What is a Receivership in a Divorce?
In a divorce, it's not unheard of for one party to hide assets, not comply with court orders, or allow joint property to fall by the wayside. In certain instances, the court may find it appropriate to appoint a receiver as a way to improve or fix a bad situation.
Receiverships are not part of every divorce, but they can play an indispensable role when they are needed. Most often found in business settings, the court may appoint a receiver under special circumstances. So how does a receivership work in a divorce, and how do you know if you might need one?
How a Receivership Works in a Divorce
While they are rare in a divorce, a receivership can be appointed to take over an asset at risk of being depleted or disposed of, such as a business or property. Their role is to act as an arm of the court to manage the asset. This may be to preserve the asset or dissolve it, depending on what the court has ordered.
Who can serve as a receiver?
A receiver is always court-appointed, but a party may request one, if desired. Black's Law Dictionary defines a receiver as, "...an indifferent person between the parties appointed by the court to collect and receive the rents, issues, and profits of land,...or other things which it does not seem reasonable to the court that either party should do; or where a party is incompetent to do so."
States may have different guidelines regarding who can be appointed as a receiver. In Minnesota, the court will consider specific factors including if the proposed receiver has the experience and expertise to perform their duties and be financially capable to post a receiver bond to ensure their faithful performance of those duties.
Similarly in Texas, a receiver must pay a receiver bond and be qualified for the position; in contrast to Minnesota, a receiver in Texas must be a resident of the state. They also must be a neutral third party who has no relationship with either party in the divorce.
Why should a receiver be appointed?
To safeguard marital property
The role of a receiver may vary based on what the court is asking them to do. A receiver may be enlisted to safeguard marital property prior to a pending division.
For example, part of a couple's marital property could be a business that has been mismanaged. In this instance, the court may appoint a receiver to take over management and work to preserve the business until the property can be divided.
In another example, a divorcing couple may jointly own real estate. Conflict between them has made it impossible for the couple to manage the property together, and it is at risk of foreclosure. Here, a court may appoint a neutral individual to take over the property to save it or dissolve it for the parties.
To protect assets from being concealed
Another instance in which a receiver may be appointed to protect assets at risk of being concealed by one of the parties. For example, rent earned from a real property owned by the couple has been hidden by the party primarily managing it. At the request of the other party, the court may appoint a receiver to take over managing the property.
In situations like these, the receiver may manage the property to conserve it and distribute future earnings as the court sees fit, or the court may even request that the receiver sell the property and divide those earnings between the parties.
To carry out a judgment
A receiver may also be appointed to help implement a judgment. This could be the case if one party owes the other unpaid child support, alimony, or other payments ordered by the court.
In one case example out of Michigan, Shouneyia v. Shouneyia, a receiver was appointed over assets and income owned by one of the parties to cover the amount owed to the other party in a property settlement and attorneys fees.
These are just a few examples of when a receiver may be appointed in relation to a divorce, but there are many other instances in which a court may appoint one. As always, be sure to speak to your attorney about receiverships, how they work in your state, and if requesting one is a suitable option for your situation.