Asset Protection in Texas

Strategies for Real Estate Investors

by David J. Willis J.D., LL.M.

Keys to Asset Protection

This article is intended as an overview of asset protection. Our firm has published numerous other web articles that may be consulted for more detailed approaches that are only briefly mentioned here. The following are key points to keep in mind when discussing asset protection in Texas:


  • advance, pre-emptive planning before lawsuits and creditor action
  • creating a legal barrier to personal liability with the appropriate entity
  • separating assets (properties) from activities (contracts, leases, etc.)
  • maximizing anonymity in the public records
  • utilizing homestead and income protections afforded by the Texas Constitution and Property Code
  • asset spreading and compartmentalization (series LLC)
  • equity stripping by maximizing one’s (apparent) debt in the public records
  • generally exhausting an opponent’s resolve and resources


  • shell management LLC to do business with the public, tenants, vendors, etc.
  • holding company for assets (TX or NV series LLC) that stays in the background
  • anonymity LLC formation
  • anonymous land trusts
  • assumed name certificates (DBAs)—state and county
  • attorney-client privilege (use of attorney as registered agent)
  • living trust for the homestead to achieve probate avoidance

Texas History

Texas has an established history of being a haven for debtors. For over a hundred years there has been a saying “So-and-so has gone to Texas.” Sometimes this meant the person had physically relocated to Texas; just as often it implied that he had left town to beat his creditors. This grand if ethically sketchy tradition continues. The Texas Constitution, the Business Organizations Code, and the Property Code make it possible for individuals and businesses to establish fortress-like operating structures and shield substantial income and assets from execution upon a judgment. Together, these laws make the Lone Star State an advantageous venue for asset protection. As a result, any resident of Texas seeking to protect assets should start with a basic understanding of what is broadly referred to as “Texas homestead law.”


Homestead Protections for Individuals in Texas

Texas offers unique protections for its residents that should be integrated into any asset protection plan. These “homestead protections” are contained principally in the Texas Constitution Article XVI, Section 50 and in Texas Property Code Chapters 41 and 42. They apply to both income and assets. In other states, execution on a judgment can strip you of your possessions and put you on the street, but that is usually not true in Texas. If a lawsuit is anticipated, or if a judgment creditor is expected to attempt collection, then it is wise to review and maximize these protections well in advance of litigation. It is even wiser to formulate an asset protection strategy long before adverse events occur.

The Homestead Residence

The homestead is the crown jewel of exemptions. It is protected from forced sale for purposes of paying debts and judgments except in cases of purchase money, taxes (both ad valorem and federal tax liens against both spouses), owelty of partition (divorce), home improvement loans, home equity loans, reverse mortgages, liens pre-dating the establishment of homestead, refinance loans, or the conversion or refinance of a lien on a mobile home that is attached to the homestead. Other liens are void. No matter how much the home is worth, an ordinary judgment creditor cannot force its sale in the absence of fraud. In re McCombs, 659 F.3d 503, 507 (5th Cir. 2011). Texas homestead laws are liberally construed by the courts. London v. London, 342 S.W.3d 768, 776 (Tex.App.—Houston [14th Dist.] 2011, no pet.). Other than the types of encumbrances listed in [Property Code Section] 41.001(b), “judgment liens that have been properly abstracted nevertheless cannot attach to a homestead while that property remains homestead.” Fairfield Fin. Grp. v. Synnott, 300 S.W.3d 316, 320 (Tex.App.—Austin, 2009, no pet.). Furthermore, an attempt by a creditor to place or enforce a lien against the homestead can be defeated using the procedure in Property Code Section 53.160.

It is also possible to move safely from one homestead to another. Property Code Section 41.001(c) states: “The homestead claimant’s proceeds of a sale of a homestead are not subject to seizure for a creditor’s claim for six months after the date of sale.” This expressly permits homestead equity to be rolled over. Taylor v. Mosty Bros. Nursery, Inc., 777 S.W.2d 568, 570 (Tex.App.—San Antonio 1989, no writ). However, beware of the propensity of title companies to collect for payment of judgments upon sale of the homestead in disregard of Section 41.001(c). Some title companies have a self-serving reflex requiring that all judgments on Schedule C of the title commitment be paid or released. If that occurs, and if the property is homestead, then the seller should aggressively assert Section 41.001(c). If the title company continues to insist that the judgment be paid then the remedy may be to change title companies.

The homestead must be rooted in real estate. As much as one might enjoy living on the water, a yacht is not homestead but moveable chattel, i.e., not realty but personal property. Norris v. Thompson, 215 S.W.3d 851 (Tex. 2007).

Wages and Personal Property

Article 1, Section 28 of the Texas Constitution prohibits garnishment of wages, protecting the income of a person who receives a salary or wages. A creditor cannot touch either one, at least not while they are on their way to the debtor.

Considerable personal property is also exempt from execution. Property Code Sections 42.001 et seq. specifically list the amount and types of exempt personal property, including a vehicle for each licensed driver in the household; home furnishings; and the debtor’s IRA or 401(k). In keeping with Texas’ frontier spirit, you can even keep two horses if you wish.

Also exempted are certain savings plans “to the extent that the plan, contract, annuity, or account is exempt from federal income tax, or to the extent federal income on the person’s interest deferred until actual payment of benefits to the person” under the Internal Revenue Code (Prop. Code Sec. 42.0021); college tuition funds (including IRS Section 529 funds and accounts established under Subchapter F (Education Code Ch. 54,) which are exempted under Section 42.0022; and the cash value of annuities and life insurance policies exempted under Section 1108.001 of the Insurance Code—at least to the extent those items are exempt from garnishment, attachment, execution, or other seizure under Chapter 42 generally. See our companion web article on Homestead Protections in Texas.

The Cash Problem

Cash not associated with a retirement plan is the most vulnerable of all assets, even in Texas. What should a debtor do with it when pursued by creditors? Options are to carefully and incrementally convert it to homestead-exempt assets such as the home or vehicles; use it for reasonable expenses (e.g., retaining an attorney, paying the IRS, paying a child’s tuition, etc.); and progressively withdraw it from the bank over time for legitimate purposes. The conversion process can be tricky, particularly if a lawsuit is already pending. It should not be rushed. If challenged, a debtor must be able to credibly assert the “ordinary course of business” defense of Property Code Section 42.004. In other words, conversion of cash into exempt assets should be accomplished in the orderly course of business or personal life for purposes that can be reasonably justified independent of any threatened or pending litigation.

Stocks and Bonds

There are two important points to note in this area: first, stocks and bonds are just as vulnerable to a judgment as cash unless they are held in a retirement plan exempt under Chapter 42; and second, if one wishes to move such assets out of one’s personal name, the best alternative is usually a stand-alone traditional LLC that is dedicated to the purpose.

A frequent client request is that stocks and bonds be placed in the same entity as rental properties—perhaps in a different series of the investor’s holding company. This is a bad idea and not only because it violates the core asset protection principle of keeping like with like. Investment properties (whether residential or commercial) are prolific generators of liability and lawsuits. It is an inevitable part of the nature of these investments, so it makes little sense to put stocks and bonds into the same entity—especially since financial assets generate almost no liability at all. Doing so only makes matters easy for a judgment creditor who will then have an easy time collecting liquid (or nearly liquid) funds to satisfy his judgment. Asset protection advisors are unanimous when it comes to mixing brokerage accounts with real estate investments: Just don’t do it.

Homestead Exemptions and Registered Entities

Only individuals (not corporations, LLCs, or limited partnerships) may take advantage of homestead protections. This is one reason it is suggested that when it comes to entity structuring investors draw a red line between investments assets and the homestead. Don’t mix them in the same entity.

In Texas, stock in a corporation is non-exempt personal property (Bus. Orgs. Code Sec. 21.801) that can be subject to levy (Tex. R. Civ. P. 641; Bus. & Com. Code Sec. 8.112), garnishment (Tex. R. Civ. P. 669), or turnover (Tex. Civ. Prac. & Rem. Code Sec. 31.002). However, partnership and LLC interests are subject only to a charging order, which means that if distributions occur, and only if they occur, then the creditor may attach them. Bus. Orgs. Code Sec. 101.112 (LLCs), Sec. 152.308 (partnerships). See our article on Charging Orders in Texas.


Going Beyond Statutory Homestead Protections: Forming an LLC

If in addition to the homestead one has investment properties and significant cash, then clearly the statutory homestead regime is insufficient for asset protection. The next level of protection is achieved by forming an LLC which accomplishes two critical goals: it creates a liability shield for protection of member-owners and, in the case of a series LLC, it creates individual compartments or series which insulate each series from the liabilities associated with other series and the company at large. Visualize a firewall between Series A, Series B, etc. The benefits? Simplicity and economy. An investor with multiple similar assets may no longer need a multiplicity of entities to safely do business. Note that this is not the correct approach when it comes to assets or enterprises that merit their own stand-alone entity. Examples are restaurants, retail outlets, construction companies, mobile home parks, apartment complexes, and so forth, previously described in this book as meriting their own single-purpose entities.

Drafting LLC Documents

All LLC documents—beginning with the certificate of formation (Texas) or articles of organization (Nevada) and continuing with the company agreement, the first meeting of members, and the rest—should be drafted with a view toward asset protection. Every company document should be prepared with the expectation that it will be intensely scrutinized by both an opposing attorney and a judge.

Part of asset protection is deterrence. Filed documents should include provisions that discourage creditors from suing the company in the first place. For instance, the COF should contain more than the statutory minimum wording; it should go into detail concerning matters such as series separation and insulation. It should also declare two classes of membership interest—Class A for “regular” members and Class B for creditors who acquire an interest or influence (one way or another) in the company. Owners of Class B are second-class citizens. Class B is unable to vote, may not serve as manager, may not direct that assets be encumbered or sold, and may not alter or impair the company’s ability to do business. What sensible plaintiffs’ attorney would want to spend time and money suing a company when a victory would consist of acquiring ownership or influence over Class B? He or she certainly might be reluctant do so on a contingent fee arrangement. A substantial retainer would likely be required of the plaintiff. And that brings us back to one of the core strategies of asset protection, to wit, exhausting an opponent’s resolve and resources.

Transferring Assets to an LLC

An essential asset protection measure is to transfer investment property out of one’s personal name and into an LLC—or, if a two-company structure is used, into individual series of the holding company. For real estate, this is done by means of a general or special warranty deed. If the asset is a business or other non-realty item, then a bill of sale is generally used. Other assets may call for an assignment of interest. Executed originals should be kept in the LLC’s company book.

The due-on-sale clause contained in nearly all deeds of trust is seldom a factor in the transfer of investment properties to a borrower’s personal LLC for purposes of asset protection. Historically speaking, it is unlikely that a lender will accelerate a performing loan when the purpose of the transfer was made clear—which is not to say that acceleration cannot occur as a result of transferring property into an LLC (lawyers are always hesitant to predict the actions of any particular lender), only that it is unlikely in the case of a performing loan.

LLC Maintenance

There are minimum actions and formalities that should be prudently observed in order to not only preserve business records but enhance preservation of the LLC’s liability barrier—which, after all, is the principal reason one forms an LLC in the first place. These include well-drafted organizational minutes and a company agreement; issuance of membership certificates; minutes of annual meetings; obtaining an EIN and filing tax returns; having a company bank account; and other actions to validate the independent nature of the entity. Failure to do this sort of routine maintenance when accompanied by allegations of actual fraud can make a company vulnerable to “piercing the veil” allegations. Such allegations are so common as to be virtually automatic nowdays. Even if they ultimately fail (as they should in most Texas cases), it is time-consuming and expensive to dispose of them. So why offer the opposition an opening on these issues in the first place? We know in advance that a creditor-plaintiff will ask to see the contents of the company book during the discovery process. It is a given. When produced, the documentation should be flawless.


The Classic Two-Company Structure

A sound asset protection structure involves two LLCs, one to hold title to assets (a holding company) and the other to manage them and engage in business generally (a management company). The holding company should usually be a series LLC while the management company may be either a traditional or series LLC.

A series holding company will have multiple compartments or series that are insulated from one another. For example, if there is a lawsuit affecting an asset in series A, then series B, C, and so on are not affected. The holding company stays quietly in the background, avoiding contractual or transactional privity with anyone. Few people, especially tenants, should even know that it exists. The holding company’s name should not even be similar to the name of the management company—and, of course, neither name should provide a clue to the identity of the investor-owner.

In contrast to the holding company, the management company is visible and active. It collects rents, signs leases, deals with contractors and vendors, employs personnel, leases office furniture and vehicles, and otherwise engages with the public. It is a separate, stand-alone entity with no real assets, an intentional target for litigation. If sued, one remedy is to walk away, form a new management company, and continue business as usual. If the result is a judgment against the old management company (which should have been maintained as nearly an empty shell) the loss to the investor is minimized. Additionally, using the two-company structure does your attorney a favor since if the holding company is also sued, he or she may successfully argue that it should not be a defendant at all. Why? Because the holding company did no business with anyone, had no privity with anyone, and therefore there is no legitimate basis for a cause of action against it.

The investor should instruct tenants, creditors, vendors, and the public generally that they are doing business with the management LLC’s chosen DBA, and checks should be written accordingly. When there is no compelling reason to disclose the proper legal name of the LLC, then why do it? For example, if an investor is utilizing a two-company strategy, then the DBA used should be that of the management company. It is the public face of the investor’s business. Invoices, payments, and the like should all be sent to the management company DBA and rather than to the investor individually. When a W-9 is required, it should contain the LLC’s tax identification number. The investor’s personal name should not appear except perhaps in the capacity of an authorized representative who signs on behalf of the entity. Why? Because when a personal name appears, a plaintiffs’ attorney sees a potential additional defendant.

A caveat: if a tenant requests the proper legal name of the landlord’s business (management or ownership), then the landlord must provide it. Prop. Code Sec. 92.201.

The Hub-Sub Anonymity Structure

The goal of the hub-sub structure is to integrate various assets and enterprises into a double-layered two-company structure with multiple firewalls. We call this double series LLC structure a “hub-sub.” The heart of the structure is the hub company—a series LLC formed in Texas (or another state such as Nevada or Wyoming) which is in turn owned by an anonymity trust with a post office box The attorney acts as organizer and, for Texas LLCs, as registered agent.

Series A of the hub company owns another series company (usually a Texas series LLC). Series A of the hub company is the sole member and manager of this subsidiary, listing either a Texas postal box or an address in Nevada as the registered address. This second series entity is thus a wholly-owned subsidiary of (and managed by) series A of the hub company. Again, the attorney acts as organizer to maintain anonymity.

The subsidiary series LLC is where individual rental properties are held. For example, series A of the sub may own 123 Oak Street; series B 458 Elm Street; and so on.

There is nothing new in arranging LLCs or corporations in a parent-subsidiary relationship. The innovation of the hub-sub is that this is accomplished (1) using two series LLCs that are (2) structured so as to maximize anonymity.

Now back to the hub company and its potential for accommodating diverse investments. Recall that it is a series entity, and that series A is now occupied by a subsidiary (another series LLC) that owns rental properties. What about the other series of the hub company? The answer is that these are open and available for the investor’s other business interests. Series B of the hub company might own a retail store. Series C might be sole member and manager of a traditional Texas LLC that owns a construction company. Why use a traditional LLC for these subsidiary businesses? Because such businesses are usually sufficiently substantial to warrant their own single-purpose entity (SPE). Additional variations on the foregoing are limited only by the investor’s imagination. The result is a compact, efficient, and largely anonymous structure which provides the diversified investor with everything he needs and nothing he doesn’t.

Summary of Basic Asset Protection Steps

Real estate investors who have (or wish to have) a portfolio of properties should consider certain basic asset protection steps. These can evolve into multi-layer, multi-jurisdictional structures but there are several consistent fundamental themes. Generally, one should:

(1) form a traditional LLC to act as a shell management company to sign contracts and leases and otherwise do business with tenants, vendors, contractors, and the public;
(2) establish a series LLC to own and hold—but not manage—investment assets (a holding company that does business with no one, thereby avoiding legal privity with anyone);
(3) transfer assets held in one’s personal name into individual series of the holding company (Series A, Series B, etc.) using deeds that cite series protections;
(4) file assumed name certificates for both the holding company and the management company and utilize these DBAs in all dealings;
(5) establish checking accounts for each company under its respective DBA and have checks and letterhead printed that way;
(6) rigorously maintain separation of assets (the holding company) from activities (the management company) going forward;
(7) form a living trust for the homestead to avoid probate, transfer the home into it, and then execute a pour-over will to transfer other assets to the trust upon death;
(8) maximize protections afforded by the Property Code and Texas Constitution as to the homestead and other judgment-exempt items;
(9) maintain separation the homestead and other judgment-exempt items from one’s investments and businesses.


Pre-Suit Asset Protection Strategies

Asset protection strategies fall into two groups: strategies implemented in advance of collection action or suit by a creditor-plaintiff; and strategies that are feasible afterward. It is preferable to plan ahead and be prepared, since the range of pre-suit alternatives is far greater. After suit is filed, depending on the circumstances, options are reduced by laws relating to fraudulent transfers—moving assets around to defeat legitimate claims of creditors. Creditors and courts are on the lookout for these. For details, look at Chapter 24 of the Business Organizations Code, entitled the “Uniform Fraudulent Transfer Act.” The purpose of UFTA is to prevent debtors from placing assets beyond the reach of creditors. See also Mladenka v. Mladenka, 130 S.W.3d 397 (Tex.App.—Houston [14th Dist.] 2004, no pet.).

After suit is filed, the actions of a defendant may be challenged under Property Code Section 42.004 which states that an exemption is lost if non-exempt assets are used to buy or pay down indebtedness on exempt assets “with the intent to defraud, delay, or hinder” a creditor. The defense? The transfer was made in the ordinary course of business as permitted by Property Code Section 42.004(c). In practical terms, this translates as in the ordinary course of business and daily life. Competent planning should make effective use of this defense relatively easy.

Post-Suit Strategies

Once litigation is commenced, obvious attempts to maneuver and manipulate assets will likely be detected and scrutinized, at least if the creditor-plaintiff is on the ball. The court may be asked to set aside or unwind an allegedly preferential or fraudulent transaction. Such transfers are generally indicated by “badges of fraud” including transfers to a family member; whether or not suit was threatened before it was filed; whether the transfer was of substantially all of the person’s assets; whether assets have been removed, undisclosed, or concealed; whether there was equivalent consideration for the transfer (as opposed to a gift or a transfer for $10 and other valuable consideration); and whether or not, after the transfer, the transferor became essentially insolvent as a result (i.e., made his cash or other non-exempt assets disappear all at once). See our companion web article on Fraudulent Transfers in Texas.

Fraudulent transfer rules usually allow courts to reach back up to two years. Waiting until one has no recourse remaining other than to engage in an obviously fraudulent transfer is simply poor asset protection.

In post-suit strategy, it is important to move assets so as to be able to convincingly claim that a certain action would have been taken anyway, for good reasons that have nothing to do with avoiding a creditor’s claims. After all, life does not end merely because a lawsuit has been threatened or filed. People continue to engage in commerce, buy and sell houses and vehicles, make new investments, and otherwise go about the business of living and supporting themselves and their dependents.

Post-Judgment Discovery

How do creditor-plaintiffs find out when you move your assets around? Principally by using the discovery process (interrogatories, requests for production of documents, and depositions—all required to be answered under oath) in order to inquire into a debtor-defendant’s transactions. The scope of this process can be wide indeed, reaching back years. Failure to fully respond is grounds for contempt, although “fully respond” should never be interpreted as supplying more information than is absolutely necessary. Creditor-plaintiffs may do research on a defendant, particularly if the debt is substantial, but most have only the information that a debtor voluntarily gives them in pre- and post-judgment discovery. Contrary to popular fiction (where the computer whiz hits a few keys and then summarizes a person’s entire life and finances), the Internet has yet to reach the point where it easily reveals everything about everyone to anyone who asks.

For defendants, the most pernicious discovery occurs post-judgment, since creditor-plaintiffs can then go beyond the facts of the case and compel disclosure of sources of income as well as the location and value of assets—even assets that are legally exempt and which (supposedly) cannot be touched. This can be a headache because the creditor-plaintiff may nonetheless attempt to go after such exempt assets, forcing a debtor-defendant to seek court protection. One can see why it is important that the defending attorney make a creditor-plaintiff fight vigorously for every bit of information provided in responses to discovery.

Anonymity Strategies

Seeking to achieve relative anonymity in the public record is a legitimate goal that is more important to some investors than others. Those for whom there is pending or threatened litigation would certainly fall into this category. An investor’s goal should usually be to achieve maximum anonymity combined with the liability barrier created by one or more LLCs. Such a strategy creates legal, practical, and psychological obstacles to a potential creditor-plaintiff.

An LLC provides a measure of anonymity depending on the amount of information that is disclosed in the certificate of formation (or articles of organization in the case of Nevada). The COF requires three names and addresses: the registered agent (physical address only), the initial manager (a post office box is acceptable), and the organizer (often the attorney).

Anonymity begins at LLC formation. Avoid using the home as the registered address. Disclosing it hardly enhances anonymity, nor does it prevent a constable from banging on your door at 5:30 a.m. to serve a lawsuit. The world is both a legally and physically dangerous place. We have even had a client whose home was bombed by an angry tenant. Tenants, vendors, contractors, and the public at large should never have an investor’s homestead address.

The COF requires a physical address, not a box, since the constable cannot serve a mailbox with a lawsuit. Recently, the Secretary of State has become more aggressive in checking whether or not registered addresses are really mailbox stores. They occasionally even google a proposed registered agent address. If they think it is a postal box, the COF will be rejected.

It is recommended that an investor should either use his or her office address or use an attorney as registered agent of the company (which also has the benefit of invoking the attorney-client privilege under certain circumstances). Otherwise, arrangements must be made for a registered agent at a real street address, which cannot contain PMB, POB, Box, a double suite number, or any other indication of a box.

Back to the COF, which requires the designation of an initial manager. This is usually where the owner’s name goes. A creative approach is to name an anonymity trust in this capacity, but this is an advanced technique to be used only with guidance from a specialized attorney. An additional benefit: one now has an anonymity trust, backed by a trust agreement, that is able to be utilized for other purposes beyond its role as member and manager of the LLC—including buying more property (more or less) anonymously. This is an example of how the component parts of an asset protection structure can work together synergistically.

For more detail on anonymity strategies, see our companion web article on this subject.

The Challenge of Multiple Properties in Multiple Jurisdictions

It is common now for real estate investors to have properties in different states. One must be mindful, however, that the U.S. is a federalized republic with 51 principal sets of laws and rules of procedure (50 states plus the federal system). This adds both complexity and the need to have professional advisors in each of the jurisdictions where one owns property. This comes as a surprise to investor clients who ask their Texas attorney “You mean that because I own a duplex in Florida I need a Florida lawyer too?” The answer is an emphatic yes, particularly if a title transfer or other significant transaction is being contemplated. Lawyers are licensed to practice in specific states—most of them in just one state, although many lawyers are also licensed to practice in the local federal circuit. Newer investors may be unprepared for this, hoping that their Texas or California lawyer can also handle that Florida duplex. The fact is that when an investor chooses to have multiple properties in multiple jurisdictions he has also inevitably chosen to increase his professional support budget.

The Strategic Role of Insurance

Is liability insurance alone sufficient for asset protection? The answer is a resounding no. Insurance is a passive measure that has its place in the mix. True asset protection requires one to be proactive. Asset protection experts unanimously recommend a sensible blend of insurance and active asset protection measures. The principal reason is that insurance can never be truly relied upon, since insurers are in the business of collecting premiums and denying claims. That is what they do, that is their business plan, which is why they are among the wealthiest corporations in America. Expect that every effort will be made by an insurer to exclude or avoid coverage in case of loss—which will make your “good neighbor” your attorney, not the insurance company. There may also be special issues if a creditor-plaintiff alleges fraud which is never covered. It may then become necessary to sue the insurance company.

Even if an insurer concedes coverage, extravagant claims made in lawsuits may (and often do) exceed available limits. Moreover, the existence of a sizable policy and umbrella may actually encourage a lawsuit because it will be perceived as a tempting target. Nonetheless, having adequate insurance is a necessary precaution.


Bankruptcy is the nuclear option in asset protection. Rules against fraudulent transfers to avoid payment of creditors (“preferences” in the Bankruptcy Code) apply in this area as well, and more strictly. The bankruptcy court can reach back a year or more. Also, false information in a bankruptcy petition may be investigated by the FBI. And of course bankruptcy does not discharge income taxes (although the IRS may be more likely to work with you on a payment plan), child support obligations, student loans, and any items that a debtor fails to list on the petition.

The Bankruptcy Code allows a debtor to choose between the federal exemptions (i.e., list of exempt assets) or the state ones. In Texas it is more common to choose the state exemptions since they are so favorable.

By and large, filing bankruptcy is an admission that previous asset protection strategies have failed. The bankruptcy trustee and the court assume control of your life. It is a last resort.


Lifestyle Considerations

One’s lifestyle should be consistent with maintaining an effective asset protection strategy. In addition to all the other suggestions relating to anonymity, creating a liability shield, maximizing protections under the homestead laws, and the like, one should:

(1) avoid conspicuous consumption—live a notch below your means (at least outwardly) so as to make a less appealing target for plaintiffs and their attorneys;
(2) avoid personally guaranteeing any business debt or cosigning on others’ notes;
(3) carry health and term life insurance on yourself as well as key-man term life insurance on your business partners;
(4) avoid all forms of debt that do not result in an income stream, including nearly all consumer debt which, after the thrill of possessing a new item dissipates merely serves to keep you up at night;
(5) reduce all business arrangements—including those with family and friends (especially those with family and friends)—to a written agreement that contains an exit strategy, including buy-sell and dispute resolution provisions;
(6) diversify assets and investments, preferably within one or two LLCs, at least one of which should be a series company; and
(7) put 5 to 10% of your assets into gold, cash, and other doomsday assets. The worst-case scenario could actually happen. Some think it is happening already.

Asset Protection in the Real World

While strategies discussed in this article are definitely worth doing, total asset protection is probably not absolutely achievable, even in Texas, in spite of claims made by Internet and seminar gurus (and even some lawyers) who have never spent time in a real court of law in front of a real judge who has contempt power. Do you recall Einstein’s theory that a traveling spaceship may approach the speed of light but never actually reach it? Asset protection is like that. The goal is to get as close to an ideal AP situation as possible, by using the correct structure and by layering asset protection devices.

Asset protection is ultimately about continual preparation and advance planning that establishes a structure that deters lawsuits and inflicts high costs on a plaintiff, defeating attempts to reach your personal assets by using anonymity and multiple layers, and exhausting the opponent’s resources and resolve. This is a variation of the porcupine theory. If one can make it unacceptably difficult, expensive, and time-consuming for a plaintiff to reach hard assets, then your asset protection plan has done its job.

What the Lawyer Needs from the Client

When designing a new asset protection plan, an attorney needs to consider a number of factors:

(1) What is the client’s existing structure if any? Can parts of it be salvaged or updated for ongoing use? If there are existing entities, are they in good standing? Obtain copies of the certificates of formation, certificates of filing, company agreements, any meetings of members, etc. in order to evaluate their usefulness (or lack thereof) going forward. Existing entities may have to be updated and extensively redocumented in order for them to be of use. Interests may have to be assigned and properties redeeded.

(2) What is the present nature of the client’s business and where does he want to take it in five years? Can all goals be accommodated within the same proposed structure? If the client has diverse goals then some ventures may belong in their own single-purpose entities, unmixed with other businesses.

(3) Is litigation pending or threatened? At what stage is that litigation? Is the client competently represented in those matters?

(4) Are there unpaid judgments? Obtain copies of these to see exactly which persons or entities are liable.

(5) Are there partners or co-venturers involved? If so, and if their interests diverge, the lawyer may need to advise them to obtain their own counsel. It should not always be assumed (for instance) that different unrelated members of an LLC have identical goals or interests.

(6) In what capacity will various participants be involved? It may be best for the respective partners or members to each form a personal LLC and then create an asset protection super-structure that is built upon these individual LLCs. An example would be a joint venture which should almost always be set up as an association of LLCs rather than individuals.

(7) What is the client’s level of commitment to asset protection? This varies widely. Clients often arrive with either a minimalist or maximalist mindset. It is also important to ascertain whether or not the client is willing to engage in the layering of entities to enhance the sturdiness of the structure. In certain cases, a layered structure may be the only way to achieve an acceptable level of asset protection. Does the client understand this?

(8) What is the client’s budget? If the client says that he wants an anonymous two-company structure combined with a trust but his budget is only $2,500, then the lawyer will need to inform him that such a goal is unrealistic at that level of investment. One can buy a Ford or a Mercedes, but not usually at the same price.


Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. This firm does not represent you unless and until it is expressly retained in writing to do so.

Copyright © 2022 by David J. Willis. All rights reserved worldwide. David J. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website,