Texas Legislature Trumpets Changes to Asset Protection Laws

Much of what you have can be taken from you via legal process. Over forty-million lawsuits are filed each year. Business owners and professionals often have high exposure and high assets. The greater your assets, the more attractive you become to legal predators. Your assets can be protected; this must be done before a liability-causing event occurs.

The business press is trumpeting the success of the Texas legislature in revising statutes to restore asset protection to what they believe it should be. I think the legislature's efforts should be applauded, but resting in the belief that you can rely on the statutes requires suspension of understanding of the history of court decisions regarding asset protection and the inherent power of the courts.

In a word, the trumpeting may be much ado about nothing.

Here’s why: Texas courts systematically eroded asset protection laws over the past fifteen years. Arguably, the Second Court of Appeals in Fort Worth struck the most significant blow in Heckert vs. Heckert. An analysis of this case may be found in my paper titled “Barbarians at the Gate - Heckert v. Heckert Defeated Asset Protection of Many Texas FLPs and LLCs.”

In Heckert, the Court reasoned that if assets could be taken out of an FLP or LLC without harming other company owners, a creditor could seize the debtor's assets.  This created a pathway whereby creditors may secure the assets of non-operational businesses even though they have multiple members or partners.

Many FLPs and LLCs were explicitly designed to hold passive investments and are thus non-operational. If an LLC or FLP held stocks, bonds, and investment accounts (passive assets), the value of the debtor’s interest could now be seized by a creditor. This was directly contrary to the reading of the Texas statute that provided that the sole remedy for a judgment creditor shall be a charging order.1  

To borrow a phrase, “Houston – we have a problem.” What was once protected was now not protected. Heckert garnered national attention, including Forbes Magazine. The pro-business legislature responded and, in 2023, passed a bill intended to re-establish that the sole remedy against a debtor’s LLC or FLP was a charging order.  

How the Courts may interpret statutes is beyond the scope of this paper. One need only know that they can and do. A review of legislative history and relevant case law reveals a clear division - the legislature has been highly protective of asset protection, and the Courts have not been.

The legislature can’t legislate the Court's opinions. The revised law did not magically change the expressed opinions of the courts. Consider - if another case were sent to the Second Court of Appeals in Fort Worth (Heckart Court) identical to Heckert, would the Court’s ruling differ from the first time? Perhaps. Perhaps not.

Herein lies the problem. If I told you that your airline pilot had been suspended for several years following incidents of alcohol abuse but was just reinstated by the FAA as part of their “Second Chances for Alcoholics Program,” are you and your family boarding the plane? It might work out fine. Many opine that they are nearly sure he won’t cause a fatal crash. Albeit farcical, the principles are the same.

Feel free to contact us if you have questions regarding the dangerous waters of Texas asset protection strategies.

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1Charging Orders are addressed in greater detail in my paper “The Basics of Charging Orders”. Broadly, a charging order limits the judgment creditor to receiving distributions that would have been made to the creditor. For example, if an annual distribution must be paid to the creditor, the charging order would require that it be paid to the Judgement Creditor.