Appointing a Receiver in Family Law to Hold and Protect Property

On April 20, 2011, Major League Baseball Commissioner Bud Selig announced that he was taking the Los Angeles Dodgers franchise from Frank and Jamie McCourt and handing control of its day-to-day operations to a trustee of his choosing. The franchise’s financial condition had deteriorated as its ownership status became uncertain due to the McCourt’s’ contentious divorce. Commissioner Selig’s decision followed Frank McCourt’s arrangement to borrow $30M from Fox (the team’s television partner) to make the club’s payroll.

Commissioner Selig’s power to seize the reins of a major baseball franchise and entrust its control to a third party for the sake of its preservation parallels a similar function of the court in family law disputes: the ability to appoint a third-party receiver to protect or collect property subject to divorce litigation.

Why Are Receivers Appointed?

In family law, a receiver is generally appointed to:

  • Preserve the property or rights of the parties pending a property division order;
  • Carry out the terms of a judgment;
  • Dispose of property pursuant to a judgment; or
  • Protect property that can be used to satisfy a support order.

Given the significance of taking property from those who hold it and vesting its control in a third party, family law courts are not quick to appoint receivers. However, the court may appoint a receiver sua sponte (that is, on the court’s own decision and without being asked by a party).

When the family law court appoints a receiver, it typically is because the parties in divorce have extreme controversy regarding property.  These court cases provide examples of the appointment of a receiver:

1) The court retains the authority to appoint a receiver to collect and protect community assets from being misappropriated by a party, as in one case where the court found that the husband had absconded with over $7 million in community and quasi-community assets.  (In re Marriage of Economou (1990) 224 Cal.App.3d 1466)

2) The court in another case exercised its discretion and appointed a receiver to carry out its judgment that a party must sell real property and distribute the net proceeds in a specified manner, but that party had died before the sale and distribution took place.   (Darter v. Magnussen (1959) 172 Cal.App.2d 714)

How Do Receivers Function?

A receiver must perform his or her duties faithfully and must discharge the court’s orders.  Under control of the court, a receiver has the power to:

  • Bring and defend actions in his/her own name as a receiver;
  • Take and receive property;
  • Receive rents;
  • Collect principal and interest on debts;
  • Make transfers; and
  • Do any other acts respecting the property as the court may authorize.

The receiver is compensated for these undertakings; yet, the receiver possesses immunity from prosecution in fulfilling court-appointed duties, except for alleged acts of theft and slander.

Appointing a receiver is costly and time consuming, considering that a receiver must be monitored by the court and compensated.  Thus, receivers should be considered as a last resort.  Alternatives to the appointment of a receiver include: 1) for one party to ask that the court require the other party to comply with standard family law restraining orders, or 2) for the court to issue an injunction or a contempt action.

The Dodgers’ franchise agreement determined that appointing a trustee to operate the club was appropriate.  In family law situations, a judge will determine if it is appropriate to appoint a receiver to hold and protect property.  In the right circumstances, it is a drastic but effective remedy.