Family law and marital dissolution matters require a delicate balancing act between the parties as well as the required legal steps to bring them to resolution. A court appointed receiver injects a neutral third party into the process, and is a powerful yet underutilized tool when traditional processes fall short—either due to complexity or inability to reach agreement.
Receivership can be considered a Swiss Army knife when it comes to a wide range of family law issues, including preservation and protection of community property and closely held assets, as well as probate and trust disputes. It’s a tailor-made solution for attorneys and litigators who need to create balance in the resolution and settlement process.
Receivership, Step by Step
A receiver is a court-appointed officer, charged with taking possession of, and protecting assets for the benefit of all interested parties—as set forth in A.R.S. § 12-1242 and Rule 66, Arizona Rules of Civil Procedure. With oversight and reporting duties, a court appointed receiver or receivership specialist is an objective third party who is responsible for marshaling, managing, protecting, preserving and enhancing the receivership assets for the benefit of the receivership estate, with court oversight, and not for any specific party. In Arizona, the right to appoint a receiver is statutory, with specific duties set forth in the receivership order issued by the court.
In a practical sense, receivership specialists are skilled turnaround consultants with an inherent sense of the law. In addition to being quick on their feet and resourceful, they need to be savvy business/operations managers and, in many cases, sophisticated real estate professionals capable of performing physical and financial forensics.
As an overview, the receivership process generally follows these three steps:
Triage. The first mandate for a court appointed receiver is to preserve and protect, making sure that money does not disappear due to improper controls over community money/resources or business assets. In many instances, this surfaces through an imbalance/lack of access to information, and in many instances, this may be information related to an operating business. For example, you might have one spouse running a business, and the other spouse is not involved. Suddenly, money is going to other individuals or businesses, but the spouse without control/knowledge may have no access to even know where assets are going, and how the business is doing. Other examples might include failure to pay mortgage obligations, temporary alimony or support, or other mismanagement of community assets. With a court order and a receiver who is authorized to seize control of the assets, all parties are able to access the same information, which will enable both parties to have more parity in information critical to the marital estate, including assets and liabilities.
Corrective action. In a family law situation, the receivership specialist can take action to ensure that community assets are not dissipated or otherwise threatened. If there is a business involved in the proceedings, the receiver can gain control over the operations, bank accounts, books and records, and take steps to provide information to both parties and the court, as well as implement systems and procedures to ensure that the community estate assets are maximized, while liabilities are minimized. This process may include building an accounting system that provides all of the information to all interested parties, and submitting reports to the court, while doing the ongoing operational tasks and monitoring that is required.
Resolution. In a divorce proceeding, the receivership order can provide for a wide- range of issues for the receivership specialist to tackle. The Receivership Order may provide for limited authority, such as seizing control of books/records. Alternatively, the court order appointing the receiver may provide for more broad-ranging authority, including seizing control of bank accounts, preserving/protecting assets, paying invoices, collecting accounts payable, developing financial statements, or even running the business. This authority may also include the sale of assets in Receivership. In the case of a business, this may include valuation, management and sale options, or mediating a new operational agreement.
Orders including the sale of assets in Receivership, or alternatively, through a Special Commissioner, may be beneficial to the marital estate. Through hands-on management, a court appointed receiver should be able to stabilize the assets during receivership, negotiate more favorable contracts and leases, and develop a meaningful and comprehensive due diligence package, leading to highest/best pricing, and a controlled sale environment.
All Receivership activity is completed with court oversight, and the Receiver must be prepared for individual party, and judicial scrutiny.
Striking a Balance
Family law matters are rife with suspicion and distrust. Receivership appointments that are made by courts and supervised remedies have consistently proven to be an effective way for parties get to the bottom of things and bring them to resolution in a balanced fashion.
As with so many legal matters, California is leading the way in receivership law, with a body of statutory provisions and case law that lead to, and guide, such appointments. We don’t have that body of case law in Arizona yet, and while receivership appointments are very common in loan default proceedings, many attorneys are now utilizing this remedy in marital divorces, closely held business disputes, and contested estates, where there may be a need to seize control of assets, manage and marshal same, and potentially operate business/real estate assets. A well-executed receivership is neither as complex, nor as expensive, as many lawyers and judges may think, and can actually be less costly than extended litigation, as receiverships level the playing field among parties, and as a result, aid in equitable resolution, on a more expedited basis.
About the Author
Beth Jo Zeitzer, Esq. is the owner and designated broker of R.O.I. Properties, a full-service real estate brokerage firm serving business owners, investors and property owners in the valuation, marketing and sale of commercial and residential properties. She also serves as Receiver, Special Commissioner/Special Master, and Chapter 11 Trustee. Beth Jo can be reached at (602) 319-1326 or [email protected].