnote omitted).

 

            Although no Kentucky court has yet addressed the question, likely this result would not happen in Kentucky.