Salary Is Not a Distribution.

Every so often a court hands down a decision that reads, on first glance, like a gift to the person on the wrong end of a judgment. On 5 August 2026 the North Carolina Court of Appeals published one. In Joint Entities, LLC v. Cobham, the court held that a charging order against a member’s interest in a limited liability company does not reach the salary the company pays that member for her work. Joint Entities, LLC v. Cobham, No. COA25-858 (N.C. Ct. App. 5 Aug. 2026) (published) (Griffin, J.; Wood, J., concurring; Dillon, C.J., concurring in part and dissenting in part), on appeal from an order entered 17 February 2025 by Judge Matthew T. Houston, Wake County Superior Court, No. 22CV013864-910; heard in the Court of Appeals 24 March 2026; disposition “AFFIRMED IN PART, REVERSED AND VACATED IN PART.” The trial court had told the judgment debtor’s entities they could pay her no more than $2,500 a month in the aggregate without further leave of court. As to salary, the Court of Appeals reversed and vacated that restriction, drawing a line the charging-order caselaw has left surprisingly blurry for the better part of a century: a charging order is a claim on ownership, not a claim on labour.

That is a real holding with real consequences. But the same opinion — in the very next section, and in a separate opinion from the Chief Judge — takes back most of what the headline appears to give. Read whole rather than in excerpt, Cobham is a far weaker foundation for planning than it looks, and the reason why is the reason we return to in nearly every one of these notes.

The dispute behind Cobham is more than fifteen years old, and its length is the first lesson in it.

Two dentists, Nicole LeCann and Sharon Cobham, practised together as co-managers of multiple dental practices from 2000 until 2010 and jointly formed Joint Entities, LLC. When the relationship deteriorated, Dr. LeCann brought a derivative action on behalf of Joint Entities in the North Carolina Business Court, alleging self-dealing, conflict-of-interest transactions, and other breaches of fiduciary duty. The Business Court entered judgment for Joint Entities and Dr. LeCann, awarding $559,888 in compensatory damages and $1,679,664 in punitive damages. Cobham, slip op. at 2, citing LeCann v. Cobham, Wake Cnty. No. 10 CVS 11169 (N.C. Super. Ct. Aug. 30, 2013); see also LeCann v. Cobham, 2012 NCBC 56 (N.C. Bus. Ct.) (earlier phase of the litigation). Dr. Cobham did not satisfy it.

What followed is the long tail of collection that clients never picture when they imagine a lawsuit. The court enjoined Dr. Cobham and her agents from disposing of or transferring property to avoid satisfaction of the judgment. Supplemental proceedings were initiated in 2013. She filed for bankruptcy in January 2014; the bankruptcy court held the debt non-dischargeable, the Eastern District of North Carolina affirmed on the ground that she had disregarded her fiduciary duties, the Fourth Circuit agreed, and the Supreme Court denied certiorari. Id. at 3, citing In re Cobham, 528 B.R. 283 (Bankr. E.D.N.C. 2015); In re Cobham, 551 B.R. 181 (E.D.N.C. 2016); In re Cobham, 669 F. App’x 171 (4th Cir. 2016), cert. denied, 581 U.S. 973 (2017). The judgment survived, undischarged, and followed her.

In November 2022 the creditors commenced a fresh action to renew the judgment and add $1,895,335.93 in interest and $147,247.05 in costs. Dr. Cobham filed nothing. A default judgment entered in May 2023. A writ of execution came back unserved. In January 2025 the creditors moved for an order in aid of execution, and on 17 February 2025 the Superior Court granted it: her entities — including Cobham & Associates, P.L.L.C., the professional LLC of which she is the sole member — were ordered to pay Joint Entities and Dr. LeCann directly, she was restricted to $2,500 per month for her own support, she was ordered to inventory her assets, and her entities were enjoined from transferring or encumbering them.

Sixteen years, three courts, and two federal appeals after the underlying conduct, the creditors were still collecting. Whatever else this case teaches, it teaches that.

North Carolina’s LLC Act gives a judgment creditor of a member exactly one entry point: a charging order against the member’s economic interest, which carries “the right to receive the distributions that otherwise would be paid to the interest owner with respect to the economic interest,” and which is the only way a judgment creditor may satisfy a judgment out of the debtor’s ownership interest. N.C. Gen. Stat. § 57D-5-03(a), (d) (2025); see also id. § 57D-1-03(10) (defining “economic interest”); Cobham, slip op. at 10.

Everything therefore turns on the word distribution. The Act defines it as “the direct or indirect transfer of money or other property to, or incurrence of indebtedness by, an LLC for the benefit of an interest owner in respect of the interest owner’s ownership interest.” N.C. Gen. Stat. § 57D-1-03(9) (2025); Cobham, slip op. at 10–11.

Here the case gets more interesting than the summaries suggest. The statute does contain an express carve-out for “payments made to, or an account of, an interest owner that constitute compensation for services” — but it attaches that carve-out to three specific sections of the Act, none of them the charging-order section. Id. (providing that for purposes of §§ 57D-4-05, 57D-4-06, and 57D-6-12, “‘distribution’ does not include payments made to, or an account of, an interest owner that constitute compensation for services”). The creditors had the stronger-looking textual argument: where the legislature excludes compensation in three places and not in a fourth, the ordinary inference is that it meant to include it in the fourth.

The court acknowledged the argument and declined it, because negative implication is a tool of last resort. Plain meaning comes first, and on the court’s reading the plain meaning was already dispositive: “distribution” is qualified by the phrase in respect of the interest owner’s ownership interest, and a salary — “fixed compensation paid regularly for services” — is not paid in respect of ownership. It is paid in respect of work. So “Chapter 57D’s definition of ‘distribution’ does not include a salary, or compensation for services, doled out by the LLC,” and “the superior court could not charge Cobham’s future earnings.” Cobham, slip op. at 11 (quoting Salary, Merriam-Webster Dictionary, and holding that plain meaning controls before resort to negative implication, citing Arter v. Orange Cnty., 386 N.C. 352, 354–55, 904 S.E.2d 715, 717 (2024)). The court rejected a fallback argument that the word “income” inside the definition of “economic interest” did the job, holding that the income referred to is the LLC’s, “not the salary that is paid out from the LLC.” Id. at 12. The conclusion: “The trial court exceeded its authority under section 57D-5-03(a) by restricting Cobham’s salary.” Id. (“Accordingly, we reverse and vacate the portions of the charging order restricting Cobham’s salary.”).

The distinction is not a drafting accident. It tracks what a charging order has always been. The remedy exists to give a creditor the debtor’s return on capital without conscripting the debtor’s co-owners into partnership with a stranger. Wages are a return on effort — the debtor’s own hours, not the debtor’s ownership stake — and were never what the remedy was built to capture.

The practical point that will be repeated is that distributions and wages sit under different collection regimes. A charging order, once in place, intercepts distributions in full — a hundred cents on the dollar. Wage garnishment is capped by federal law at twenty-five percent of disposable earnings for a workweek. 15 U.S.C. § 1673(a) (garnishment restricted to the lesser of 25% of disposable earnings for the workweek, or the amount by which disposable earnings exceed thirty times the federal minimum hourly wage). North Carolina is more debtor-favourable still: it does not permit ordinary money-judgment creditors to garnish wages at all, and its courts have long held that a debtor’s prospective earnings are neither property nor debt and cannot be reached through supplemental proceedings — a line of authority the court invoked directly. Cobham, slip op. at 11, citing Jacobi-Lewis Co. v. Charco Enterprises, Inc., 121 N.C. App. 500, 501, 466 S.E.2d 338, 339 (1996) (“[t]he future earnings of a judgment debtor are hypothetical and thus are neither property nor debt”), and Motor Finance Co. v. Putnam, 229 N.C. 555, 557–58, 50 S.E.2d 670, 671–72 (1948) (prospective earnings not reachable by supplemental proceedings). Garnishment is authorised there by statute only for a limited set of obligations such as taxes, student loans, child support, and alimony.

Stated that way, moving a dollar from the distribution column to the salary column looks like a very good trade.

Now read the rest of the opinion.

Dr. Cobham lost everything else.

She could not raise a personal-jurisdiction defence on behalf of her own PLLC, because such objections must be raised by the party itself; and the PLLC, being a nonparty, could not appeal at all — its remedy is a separate action, which is to say more years and more cost. Id. at 8–9, citing In re J.T., 363 N.C. 1, 4, 672 S.E.2d 17, 18 (2009) (objections to personal jurisdiction “must be raised by the parties themselves”), and Watson v. Ben Griffin Realty & Auction, Inc., 128 N.C. App. 61, 63–64, 493 S.E.2d 331, 333 (1997) (a nonparty may not appeal; its remedy is an independent action to set aside the judgment).

More importantly, the Court of Appeals affirmed the injunction. Because Dr. Cobham had never claimed a statutory exemption in either proceeding, “the trial court was authorized to enjoin her to the fullest extent of sections 1-358 and 1-362” — statutes that let a court forbid any transfer or disposition of a judgment debtor’s non-exempt property and order property “in the hands of the judgment debtor or of any other person, or due to the judgment debtor, to be applied towards the satisfaction of the judgment.” Id. at 15, quoting N.C. Gen. Stat. §§ 1-358, 1-362 (2025); see also id. at 14, citing Universal Life Ins. Co. v. Lindberg, 291 N.C. App. 506, 514, 896 S.E.2d 57, 63 (2023) (where a judgment debtor fails to claim exemptions under N.C. Gen. Stat. § 1C-1603, the property is fully subject to §§ 1-358 and 1-362). The affirmed order reaches her membership and economic interests in any LLC, professional association, or corporation, and compels her to disclose all depository accounts and all tangible and intangible property — including everything she disposed of in the preceding twelve months. Id. at 15 (describing the enjoined assets and the disclosure obligation, including “all property disposed of by her in the last 12 months”); see also N.C. Gen. Stat. § 1-352.2 (2025). The court held the order sufficiently specific under N.C. R. Civ. P. 65(d) and within the trial court’s discretion. Id. at 15–16.

That last clause is the whole game, and it is why the salary holding is a narrower victory than it reads. A debtor who wins the point that her salary is beyond the charging order still stands under a court order to hand her creditors a twelve-month map of every transfer she has made. Compulsory retrospective disclosure is precisely the instrument that turns a suspected disguised distribution into a voidable-transfer claim.

Chief Judge Dillon concurred in part and dissented in part, and his separate opinion is the one planners should read most carefully. He agreed that genuine salary for work actually performed falls outside a charging order. He parted company on remedy, and the distinction he drew is exact.

His reason was blunt: otherwise the defendant — “being the sole member of her LLC’s — could distribute any amount to herself from these LLC’s and call it ‘salary’ to avoid the reach of a charging order.” Id.

He then flagged the second barrel: where a sole or dominant member uses an LLC “simply to hide assets from judgment creditors,” the veil may be pierced, and he cited the governing North Carolina authority for it. Id., citing Cooper v. Ridgeway, 362 N.C. 431, 440–41 (2008) (corporate form may be disregarded where the entity is “a mere instrumentality or alter ego of the sole or dominant shareholder and a shield for his activities in violation of the declared public policy of the State”). He noted that whether the LLCs there were subject to piercing was not before the court. It will be before some court soon.

So the disagreement in Cobham is not about the rule. Every judge agreed that salary is not a distribution. The disagreement is about who decides whether a payment is really salary, and when — and the majority’s answer is not that nobody does. It is only that a charging order under Chapter 57D is the wrong instrument.

Cobham holds that a charging order does not reach compensation for services. It does not hold, and no court has held, that a member may set her own compensation at whatever level defeats her creditors.

A payment labelled compensation but untethered from services actually rendered is a distribution wearing a costume, and courts have never had difficulty calling a transfer what it is rather than what its label says. Worse, a debtor who changes her compensation arrangement after a judgment lands is not making a planning decision. She is making an admission. She is producing, in her own hand, the classic circumstantial badges from which fraudulent-transfer intent is inferred: the transaction is with an insider — herself, through her own wholly owned entity — the timing tracks the claim rather than any ordinary business rhythm, control never actually left, and the object of the exercise is transparently to put value beyond a creditor’s reach. See Uniform Voidable Transactions Act § 4(a)(1), (b) (badges of fraud, including transfer to an insider, retention of control after the transfer, timing relative to a substantial debt, and concealment), as adopted in varying form across the states. The Uniform Voidable Transactions Act and its state analogues exist to unwind exactly that manoeuvre, and they operate on substance, not vocabulary.

Note also what kind of company this was. Cobham & Associates was a single-member PLLC. The charging order’s traditional justification — protecting innocent co-owners from an unwanted partner — has no work to do in a one-member company, and a number of jurisdictions have narrowed the exclusive-remedy rule on precisely that ground. North Carolina’s statute is textually unqualified and the court applied it as written. Other states are not uniform, and a planner who assumes the Cobham result travels is assuming a great deal.

Read structurally rather than opportunistically, Cobham says something we would say anyway: the character of a payment is determined by the architecture that produces it, and architecture is only credible when it predates the claim.

A compensation arrangement that is genuinely defensible looks like this. It exists before any dispute is on the horizon. It is documented — an employment agreement or an operating agreement that says what the member is paid and why. The amount is proportionate to services actually rendered and benchmarked to what the market pays someone doing that work. It has been paid consistently, through payroll, with withholding, across years in which nobody was thinking about creditors. And, ideally, it was set by someone other than the person receiving it.

That last point is our practice compressed into a sentence. A properly built structure withstands attack not because it is clever, but because the person protected is not the person deciding. An independent trustee who determines whether and when a discretionary beneficiary receives anything, and an independent manager or general partner who sets compensation at arm’s length, together produce a record that no court can read as self-help. Contrast the debtor who appoints herself, pays herself, and characterises the payment herself. Every element of that record is her own — which is exactly the vulnerability Chief Judge Dillon identified.

The same architecture answers the entity question. Where charging-order protection has been legislated seriously rather than inherited, the creditor’s position is weaker than in Cobham even as to distributions. Under the Nevis Limited Liability Company Ordinance the charging order is the sole and exclusive remedy; it is expressly not a lien on the member’s interest; distributions are reachable only as and when actually made; and the order lapses on a non-renewable three-year sunset. Nevis Limited Liability Company Ordinance, Cap. 7.04(N), § 60, including § 60(2), § 60(10), and § 60(15). A creditor holding that order is not waiting for a paycheque to be recharacterised. He is waiting on a tap that an independent trustee has no obligation to open, on a clock that runs out.

Joint Entities v. Cobham will be cited by debtors’ counsel for a proposition it supports: a charging order does not reach a member’s salary. It will be cited more often, and more loosely, for a proposition it does not support — that a member facing a judgment can salary her way out of it. The first is law. The second is the improvisation this series returns to again and again, because it fails the same way every time.

A structure built years in advance, funded when there was nothing to hinder or delay, administered by someone whose independence is real, and documented well enough to be boring — that structure does not need a favourable definition of “distribution” to survive. It survives on its own terms. The debtor who needs Cobham to save her is sixteen years and several million dollars into learning why, and still under an order to disclose every transfer she made last year.

The time to build the lighthouse is not when the storm is on the horizon. It is on a clear day, when no one yet imagines it will ever be needed.

This note is general commentary for planning discussion and is not legal advice for any particular person or matter. Charging-order rules, wage-collection rules, and voidable-transfer standards vary materially by jurisdiction, and every outcome described here turns on the specific facts, documentation, and timing of the case.