This article outlines unique protections available to an individual’s residence and personal property by what are broadly referred to as Texas homestead laws. The residential homestead and essential personal property have always been sacred in Texas, reaching back to the Republic of Texas and even before (see Stephen F. Austin, Code of Civil Regulations,1824).
The homestead of a family or single adult is protected from forced sale 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 predating 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. A permitted lien on a residential homestead must be in writing and signed by both spouses to be valid.
The protection of the homestead and associated personal property combined with the prohibition against garnishment of wages has long made Texas a favorable destination for debtors. Even with constitutional and statutory limitations, it is quite possible to make a good salary (no monetary limit), own a paid-for million dollar home, drive a paid-for car, all with numerous judgments (from Texas or other states), and still be reasonably secure from creditors—although dealings in current cash accounts may be severely restricted. As to the residence itself, there is no dollar limitation on its exempt value. In re. McCombs, 659 F.3d at 507.
Our focus in this article is on Texas law, not rules or exemptions under federal or bankruptcy law. It is worth observing, however, that bankruptcy rules are tougher on debtors than Texas law. Generally speaking, if a debtor can stay out of bankruptcy, hunker down, and maximize Texas state protections, that is usually the preferable course.
BASIC HOMESTEAD LAW
Constitution and Property Code
Texas Homestead laws are found in Constitution Article XVI, Section 50, Property Code Chapters 41 and 42, Tax Code Section 11.13 et seq., and in the long history of Texas case law addressing the residential homestead and protected personal property. The historical agrarian context is unmistakable. One easily envisions a Texas homesteader on his plot of land with animals and equipment necessary to raise crops and defend his family.
The Texas Constitution and Property Code provide that a significant amount of real and personal property is exempt from execution on a judgment (see the lists below). However, the exemption may be lost if non-exempt assets are converted into exempt assets for the purposes of avoiding payment of a judgment creditor (subject to the ordinary-course-of-business exception in Prop. Code Sec. 42.004(f)). If a defendant can credibly assert that a certain transfer or transaction could have (or would have) been undertaken anyway, for legitimate reasons and regardless of litigation or a judgment, there is a good chance the transfer or transaction will be protected.
Bias in Favor of Homesteader
Homestead laws are liberally construed by Texas courts in favor of the homesteader. London v. London, 342 S.W.3d 768, 776 (Tex. App.—Houston [14th Dist.] 2011, no pet.). “Indeed, a court must uphold and enforce the Texas homestead laws even though in so doing the court might unwittingly assist a dishonest debtor in wrongfully defeating his creditor.” PaineWebber, Inc. v. Murray, 260 B.R. 815, 822 (E.D. Tex. 2001).
The net effect of Texas homestead law (broadly construed) is that unless a judgment debtor owns investment real estate, cash or cash-equivalent on deposit, or a business with attachable inventory—or engages in fraud in the concealment of assets—a judgment against an individual may be uncollectable.
Homesteads are for People
Homestead protections are available only to natural persons—not registered business entities such as corporations, limited partnerships, or LLCs; nor is a debtor’s ownership in a corporation, limited partnership, or LLC protected from the consequences of a judgment merely because the entity owns a property in which the debtor resides. Homestead protections are clearly intended for a family or a single adult natural person— see the language of the Texas Constitution contained in Article 16, Section 50. When a homestead is conveyed to a registered entity such as a corporation, regardless of who owns the entity, the property loses its homestead character even if the grantor continues to occupy the property. Nash v. Conatser, 410 S.W.2d 512, 521-22 (Tex.Civ.App.—1966).
What is a family?
A family may have only one homestead—which raises the question, what is a family? That is a flexible definition in Texas so long as the head of household is legally or morally required to support a least one other family member. The Texas Constitution was amended in 1973 to extend homestead protections to single adults who may now be a family unto themselves. Note that individual family members may not claim separate homesteads.
Community Property Law
In Texas, property in the possession of either spouse is presumed to be community property (Fam. Code Sec. 3.003(a)) and therefore usually available to be executed upon to satisfy a judgment against either spouse. The Family Code goes into detail as to separate property, sole management community property, and joint management community property, most of which is beyond the scope of this article. Suffice it to say that a judgment creditor of either spouse will be looking for the debtor spouse’s separate property, community property which is under the sole management of the debtor spouse, and all joint management community property—which in most cases is likely to be nearly everything in the way of marital assets.
DEFINITION OF HOMESTEAD
What is a homestead?
The answer is not as obvious as one might think. Although a person’s homestead is primarily a question of intent, and the claimant need not actually reside on the property, there must be some overt act in preparation for physical occupancy. Mere intent standing alone may not be enough. Gilmore v. Dennison, 115 S.W.2d 902 (Tex. 1938). A person claiming homestead has the burden of proving that fact; however, once that is accomplished, the designation tends to stick.
A homestead claim must also be based on a real property interest. For instance, neither a mobile home unaffixed to the realty nor a boat qualify. But a vacant lot can be homestead if the owner has reasonable expectations of building a home on it; a leasehold estate (rental property) can be homestead; a life estate may also qualify; and even a beneficial interest in a trust that holds real estate can be homestead.
What about minerals? Homestead protections extend to and include mineral interests that are located under the homestead. For this reason, both spouses must join in signing oil and gas leases. Gulf Production Co. v. Continental Oil Co., 132 S.W.2d 553 (Tex. 1939). Royalties from a mineral lease of the homestead are exempt from a turnover order since they are derived from the underlying exempt homestead. Fitzgerald v. Cadle Company, No. 12-16-00338-CV (Tex.App.—Tyler 2017, no pet.). Severed crops, however, are subject to execution on a judgment. Aetna finance Company v. First Federal Savings & Loan Ass’n, 607 S.W.2d 312 (Tex.Civ.App.—Austin 1980, writ ref’d n.r.e.).
Size of the Homestead
The homestead cannot be of unlimited size. Property Code Section 41.002 supplies the following limitations on urban and rural homesteads:
Prop. Code Sec. 41.002. Definition of Homestead
(a) If used for the purposes of an urban home or as both an urban home and a place to exercise a calling or business, the homestead of a family or a single adult person not otherwise entitled to a homestead shall consist of not more than 10 acres of land which may be in one or more continuous lots, together with any improvements thereon.
(b) If used for the purposes of a rural home the homestead shall consist of: (1) for a family, not more than 200 acres, which may be in one or more parcels, with the improvements thereon; or (2) for a single, adult person, not otherwise entitled to a homestead, not more than 100 acres, which may be in one or more parcels, with the improvements thereon.
The statutory definition applies to realty and fixtures, not movable personal property. Movable, non-affixed items are not considered part of the homestead and are not exempt from execution unless included in the list of exempt personal property under Property Code Section 42.002 (details below).
Urban Versus Rural Homesteads
A person may claim an urban homestead or a rural homestead but not both. What constitutes “urban” versus “rural” has been the subject of litigation. It is a fact issue that differs from case to case. Once established, however, the initial characterization of the property as urban or rural continues even if the nature of the surrounding area changes. United States v. Blakeman, 997 F. 2d 1084 (5th Cir. 1992).
Also, one may not have both an urban residential homestead and an urban business homestead (a place to exercise a calling or business). To qualify, the homestead must be used either for residential homestead or as both residential homestead and business homestead. Tex. Const. Art. XVI, Sec. 51; Tex. Property Code Sec. 41.002(a); Majeski v. Estate of Majeski, 163 S.W.3d 102 (Tex.App.—Austin 2005, no pet.). Neither the constitution nor the Property Code provides for the overlapping use of a rural homestead as a business, but this may be compensated for by the larger acreage allowance for rural properties (200 acres versus 10 acres). Tex. Const. Ann. Art. XVI, Sec. 51; Prop. Code Sec. 41.002(b); Riley v. Riley, 972 S.W.2d 149 (Tex.App.—Texarkana 1998, no pet.).
Unlike the urban homestead, the rural homestead may consist of one or more parcels that are not required to be contiguous. Prop. Code Sec. 41.002(b). Whether or not all of the parcels in question will actually be legally considered part of the homestead will depend on if they are used for purposes of a home. Painwebber, Inc. v. Murray, 260 B.R. 697 (Bankr. W.D. Tex. 2011).
Residing on the Property Matters
The act of living upon and utilizing real property essentially settles the issue of whether or not it is homestead. The possession and use of land by one who owns it and who resides upon it makes it homestead in both fact and law.
However, it is not necessary that a homestead claimant actually reside on the property at the time homestead is claimed. “A homestead exemption may be established upon unoccupied land if the owner presently intends to occupy and use the premises in a reasonable and definite time in the future, and has made such preparations toward actual occupancy and use that are of such character and have proceeded to such an extent as to manifest beyond doubt the intention to complete the improvements and reside upon the place as a home.” Farrington v. First Nat’l Bank, 753 S.W.2d 248, 250-51 (Tex.App.—Houston [1st Dist.] 1988, writ denied). The key issues are intent and preparation. Generally, however, in order to make a conclusive and indisputable homestead claim a person must have a present and exclusive possessory interest in the property.
Although there is a conceptual overlap, the homestead protection laws should not be confused with the homestead tax exemption as reflected on the rolls of an appraisal district, which is designed to lower ad valorem taxes on homeowner-occupied property. Designating the homestead for property tax purposes is discussed next.
DESIGNATING A HOMESTEAD
It is useful, both for ad valorem tax purposes and for protection from creditors, to file an affidavit designating the homestead in the real property records of the county in which the property is located. See Property Code Section 41.005 for the required contents of this affidavit. However, the “mere filing of a homestead designation is insufficient by itself to establish a homestead as a matter of law.” Lares v. Garza, No. 04-03-00546CV (Tex.App.—San Antonio 2004, no pet.).
Still, the homestead arises automatically when the required legal conditions occur, with or without a filed designation. Graham v. Kleb, Civ. Act. Nos. H-07-2279, H-07-2878, 2008 WL 243669, at *4 (S.D. Tex. Jan. 29, 2008) (not selected for publication). Also, if a person receives a homestead tax exemption from the appraisal district, then creditor protection is automatic.
Once a designation has been made, the homestead is presumed to endure. “Once property has been dedicated as homestead, it can only lose such designation by abandonment, alienation, or death. After the party has established the homestead character of the property, the burden shifts to the creditor . . . to disprove the continued existence of the homestead. In other words, a homestead is presumed to exist until its termination is proved.” Wilcox, 103 S.W.3d at 472.
A person may also execute an affidavit disclaiming particular property (and, optionally, designating other property) as homestead, and a lender is entitled to rely on such an affidavit in making a loan that will be secured by non-homestead property. This is typically referred to as a non-homestead affidavit.
The Property-Tax Meaning of Homestead
The term homestead is often used in the context of the homestead exemption from property taxes, which excludes a specified amount of the appraised value from the taxable value of the home. Most school districts across Texas provide that $25,000 of the homestead’s appraised value is exempted. Homeowners over age 65 qualify for an additional exemption of $10,000.
The Tax Code provides:
Tax Code Sec. 11.13. Residence Homestead
(a) A family or single adult is entitled to an exemption from taxation for the county purposes authorized in Article VIII, Section 1-a, of the Texas Constitution of $3,000 of the assessed value of his residence homestead.
(b) An adult is entitled to exemption from taxation by a school district of $25,000 of the appraised value of the adult’s residence homestead, except that only $5,000 of the exemption applies to an entity operating under former Chapter 17, 18, 25, 26, 27, or 28, Education Code, as those chapters existed on May 1, 1995, as permitted by Section 11.301, Education Code.
(c) In addition to the exemption provided by Subsection (b) of this section, an adult who is disabled or is 65 or older is entitled to an exemption from taxation by a school district of $10,000 of the appraised value of his residence homestead.
(d) In addition to the exemptions provided by Subsections (b) and (c) of this section, an individual who is disabled or is 65 or older is entitled to an exemption from taxation by a taxing unit of a portion (the amount of which is fixed as provided by Subsection (e) of this section) of the appraised value of his residence homestead. . . .
Tax Code Section 11.42 permits a homeowner to apply for and receive a homestead tax exemption beginning on the date the homeowner takes title. The exemption is prorated for the remainder of the year as needed.
Beyond noting the foregoing, this article’s purpose is not to discuss the tax aspects of the homestead, and we will leave that subject behind at this point. We will instead discuss homestead in the context of asset protection, specifically as to how homestead law offers protections from creditors, collections, and execution upon judgments.
MOVING THE HOMESTEAD
Moving from One Homestead to the Next
Property Code Section 41.001(5)(c) states that “[t]he 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,” permitting homestead protections to be rolled over from one homestead to the next—notwithstanding the perverse inclination of title companies to insist on clearing judgments upon sale of the homestead. See also Taylor v. Mosty Brothers Nursery, Inc., 777 S.W.2d at 570 (Tex.App.—San Antonio 1989, no pet.).
If a judgment debtor acquires a new homestead, the newly-acquired homestead interest is taken subject to an already-attached judgment lien. Similarly, if a debtor occupies a protected homestead but then abandons it, the judgment lien will attach. Barrera v. State, 2005 WL 1691037 (Tex.App.—Houston [14th Dist.] 2005).
Deeds Conveying the Homestead
Texas Family Code Section 5.001 requires the signature of both spouses in order to convey the homestead except under unusual circumstances. This is true whether the homestead is considered to be community property or the separate property of either spouse. If there is any question as to whether or not the property is homestead, a title company will require the joinder of the spouse on the deed, if only in a pro forma capacity.
Abandoning the Homestead
“Once a property has been established as a homestead, the property remains exempt unless it ceases to be a homestead due to abandonment, alienation [sale or transfer of the property], or death.” Hankins v. Harris, 500 S.W.3d 144 (Tex.App.—Houston [1st Dist.] 2016, no pet.). Determining whether or not the homestead has been abandoned is all a question of the facts and evidence that exist in a specific case. “Abandonment occurs when the homestead claimant stops using the property and forms an intent to forsake it as a homestead. . . . Generally, there is no better proof of an intent to abandon a homestead than acquiring and moving in a new homestead.” Drake Interiors, Inc. v. Thomas, 544 S.W.3d 449 (Tex.App.—Houston [14th Dist.] 2018, no pet.).
However, moving to a different residence may not by itself be sufficient evidence of abandonment of the homestead. “Rather, evidence establishing abandonment of a homestead must be undeniably clear and show beyond almost the shadow, at least of all reasonable ground of dispute, that there has been a total abandonment with an intention not to return and claim the exemption. . . . That is, it must be clear that there has been a discontinuance of the use of the property coupled with an intention not to use it as a homestead again.” Thomas v. Graham Mortgage Corporation, 408 S.W.3d 581 (Tex.App.—Austin 2013, no pet.).
To prove abandonment, and thus make the homestead vulnerable to execution upon a judgment, a creditor must show that the debtor claiming homestead protections clearly, conclusively, and undeniably moved away from the homestead with no intention to return. Marincasiu, 441 S.W.3d at 551. Since this, at least to some extent, requires reaching into the debtor’s head to establish his subjective intentions, more than a mere conclusory assertion by the creditor is required.
Division of community property (by divorce or partition) does not constitute legal abandonment when it comes to the homestead exemption. When a couple divorces and one spouse moves out and conveys his or her interest to the other, the homestead endures so long as the resident spouse remains. A judgment lien against the departing spouse does not attach to the property because the resident spouse’s homestead interest is undivided and unaffected. Hankins v. Harris, 500 S.W.3d 140 (Tex.App.—Houston [1st Dist.] 2016, no pet.).
JUDGMENTS AGAINST THE HOMESTEAD
Judgments Do Not Attach to the Homestead
“Texas law is well settled that [a properly abstracted, unsecured judgment lien] cannot attach to a homestead as long as the property remains homestead.” Wilcox v. Marriott, 103 S.W.3d 469, 473 (Tex. App.—San Antonio 2013, pet. denied). Any liens against a homestead that are not specifically listed in the Texas Constitution are void. Dominguez v. Castaneda, 163 S.W.3d 318, 330 (Tex.App.—El Paso 2005, pet. denied).
Judgments against the homestead can be a headache. Even though a judgment does not attach to a homestead, Texas courts have ruled that a judgment lien may nonetheless constitute a cloud on title, even if it is invalid. Tarrant Bank v. Miller, 833 S.W.2d 666 (Tex.App.—Eastland 1992, writ denied). This may result in a title company refusing to issue insurance unless a seller-debtor’s judgments are paid, notwithstanding the six-month rollover protection.
The homeowner’s remedy is Property Code Section 52.0012 which provides a statutory method for securing a release of a judgment lien against homestead property—but only for judgments abstracted after 2007.
If a judgment debtor acquires a homestead after a judgment lien is abstracted, filed, and indexed in the county records, the new property is nonetheless protected as long as it continues to be the debtor’s homestead. Hughes v. Groshart, 150 S.W.2d 827, 830 (Tex.Civ.App.—Galveston 1941, no writ).
Burden is on the Judgment Debtor
A debtor (or his assignees) must carry the burden, at least initially, of establishing that a certain property is homestead and therefore exempt from execution upon a judgment. Dominguez, 163 S.W.3d at 330. However, a creditor is on notice that homestead protections will likely apply if the debtor occupies a homestead. “When a homestead claimant is in actual occupancy of his homestead, it will be deemed that a lender or encumbrancer acted with knowledge of the occupant’s right to invoke the rule of homestead.” Sanchez v. Telles, 960 S.W.2d 769, 772 (Tex.App.—El Paso 1997, pet. denied).
Once obtained, homestead rights are not easily lost. Abandonment may not be presumed merely from a change in the owner’s residence. A homestead claimant may even temporarily rent the property so long as another homestead is not acquired. Prop. Code Sec. 41.003; Thomas v. Graham Mortgage Corporation, 408 S.W.3d 581 (Tex.App.—Austin 2013, no pet.). Accordingly, the existence or non-existence of a homestead is a fact issue that is highly specific to the circumstances.
Purchase from a Judgment Debtor
Homestead protections extend to purchasers of a judgment debtor’s homestead who receive the property free and clear of any judgment lien. Gill v. Quinn, 613 S.W.2d 324, 325 (Tex.Civ.App.—Eastland 1981, no writ). “A subsequent purchaser of homestead property may assert the prior person[‘]s homestead protection against a prior lienholder so long as there is no gap between the time of homestead alienation and recordation of his title.” Dominguez, 163 S.W.3d at 330. “However, where a judgment debtor’s homestead protection elapses prior to sale, the judgment creditor’s abstracted lien may attach to the property by operation of law and be enforced against future owners of the property.” Marincasiu v. Drilling, 441 S.W.3d 551 (Tex.App.—El Paso 2014, pet. denied) citing Wilcox, 103 S.W.3d at 473.
PERSONAL PROPERTY PROTECTIONS
List of Exempt Personal Property
It is not just real estate that is protected under Texas homestead law. Chapter 42 of the Property Code states that personal property valued at $60,000 for a family or $30,000 for a single adult (exclusive of liens) is exempt from garnishment, attachment, execution or other seizure so long as it is on the following list:
Prop. Code Sec. 42.002(a). Personal Property [Exempt from Execution]
(1) home furnishings, including family heirlooms;
(2) provisions for consumption;
(3) farming or ranching vehicles and implements;
(4) tools, equipment, books, and apparatus, including boats and motor vehicles used in a trade or profession;
(5) wearing apparel;
(6) jewelry not to exceed 25 percent of the aggregate limitations prescribed by Section 42.001(a);
(7) two firearms;
(8) athletic and sporting equipment, including bicycles;
(9) a two-wheeled, three-wheeled, or four-wheeled, motor vehicle for each member of a family or single adult who holds a driver’s license or who does not hold a driver’s license but who relies on another person to operate the vehicle for the benefit of the non-licensed person;
(10) the following animals and forage on hand for their consumption:
(A) two horses, mules, or donkeys and a saddle, blanket, and bridle for each;
(B) 12 head of cattle;
(C) 60 head of other types of livestock; and
(D) 120 fowl; and
(11) household pets.
If the value of the personal property exceeds the specified dollar amounts then the excess property is subject to levy pursuant to Property Code Section 42.003, although this seldom occurs as a practical matter.
Is a website protected as a tool of one’s trade?
Apparently not. “A domain name is not a tool, nor is it a piece of equipment, a book, or apparatus. Defendants have not cited, and we are unable to find, any authority holding that a domain name is exempt personal property under any other portion of Sec. 42.002.” Restrepo v. Alliance Riggers & Constructors, Ltd., 538 S.W.3d 755 (Tex.App.—El Paso 2017, no pet.). Expect this unduly restrictive definition of “tools of the trade” to be revisited in the future.
Income and Wages
Pursuant to Property Code Section 42.001(b)(1), “current wages for personal services, except for the enforcement of court-ordered child support payments” are exempt “from garnishment, attachment, execution, and other seizure.” This includes severance pay. Note that wages are expressly exempted from the $60,000 family limit and the $30,000 single adult limit. Additionally, “unpaid commissions for personal services not to exceed 25 percent” of these limits are also protected.
Can you create a corporation, LLC, or partnership that will pay you wages so that you can declare them exempt? Quite possibly, so long as it can be shown that the corporation, LLC, or partnership is truly a distinct entity that independently conducts business and declares income. Justifying such measures almost always comes down to the “ordinary course of business” defense (see below).
Case law imposes some caveats, however, on the protection of salaries and wages. “Once [a salary or] wages are received by the debtor, they cease to be current wages and are not exempt from attachment, execution or seizure for the satisfaction of liabilities”—although this is not true of Social Security payments (42 U.S.C. Sec. 407).
In other words, cash in hand from whatever source (even from an employer) is usually vulnerable. It can be attached or garnished, and very easily so if it resides in a bank or investment account. Also, the term current wages is interpreted to mean a regular salary or hourly pay, not compensation paid to an independent contractor. Payments to independent contractors are not protected. See Brink v. Ayre, 855 S.W.2d 44 (Tex.App.—Houston [14th Dist.] 1993, no writ). This is surely an unjust gap in the overall regime.
Retirement and Savings Plans
Retirement plans (IRAs and 401(k)s) are exempted under Section 42.0021 so long as contributions do not exceed the amount that is deductible under current law. Rollover proceeds are exempt for 60 days.
Also exempted under Section 42.0021 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 is deferred until actual payment of benefits to the person” under the Internal Revenue Code. This includes health savings accounts.
College tuition funds (including IRS Section 529 funds and accounts established under Subchapter F, Chapter 54 of the Education Code) are exempted under Section 42.0022.
Life Insurance and Annuities
The Insurance Code adds to the exempt list the cash value of annuities and life insurance policies which are declared to be “exempt from garnishment, attachment, execution, or other seizure.” Ins. Code Sec. 1108.051. This “applies to any benefits, including the cash value and proceeds of an insurance policy, to be provided to an insured or beneficiary under . . . an insurance policy or annuity contract issued by a life, health, or accident insurance company.” There is no dollar limit. There is, however, an exception in Section 1108.053 for premiums paid “in fraud of a creditor.”
Cash not invested in a retirement plan, whole life insurance policy, or an annuity is conspicuously absent from the list of exempt assets. Ordinary investment accounts (even ones that may pay dividends that are tax exempt) fall within the category of vulnerable cash for these purposes. Raw cash (whether in hand, in banks, or investment accounts) cannot be protected in Texas unless action is taken to move it into an exempt category. In doing so, one must be careful to characterize the transfer or transaction as being something that one might have done in the ordinary course of business or life (Prop. Code Sec. 42.004(c), discussed below) and not merely to escape the clutches of a judgment creditor.
No Exemption for Fraudulent Intent
Property Code Section 42.004 provides 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. This reaches back two years for liquidated claims, one year for unliquidated or contingent claims. However, proving such intent (and thereby getting a transfer set aside) can be challenging for a creditor.
Property Code Section 42.004(c) offers the debtor a defense if the transaction occurred in the ordinary course of business. As a practical matter, this definition may be expanded to include the ordinary course of business and life.
It remains the burden of the creditor to both discover suspected fraudulent transfers and prove that they were impermissible. Judgment creditors vary widely in the energy and determination they expend on post-judgment collection efforts. For instance, most judgment creditors will send post-judgment discovery demanding disclosure of assets; but many creditors do not even bother to do this, perhaps electing to wait until the debtor attempts to sell non-exempt real property and a future title company requires that the judgment be paid. Creditor aggressiveness in any particular case is unpredictable.
Here is an interesting example of fraudulent intent: a failed builder, owing millions on notes that he signed or guaranteed, conspired with his wife to file for divorce and then transfer substantially all of their community assets to the wife in the settlement. After the divorce was final, the husband filed bankruptcy showing few or no assets and sought to discharge the debts. The bankruptcy trustee noticed that the husband never moved out of the couple’s very expensive home, and he rightfully became suspicious. Not a surprise.
In a recent novel, a fellow who absconded with 50 million dollars was told by the man chasing him: “You took too much money. If you had just taken 5 million, we would have written it off. Now we will chase you to the ends of the earth.” So the size of the debt is also a factor.
Living Trust for the Homestead
The Texas Constitution and the Property Code already provide the homestead with substantial asset protection. However, by placing the homestead into a living trust and adding a pour-over will, a substantial measure of estate planning may be accomplished as well. The delay and expenses of probate (although generally modest in Texas) are reduced or eliminated. Why? Because the living trust does not die, and title therefore remains in the trust regardless of the death of one of the beneficiaries. Also, Property Code Section 41.0021 (Homestead in a Qualifying Trust) and Tax Code Section 11.13(j) (Residence Homestead) specifically allow provide for a homestead to be transferred into a qualifying living trust without losing its favorable tax status.
Moving to Texas for Homestead Protections
Can persons from other states declare their intent to reside in Texas and designate a protected homestead within the state? Yes. If the issue is raised in court, it will be a fact issue to determine whether or not such a declaration was made in good faith (or with the obvious intention of defrauding creditors) and if there is some evidence to support the debtor’s intent—e.g., actual occupancy of the property as well as perhaps a Texas driver’s license, voter registration card, etc. This is not a difficult test since there is no minimum number of days a person must physically reside in Texas in order to claim a homestead.
If someone has multiple lawsuits and judgments, then moving to Texas to establish a homestead may be an excellent asset protection strategy, particularly if it can plausibly be done in the ordinary course of life and business. After all, people move to Texas every day for many good reasons.
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. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. 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.
Copyright © 2024 by David J. Willis. All rights reserved. Mr. 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, www.LoneStarLandLaw.com.