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In a perfect world, the defendant against whom a judgment is obtained pays the judgment off and the plaintiff receives full satisfaction.  In the real world, it often takes time and hard work to transform a judgment into money, explains Davenport Evans lawyer Vince M. Roche.

One way to pursue collection on a judgment is to conduct post-judgment discovery on the judgment debtor and ascertain all the debtor’s various financial interests.  Many judgment debtors will hold interests in multiple entities such as limited liability companies (“LLCs”).  The judgment creditor would rather have the debtor hold property in his or her own name, making it easier to levy against.  Property held in an LLC belongs to the LLC—it is not the individual property of the LLC’s members and is not available to satisfy a judgment against the individual members.  That protection, of course, is one of the primary reasons people form LLCs in the first place.  However, the mere fact that an asset is held in an LLC does not make it untouchable.

That is where the charging order comes in.  Under South Dakota law, the exclusive remedy against a judgment debtor’s interest in an LLC is a charging order.  A charging order acts as a lien on the judgment debtor’s interest in the LLC and directs the LLC to pay any distribution of money or property to which the judgment debtor would otherwise be entitled to the judgment creditor.  So, for example, if the judgment debtor owns a 30% interest in an LLC that owns a piece of real property worth $1 million, and the LLC decides to sell the property and distribute the proceeds to the LLC’s members, the charging order would compel the LLC to transfer the debtor’s $300,000 to the creditor at the time the distribution is made.

Unfortunately from the creditor’s perspective, South Dakota law provides less power to a creditor holding a charging order than the laws of many other states.  In South Dakota, the creditor does not have the ability to foreclose the judgment debtor’s interest in the LLC or otherwise force the LLC to make a distribution to its members.  The creditor likewise does not have the right to participate in the management of the LLC by reason of its charging order.  Despite these limitations, charging orders are worth obtaining because they act as a lien just like any other judgment for a period of 20 years and can sometimes bear fruit long after they are obtained.

Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the State’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit