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Apr 1, 2010 12:00 PM
Charging Order
What does sole or exclusive remedy mean?
Acharging order only allows a creditor the right to attach distributions rather than allowing a creditor to succeed to all of the ownership rights of a partnership interest. Partnership law with respect to creditor rights and subsequently, limited liability company (LLC) law, developed differently than corporate law. A creditor of a partnership or LLC does not receive any voting rights. With a charging order, the creditor is left with a right to distributions; however, the creditor has no method (such as voting rights) to force a distribution.
Different authors use different definitions of what is included in the definition of “sole or exclusive remedy.” To the layperson, the word “sole” or “exclusive” remedy would mean there is one and only one remedy. From the above definition of “charging order,” this would mean that the creditor could attach the debtor partner's interest. This is the majority view — that there's only one remedy. However, some planners, a few courts, and some academicians hold a different view: that a charging order also includes the “steps necessary to effect the charging order.”
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| 2010 Tax Act News | Industry Trends Surveys |
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