Quick Summary
In Texas, homeowners can protect their primary residence from most lawsuits through the homestead exemption. However, certain risks remain. This article explores the limitations of the homestead exemption, the types of lawsuits that can threaten your home, and advanced asset protection strategies to enhance your security. Read more asset protection guides in our blog.
Is Your Home at Risk after Being Sued?
Homeowners served with a lawsuit may wonder whether their Texas home is protected.
Texas law provides strong homestead exemptions, but they do not cover all types of lawsuits. Knowing the limits of these protections is crucial for those facing potential legal challenges.
In this Blake Harris Law article, we’ll answer this question, explain the key protections in place and what actions you can take to further safeguard your property.
Why Listen to Us
At Blake Harris Law, we focus on asset protection, helping high-net-worth individuals and professionals protect their property from potential lawsuits and legal risks. With years of experience and a deep understanding of Texas law, we provide personalized strategies to protect your home and guide you through every step of the process.
Is Your Texas Home at Risk if You’re Sued?
The short answer here is “it depends.”
Under the Texas Constitution, your primary residence is generally protected from most creditors if you designate it as your homestead. Coverage extends up to 100 acres for a single owner in rural areas (200 acres for a family) or 10 acres in an urban setting, regardless of the property’s value.
While this protection usually prevents a lawsuit from resulting in the loss of your home, it is not absolute. Certain debts and specific circumstances can override these safeguards and potentially lead to a forced sale.
How Does Texas Homestead Exemption Work?
The Texas homestead exemption allows homeowners to reduce the taxable value of their primary residence, which directly lowers property tax bills assessed by school districts and other local taxing authorities. This exemption provides significant financial relief, helping Texans save on taxes every year.
Urban vs. Rural Homestead Acreage Limits
Texas distinguishes between urban and rural homesteads, each with specific acreage limits:
- Rural Homestead: For a single adult, the homestead is limited to 100 acres; for a family, it is limited to 200 acres.
- Urban Homestead: Limited to 10 contiguous acres, including any improvements. To qualify as urban, the property must be within a municipality or its extraterritorial jurisdiction.
Eligibility Criteria for Homestead Exemption
You qualify for the Texas homestead exemption once you meet the following conditions:
- Principal Residence: You must own and occupy the property as your primary residence on January 1 of the tax year.
- No Dual Claims: You cannot claim a homestead exemption on another property, either in Texas or elsewhere.
- Permanent Exemption: Once approved, the exemption remains in effect until you move, sell, or no longer meet the eligibility requirements.
No formal declaration is required to establish a homestead; it arises from the homeowner’s use and intent. However, filing a homestead designation with the county clerk can provide additional legal clarity and protection.
How the Texas Homestead Exemption Shields Your Home in a Lawsuit
In addition to helping you save on taxes, Texas homestead laws offer substantial protection and safeguard your primary residence from most creditor claims.
Constitutional Protection Against Forced Sale
Under the Texas Constitution (Article XVI, Section 50) and Property Code Chapter 41, once you designate your principal residence as a homestead, creditors holding unsecured judgments (e.g., credit cards, medical bills) cannot force the sale of your home, even if they win a court judgment.
Unlimited Equity Protection
Your homestead enjoys unlimited equity protection within the statutory acreage limits: up to 10 acres in urban areas, and up to 100 acres (single owner) or 200 acres (family) in rural areas. There is no dollar cap on the equity you can protect within these limits.
Judgments Can’t Trigger Foreclosure
While creditors can file an abstract of judgment, these liens are void against a bona fide homestead. They only cloud your title and don’t give creditors the right to foreclose or force the sale of your home. To sell or refinance, you must clear the title by obtaining a release or pursuing lien removal.
When the Texas Homestead Exemption Doesn’t Shield Your Home
While the Texas homestead exemption provides strong protection for your home, it does not offer immunity in all cases. Certain situations, such as property-related debts, invalid claims, and fraudulent actions, can lead to the loss of homestead protection.
Here are the key exceptions:
- Property-Related Debts: The homestead exemption doesn’t apply to debts tied directly to the property, such as purchase-money mortgages, refinances, home-equity loans, reverse mortgages, or home-improvement contracts.
- Property Tax Liens: Unpaid property taxes, whether local ad valorem or federal, can override the homestead exemption and lead to foreclosure.
- Owelty-of-Partition Judgments: In divorce settlements or property disputes, a court-issued owelty-of-partition judgment can force the sale of your home, even if it’s protected under homestead laws.
- Invalid or Waived Homestead Claims: If you don’t occupy the home as your principal residence, exceed acreage limits, or sign a contract waiving your homestead rights, the exemption may not apply.
- Fraudulent Transfers: If assets are transferred into a homestead in a way that courts determine was intended to disadvantage creditors, protection may be at risk.
- Bankruptcy Exceptions: In bankruptcy proceedings, a trustee may liquidate equity that exceeds the federal homestead caps or the limits set by applicable state law.
Before assuming your home is fully protected under Texas law, it’s important to understand these exceptions. Always consult with an attorney to ensure your homestead rights remain intact.
Strategies Beyond Texas Homestead Protection
While Texas provides strong protection through its homestead exemption, savvy homeowners often layer on additional measures to further shield their property from lawsuits and creditor claims.
Here are several proven strategies to consider for enhanced asset protection:
Ramp Up Liability Insurance
Consider purchasing a high-limit umbrella policy (typically $1–$5 million) to cover judgments that exceed your homeowners or auto insurance limits. Additionally, review coverage for high-value digital assets, such as cryptocurrency, alongside traditional insurance.
An umbrella policy can provide broad protection and act as a first line of defense against significant financial claims, potentially reducing the risk that a lawsuit affects your home equity.
Use Entity Structuring
Consider holding non-residential real estate and other investments in an LLC or series LLC. These entities can help protect your personal residence from business liabilities or claims.
However, properly maintaining your LLC is crucial. Keep bank accounts, records, and annual filings up to date to preserve the corporate veil and prevent creditors from piercing the structure.
Asset Protection Trusts
Establishing an offshore asset protection trust can help shield investment assets and surplus cash. When structured correctly, these trusts can help safeguard assets, preserve financial privacy, and reduce legal exposure to potential claims
Work with an asset protection attorney to reduce the risk of fraudulent transfer issues and help preserve control or income rights according to legal requirements. Offshore trusts can be established in jurisdictions such as Nevis, the Cook Islands, and Belize, following applicable U.S. law.
Equity-Stripping Techniques
Consider taking out a non-recourse loan or home-equity line of credit (HELOC) against your homestead, up to the allowed limits. You can then use the funds to invest in exempt assets such as retirement accounts, tools of trade, or high-value digital assets like cryptocurrency, which enjoy legal protections under Texas law.
By reducing net equity, you may lower the portion of your home’s value that could be vulnerable in certain legal claims, adding a layer of protection.
Check out our guide on equity stripping to see how it protects your real estate.
Family Limited Partnerships (FLPs)
Transfer investment real estate or business interests into a Family Limited Partnership (FLP), where you hold minimal economic interest as the general partner. Creditors will face valuation discounts and encounter significant legal barriers before being able to access partnership assets.
This strategy works particularly well for high-net-worth individuals with significant real estate or business holdings.
Safeguard Your Texas Home with Blake Harris Law
At Blake Harris Law, we specialize in advanced asset protection strategies tailored to Texas homeowners. While the state’s homestead exemption offers significant protection, it has limitations. Our firm provides comprehensive solutions to fortify your home against potential legal threats, including:
- Asset Protection: We design customized plans, including domestic trusts and LLCs, particularly Nevis LLCs, to protect your property and strengthen your legal protections.
- Offshore Trusts: Our firm handles offshore trusts in jurisdictions such as Nevis, Cook Islands, and Belize, providing guidance on lawful asset protection strategies in compliance with U.S. regulations.
Services are tailored to each homeowner’s situation, with attorney-led guidance throughout the process. Our team manages the legal details to help clients navigate protections more confidently.
Get in touch with us today for a confidential consultation.
