Asset Protection in Texas

A Texas resident starts with more creditor protection than almost anyone else in the country. The homestead is exempt with no cap on its value. Current wages cannot be garnished on an ordinary judgment. Retirement accounts, life insurance cash value, and annuities are exempt without any dollar limit. Among the fifty states, only Florida gives a judgment debtor a stronger set of protections.

The protection stops at the bank. Texas has no exemption for cash, bank deposits, brokerage accounts, or investment real estate. A married couple’s community property is on the hook for either spouse’s tort judgment. Texas has no tenancy by the entirety and no domestic asset protection trust statute. A judgment creditor reaches everything outside the exempt categories through ordinary post-judgment collection.

What Texas Protects Without Any Planning

Texas law protects five kinds of property automatically: the home, current wages, retirement accounts, life insurance and annuities, and an interest in a limited liability company. Each one has a limit, and a creditor takes whatever falls outside it.

The Homestead

A Texas homestead is exempt from a creditor’s claims whatever its value. The limit is acreage rather than dollars. An urban homestead covers up to 10 acres; a rural homestead covers up to 200 acres for a family and 100 acres for a single adult. Seven states protect home equity without a dollar cap, and three of them attach conditions Texas does not.

The protection is written into the Texas Constitution, so the legislature cannot cut it back with an ordinary bill. The constitution lists the only debts that can be enforced against the home. They are the purchase-money mortgage, property taxes, a written contract for improvements, a home-equity loan, a reverse mortgage, a refinance that replaces one of those liens, and an owelty lien from a partition, including one awarded in a divorce. A judgment lien is not on the list, and it never attaches while the property remains a homestead.

A federal tax lien reaches the home, because federal law overrides the state exemption. A home-equity loan cannot exceed 80 percent of the home’s value, cannot close until 12 days after the application, and must be the only home-equity loan on the property. Sale proceeds stay exempt for six months, and a Texan may pay non-exempt money into the home and keep the exemption.

A recorded abstract of judgment can be released by a statutory affidavit under Texas homestead law, and the same rules decide when sale proceeds and a conversion survive bankruptcy. The decisions behind each rule are collected in Texas asset protection case law.

Current Wages

In Texas a garnishment writ cannot reach current wages for personal service, whatever the judgment is for. Once served, the employer is discharged as to those wages. A tort judgment or a commercial judgment stays off the paycheck the same as a credit-card judgment. Court-ordered child support and spousal maintenance still reach a paycheck, and so do federal claims like tax debts and student loans, because other law carves them out. Pennsylvania and South Carolina bar wage garnishment the same way, and North Carolina has no general wage-garnishment remedy for a private creditor.

The protection covers wages the employer still holds. The day a paycheck is deposited, the money becomes an ordinary bank balance, and Texas exempts nothing on deposit. A creditor with a writ on the account takes the balance under Texas wage and bank account law, and the wage bar also blocks a turnover order.

Are IRAs and Retirement Accounts Protected from Creditors in Texas?

Yes, Texas exempts a person’s interest in a qualified savings plan, and the right to receive payments from it, with no dollar cap. The statute names employer plans, self-employed plans, SEPs, traditional and Roth IRAs, health savings accounts, Coverdell accounts, and 529 plans of any state. Inherited IRAs and inherited Roth IRAs are named too, and only eleven states have written inherited accounts into their exemption statute.

Money that comes out of the account stays exempt for 60 days, and beyond that only as a rollover. Texas retirement account and IRA protection also ends when the account stops qualifying under the tax code. A bankruptcy debtor who elects the federal exemptions loses an inherited IRA.

Life Insurance and Annuities

Texas exempts life insurance cash value, policy proceeds, and annuity benefits in full, with no dollar cap and no requirement that a family member be the beneficiary. The exemption protects the money before and after it is paid, and it holds in bankruptcy. Three exceptions apply: premiums paid to defraud a creditor, a debt the policy itself secures, and a child-support lien.

LLC Membership Interests

A judgment creditor of a Texas LLC member gets a charging order and nothing else. A charging order is a court-ordered lien on the membership interest that entitles the creditor to the distributions the member would have received; it gives no vote, no management right, and no claim on the company’s property. The lien cannot be foreclosed, so no creditor can force a sale of the interest, and the statute names the charging order as the creditor’s exclusive remedy.

The rule covers single-member companies. In 2023 the legislature added a sentence saying the section applies to both single-member and multiple-member LLCs, and described the change as a clarification of existing law.

An exclusive remedy is not an exemption. The interest is still the member’s property, and a creditor who holds a charging order collects every distribution the company makes while the judgment is unpaid. A court can add a receiver or an injunction beside the order, and in four situations the interest itself can be turned over under Texas charging order law. Whether the interest is exempt in bankruptcy is now before the Supreme Court of Texas, and the decisions are collected in Texas asset protection case law.

The charging-order limit also applies only to the member’s personal creditors; a claim against the company itself reaches the company’s assets. A Texas LLC still holds up better against a member’s personal creditor than a California LLC, whose statute lets a judge order the interest sold when the distributions are not paying the judgment down fast enough.

What Texas Leaves Exposed

Texas exempts no cash, no bank deposits, no brokerage account, and no investment real estate. The personal-property exemption looks generous on paper: $100,000 for a family and $50,000 for a single adult. It is a cap on a closed list of eleven categories. The list runs to home furnishings and heirlooms, food, farm vehicles and implements, tools of a trade, clothing, jewelry up to a quarter of the cap, two firearms, sporting equipment, one vehicle per licensed family member, listed livestock, and household pets. Nothing on the list is money.

Stocks, bonds, and mutual funds held in a personal name are reachable. A rental property or a commercial building is reachable too, and so is a business run as a sole proprietorship. A creditor takes them by writ of execution, by garnishing the account that holds them, or by a turnover order.

Are Bank Accounts Protected from Creditors in Texas?

No, a Texas bank account has no exemption of its own, and money that was exempt before it was deposited does not stay exempt afterward. The wage rule covers current wages in the employer’s hands; once the paycheck lands in a checking account it is an ordinary balance a creditor can garnish. Texas has no sixty-day or other grace period for deposited wages. The one sixty-day rule in the Texas exemption statutes covers retirement distributions, and it runs from the distribution, not from a deposit.

Once a writ of garnishment is served on the bank, the balance is frozen, and what the creditor takes from it follows Texas bank-account law.

Two windows delay the exposure: six months for homestead sale proceeds and sixty days for a retirement distribution. After either window closes, the money is an ordinary deposit.

What a Creditor of One Spouse Can Reach in Texas

No, Texas has no statute creating tenancy by the entirety, and a married Texan holds property as community property or as separate property under the Family Code. Tenancy by the entirety exists in twenty-four states and in the District of Columbia. In roughly half of them a creditor of one spouse alone gets nothing from the couple’s joint property while the marriage lasts. In Texas, whether a creditor of one spouse can reach marital property turns on two things: who manages the property and what kind of debt it is.

One spouse’s separate property is beyond the other spouse’s creditors. Community property under one spouse’s sole management is safe from the other spouse’s premarital debts and non-tort debts. Both protections give way where another rule of law makes both spouses liable for the debt. Community property a spouse manages alone or jointly answers for that spouse’s own debts, whether they came before the marriage or during it. And every dollar of community property, including what only the non-debtor spouse manages, answers for a tort judgment against either spouse arising during the marriage.

The tort rule is the one that catches professionals. A malpractice judgment against one spouse reaches the whole community estate, including the earnings and accounts the other spouse manages alone. Spouses may partition community property into separate property by agreement, though the agreement is void against a creditor who already existed when it was signed and whom it was meant to defraud. What each kind of creditor reaches is set by Texas community property law.

Fraudulent Transfers and Criminal Exposure in Texas

A Texas creditor who finds an asset already transferred away has a civil remedy under the Texas Uniform Fraudulent Transfer Act. The act lets the court set the transfer aside, attach the property, enjoin further transfers, appoint a receiver, or enter a money judgment against whoever received the property first or was meant to benefit from it. Texas kept the older uniform act and its name; it has not adopted the Uniform Voidable Transactions Act.

A creditor gets four years after the transfer to bring the claim. For an intentionally fraudulent transfer that a creditor discovers late, the period extends to one year after the discovery. Exempt property is outside the act’s definition of an asset, so a payment into the homestead is beyond its reach.

Moving assets to defeat a creditor is not a crime in Texas. A minority of states make a fraudulent transfer a crime; Texas does not, and a Texas creditor’s only route is to set the transfer aside in a civil case. The one crime that comes close is hindering a secured creditor. A debtor who conceals, removes, or damages property that secures a debt, intending to hinder the lienholder, commits an offense. The charge rises with the value of the property up to a first-degree felony, and Texas prosecutes it regularly.

The lawyer’s exposure is narrow. No Texas appellate decision holds that the act reaches someone who helped with a transfer but never received the property. The money judgment reaches only the first transferee, the intended beneficiary of the transfer, or a later transferee who did not take for value in good faith.

A judgment creditor whose lien has attached to the property can sue those who conspired to defeat that lien. The Supreme Court of Texas stated that rule in Estate of Stonecipher v. Estate of Butts (1979). A general creditor who holds no lien has no such claim.

A lawyer who knowingly drafts the documents that put a debtor’s assets beyond a judgment creditor can be exposed to that conspiracy claim. Attorney immunity does not cover knowingly assisting a fraudulent transfer, as the Houston court of appeals held in Essex Crane Rental Corp. v. Carter. The Supreme Court of Texas cited that holding with approval in Cantey Hanger, LLP v. Byrd, while ruling that a fraud label alone does not defeat attorney immunity.

The Offshore Trust for a Texan with Non-Exempt Liquid Assets

A Texan gets no creditor protection from a trust set up for his own benefit under Texas law. A trust signed under another state’s law does not reliably protect him either. Texas Property Code § 112.035(d) says that a spendthrift clause does not protect a settlor who names himself a beneficiary; his creditors can reach the interest he kept for himself.

Roughly twenty states have a domestic asset protection trust statute; Texas is not one of them. A Texan can sign a trust under Nevada or South Dakota law and name a trustee there, but a creditor sues where the debtor lives. A Texas court asked to enforce a Texas judgment against a Texas settlor’s assets will likely apply Texas law, and Texas law lets the settlor’s creditors reach the trust.

What Texas leaves exposed is liquid: cash, brokerage accounts, and investment holdings that no exemption reaches, plus the whole community estate when the judgment is a tort judgment. That is what an offshore trust is for. The Texan moves those assets into a Cook Islands trust, with a licensed trustee there holding title. The Cook Islands give a United States judgment no effect on their own, so a creditor has to sue all over again in the Cook Islands, under that country’s law.

That trustee holds the brokerage accounts and cash Texas leaves exposed, and keeps making distributions to the settlor in ordinary times. A creditor who follows the assets must prove fraud beyond a reasonable doubt, inside short limitation periods, in a court that does not recognize the U.S. judgment. Creditors have tested those rules in contested cases since the late 1990s. None is known to have recovered assets out of a properly structured Cook Islands trust.

Marriage adds a step. Because most of a Texas couple’s holdings are community property, the spouses first partition the assets, so that what will go into the trust becomes the funding spouse’s separate property. A partition signed to defraud a creditor who was already there does not defeat that creditor.

A Cook Islands trust makes sense from $1,000,000 in total assets, or from $500,000 in liquid non-exempt assets. Setting up a Cook Islands trust costs roughly $21,000, or about $26,000 when an offshore LLC is added. That figure is a $15,000 or $20,000 attorney fee plus about $6,000 of trustee charges in the first year. Trustee fees then run about $5,000 annually ($6,000 with an LLC), and the CPA’s annual filings for the trust add another $2,000 to $3,000.

Texas has no personal income tax, so the trust adds no state return. The federal side is a CPA’s work: Form 3520 each year, the trust’s Form 3520-A, and an FBAR once the trust’s foreign accounts pass $10,000. The trust does not lower U.S. income tax; every dollar of trust income is still reported on the settlor’s own return.

A Cook Islands trust can be set up after a lawsuit is filed, and often is. Planning after a claim exists brings more exposure to contempt and a weaker hand in settlement than planning ahead of it, but it remains available.

The trust deed’s Jones clause lets the trustee pay a specific existing creditor on defined conditions, which narrows the fraudulent-transfer exposure and hands the settlor a defense against a contempt finding. The Texas creditor’s four-year period to attack the transfer still runs, and a creditor who wants the money must go to the Cook Islands and sue there.