Nevada family-law case summaries

Eric and Lynita Nelson were married. Ten years into the marriage, in 1993, they signed a "separate property agreement" (the SPA) — a written contract dividing what had been shared marital property (community property) into each spouse's own separate property. That separate property was placed into two separate trusts. In 2001, they converted those trusts into "self-settled spendthrift trusts" (SSSTs) — a special kind of trust that, under Nevada law, is designed to shield the assets inside it from most creditors, even the person who created and benefits from the trust. Eric had his trust (the Eric L. Nelson Nevada Trust) and Lynita had hers (the Lynita S. Nelson Nevada Trust). In 2009, Eric filed for divorce. Because the couple's wealth was locked inside these trusts, the trusts were later added to the divorce case as necessary parties, and Lynita brought various claims against Eric's trust. The family court judge issued a detailed divorce decree. Among other things, the judge concluded that even though the SPA and the trusts were validly created, the real intent behind them was to protect assets from creditors — not to permanently split up the property in the event of divorce. Based largely on testimony from Eric and Lynita, the judge treated much of the trust property as if it were still shared, ordered the two trusts' assets "equalized" (roughly $8.7 million shifted around so each side ended up with a comparable amount), ordered Eric's trust to pay Lynita's spousal support, child support arrears, and legal and expert fees, and imposed "constructive trusts" (a court-created ownership arrangement used as a remedy) over two properties. The Nevada Supreme Court agreed with the family court on some points and disagreed on many others. It ruled that the family court did have the power (subject-matter jurisdiction) to hear the trust issues inside the divorce — the case was fundamentally a divorce, not a probate matter, so it did not have to be heard by a probate judge. It also ruled that both the SPA and both trusts were valid and clearly written. But the court held the family court made several errors. Because the SPA and the trusts were clear and unambiguous, the judge was not allowed to rely on the spouses' testimony about what they "really" intended (this is called "parol evidence" — outside evidence used to explain or contradict a written document). The court also held that Nevada's spendthrift-trust statutes do not let a court shuffle assets between two such trusts to equalize them, and do not let a court order one spouse's trust to pay that spouse's personal debts — including child support and spousal support — when those debts were not known at the time the trust was created. The court explained that Nevada, unlike states such as Florida, South Dakota, and Wyoming, has deliberately chosen not to allow child- and spousal-support claims to reach spendthrift trust assets, and that changing that policy is a job for the Legislature, not the courts. The court affirmed the actual dissolution of the marriage and affirmed the $800,000 lump-sum alimony award as an amount, but held it must be collected from Eric personally, not from his trust. It vacated the "unjust enrichment" findings because that claim had been dismissed and was never properly revived, and vacated the constructive trusts over the Russell Road and Lindell properties. It also directed that the family court must actually "trace" the trust assets — track where the money and property came from — to determine whether any true community property still exists inside the trusts, because only community property (not each spouse's separate property) can be divided by the court. Finally, the court noted one important qualifier: to the extent community property is found inside a trust, the non-beneficiary spouse's share of that community property is not shielded by the spendthrift protections, so the court can divide that community-property portion.

Eric and Lynita Nelson married, and ten years into the marriage they signed a "separate property agreement" (SPA) that converted their shared marital property into separate property belonging to each spouse individually. They then placed each spouse's separate property into his or her own trust. In 2001, they converted those trusts into "self-settled spendthrift trusts" -- a type of trust that, under Nevada law, shields the assets from most creditors. Eric was the beneficiary of his trust; Lynita was the beneficiary of hers. In 2009, Eric filed for divorce. The family court eventually issued a divorce decree that, among other things, treated the two trusts as if their contents needed to be balanced out: it ordered roughly $8.7 million in trust assets to be equalized between the two trusts, ordered Eric's trust to pay Lynita $800,000 in lump-sum alimony, ordered Eric's trust to pay child-support arrears, and imposed "constructive trusts" (a court-created ownership interest) over two properties (the Russell Road and Lindell properties) held in the trusts. The court reasoned that Eric had effectively run both trusts, breached fiduciary duties, and unjustly enriched himself. The Nevada Supreme Court took the case and ruled mostly in favor of Eric's trust, while leaving the divorce itself and certain personal obligations of Eric in place. The court held: - The family court did have authority (subject-matter jurisdiction) to decide trust-related claims that came up in a divorce. Eric's trust had argued that only a probate court could hear them. - The SPA was a valid, clear written agreement that converted the couple's community property into separate property, and the court could not use outside testimony to contradict its plain terms. - Both spendthrift trusts were validly created under Nevada law. Even if Eric had broken trust formalities, the remedy was a lawsuit against the trustee -- not invalidating the trust. - The family court should have "traced" the assets in the trusts to figure out whether any community property had crept back in. Without that tracing, it could not rely on the parties' conflicting testimony about what was separate or community. - Nevada law strongly protects spendthrift-trust assets from court orders. The family court was wrong to "equalize" trust assets between the two trusts and wrong to make Eric's trust pay Eric's personal obligations like child support and alimony. Nevada -- unlike Florida, South Dakota, and Wyoming -- has no exception allowing spendthrift trusts to be tapped for child or spousal support that arose after the trust was created. - The lump-sum alimony award of $800,000 was within the trial court's discretion as to amount and form, but it should have been ordered against Eric personally, not against his trust. - The "unjust enrichment" claim had been dismissed earlier and never re-pled, so the family court could not base relief on it. Likewise, the constructive trusts on the Russell Road and Lindell properties had to be vacated because imposing a constructive trust on assets inside a valid spendthrift trust violates Nevada's statutory protections. - The June 8, 2015, follow-up order was vacated to the extent it tried to enforce parts of the decree being reversed, but kept in place for matters like health-care costs for the son, insurance costs, removal of a security gate, and attorney fees for contempt. The dissolution of the marriage itself stays in place. The case goes back to the family court to redo the property division and related rulings consistent with the opinion.