Charging Order In Ohio Casualty Illustrates Ancillary Orders

Forbes

30-07-2025

Judges have inherent power to issue orders to give effect to their previous orders. getty
The case of Ohio Casualty Ins. Co. v. Beall, 2025 WL 726860 (M.D.Ga., March 6, 2025), is a very simple one as far as charging orders go. The creditor got a judgment close to $500,000 against husband and wife debtors. As part of its efforts to collect on the judgment, the creditor obtained a charging order against four limited liability companies that the couple owned. So far, nothing special.
More interesting was that while they were being sued prior to judgment, the debtors transferred real estate that they owned into the LLCs and that three of the LLCs were formed after the case against them had been filed. Thus, the creditor requested and the court granted an injunction which prohibited the debtors from transferring away their membership interests in the LLCs until the judgment had been satisfied. This brings up a variety of interesting issues.
The first issue is that the court did not cite any authority for the injunction that it issued, but it had good grounds to do so. Section 503(b) of the Uniform Limited Liability Company Act ("ULLCA") empowers a court to "make all other orders necessary to give effect to the charging order." The two words "give effect" have been very liberally interpreted by the courts to effectively give the courts carte blanche to enter whatever ancillary orders are necessary to fulfill the purposes of the charging order. This would include the entering of an injunction forbidding debtors from alienating their interests.
Even if § 503(b) did not exist, courts typically have general powers that allow them to issue ancillary orders to give effect to the orders that they have issued, so long as those ancillary orders are reasonably necessary to effectuate the primary order and are reasonably crafted towards that end. These general powers are usually found in some very general statute or court rule, but if not then the court still has the inherent power to enter such orders.
But let's say that the court here had declined to enter the injunction sought by the creditor, and after the charging order was entered the debtors had transferred away their interests. Would the creditor then just be totally out of luck in enforcing the charging order?
No. Under ULLCA 503(a), the entry of a charging order creates a lien in favor of the creditor upon the debtor/member's interest in the LLC. This lien, which is both a judicial lien and a non-consensual lien , has the same effect of any other lien ― which means that the lien attaches to the interest and follows the interest no matter who ends up with it.
This means that if the debtors here had sold their interests, or gifted their interests to charity, etc., after the entry of the charging order, then no matter who took the interest the creditor could still enforce the charging order and receive all distributions until the judgment has been satisfied.
What this means is that getting an injunction prohibiting the debtors' alienation of their interests was a nice thing, and certainly should deter the debtors from trying under penalty of contempt, the creditor would have been able to collect distributions anyway.
Oh, and if you are wondering, this lien effect would also apply to a bona fide purchaser in good faith for value . That such a purchaser may be able to defeat a lien is a Uniform Commercial Code ("UCC") rule, but it only applies to UCC cases and does not apply to judicial liens. The upshot of this is that a person who buys an LLC interest better make sure that there is no charging order on the interest because no matter how in good faith the purchaser was, and no matter how much the purchaser paid in value, the purchaser will still be behind the charging order creditor in receiving distributions.
Shifting gears, it is also worth noting that when debtors transfer property to an LLC while there is litigation pending, that might be a voidable transaction (was fraudulent transfer, which itself was fraudulent conveyance). Persons fearing a future judgment often make this sort of transfer with the theory ― and I stress theory ― being that the transfer should be immune to a voidable transaction claim on the basis that the debtor got back an LLC interest that was roughly equivalent to the value of the property transferred, i.e., there was reasonably equivalent value present.
Except that it doesn't work that way with LLC interests. The first problem is that the property-for-interest exchange is not for reasonably equivalent value because the LLC interest is worth much less than the property because of (you probably guessed it) the charging order protection for the LLC interest. The second problem is that the LLC is almost always owned by the debtor or involved with the debtor somehow, such as through some trust arrangement, such that the debtor's knowledge of the potential judgment operates to destroy the good faith element.
Folks in dire financial straits, what we creditor rights attorneys call desperate debtors , very often will engage in this particular tactic when a judgment looms on the horizon. They think it works, but it almost never does. All it really does is create some horrible optics that the debtor was actively trying to cheat her creditors, and then after that good luck ever getting a judge to cut a break.