Texas Appeals Court Affirms Charging Order Against Businesses to Enforce Judgments Arising from Divorce

Unfortunately, former spouses do not always comply with all of their obligations under a Texas divorce decree.  When that happens, the other party may need to take action to enforce those obligations.  A father recently challenged a court order charging his interest in certain business organizations with judgments the mother obtained following the divorce.

After the mother was unable to collect on two judgments against the father related to his obligations under the divorce decree, she filed an Application for Charging Order.  She alleged the he had “a position of authority” in five business entities.  She alleged he received distributions from one or more of the entities, through funds disbursed to him and funds paid by the entities for his personal living expenses.

In his response, the father acknowledged holding an ownership interest in one of the organizations, but denied having an interest in any of the other named organizations.

At the hearing, the mother’s attorney presented the father’s personal tax returns and the Texas Tax Public Information Reports for the four disputed entities.  Those reports were signed by the father as “Manager.” The Texas Franchise Tax Public Information Report for the entity the father acknowledged an interest in listed him as “GP” and stated it owned a 99% interest in one of the disputed entities and a 100% interest in another.  The appeals court noted, however, that the ownership listings on the various reports were inconsistent.

The trial court signed a “Charging Order” that described the entities as “business organizations owned, operated, or controlled by [Father].”  The order stated that the Father’s interest in any and all of the named entities was subjected to a charging order for the mother’s benefit.  The order provided that any money to become due to the father as a result of his interest was to be paid to the mother.  The order prohibited any of the entities from paying money to the father, paying his personal living expenses, or expending any money for his personal benefit until the judgments were paid.

The disputed entities moved to modify the order, arguing a judgment creditor was not entitled “to a charging order over entities for which the judgment debtor merely works. . .” The entities asked the court to modify the Charging Order to only apply to the entity the father had acknowledged having an interest in.  The trial court denied the motion.

The father and the entities appealed, arguing the court erred in subjecting the disputed entities to the charging order.  They argued there was no evidence the father had an ownership interest in those entities, that the order was void because it exceeded the court’s statutory authority, and that the order violated the Texas Constitution because it interfered with the father’s interest in his wages.

The appeals court noted that the charging order only charged “the interest of [the father] in any and all of the [entities].”  The order applied to the entities only to the extent the father held an interest in them.  The appeals court found nothing in the charging statutes that would prohibit a court from applying an order in this way.  The appeals court found it immaterial whether there was evidence of an ownership interest.

The father and the entities argued that the order acted as an injunction by precluding the entities from paying the father even as a non-owner.  The appeals court noted that injunctive relief can be used to enforce a judgment.  The appeals court rejected the appellants argument the trial court exceeded its authority.

The appeals court also rejected the appellants’ argument the order violated the Texas Constitution.  Article 16, § 28 prohibits “current wages for personal services” from being garnished, except to enforce child support or spousal maintenance orders.  The appeals court found the trial court’s order did not place the father’s wages in “the hands of a third party” or “take them from a third party.” The order therefore did not violate the Texas Constitution.

The appeals court affirmed the trial court’s order and awarded the mother attorney’s fees.

An experienced Texas divorce attorney can help you enforce court orders related to your divorce or your child.  Call 214.692.8200 to discuss your case with McClure Law Group.

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