Charging Order
A court order entitling a judgment creditor to receive any distributions that would otherwise be paid to a debtor-member of an LLC, partner of a limited partnership, or partner of a general partnership. The exclusive remedy under Texas law for satisfying a personal judgment out of the debtor's interest in the entity.
A charging order is a court order entitling a judgment creditor to receive any distributions that would otherwise be paid to a debtor-member of an LLC, partner of a limited partnership, or partner of a general partnership. The charging order constitutes a lien on the debtor's interest but conveys no governance rights and cannot be foreclosed.
Mechanics
On application by a judgment creditor of a member or partner, a Texas court with jurisdiction may charge the debtor's interest in the entity to satisfy the judgment. The creditor's rights are limited to receiving distributions the debtor would otherwise have received. The lien created by the order may not be foreclosed under Texas law or any other law. The creditor obtains no right to participate in management, no right to access entity property, and no right to compel distributions.
The Texas exclusivity rule
This is the feature that distinguishes Texas charging order law from many other states. Each of §§ 101.112, 153.256, and 152.308 expressly provides that the entry of a charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment out of the debtor's interest. The creditor cannot foreclose on the membership or partnership interest, force a sale of the interest, obtain a court order dissolving the entity, or exercise any legal or equitable remedy against the entity's property to satisfy the personal debt of a member or partner. Texas applies this exclusivity rule equally to single-member LLCs and multi-member LLCs, a notable departure from many other states.
Boundaries of exclusivity
Texas courts have addressed whether the exclusivity rule reaches distributions after they have been paid out. In Stanley v. Reef Securities, Inc. and Goodman v. Compass Bank, Texas courts held that once a distribution is made and is in the debtor's possession, it ceases to be the debtor's "partnership interest" and becomes personal property reachable by ordinary collection mechanisms (such as a turnover order under Tex. Civ. Prac. & Rem. Code § 31.002). The exclusivity rule protects the interest itself, not money already in the debtor's hands.
The charging order regime is the foundation of Texas-specific asset-protection planning for owners of closely-held businesses, real estate holding companies, and family limited partnerships. The combination of LLC liability shields and charging-order exclusivity makes Texas one of the strongest debtor-friendly jurisdictions in the United States for protecting interests in entity ownership from personal creditors.