Supreme Court Case Reinforces Nevada as #1 DAPT Jurisdiction

Supreme Court Case Reinforces Nevada as #1 DAPT Jurisdiction

Nevada Supreme Court Upholds Self-Settled Spendthrift Trust Against Divorce Claims for Child and Spousal Support (Klabacka v. Nelson, 133 Nev. Advance Opinion 24 (5/25/2017).

Years into their marriage, Eric and Lynita Nelson signed a separate property agreement (SPA) that transmuted their community property into separate property trusts. Later, the couple converted those trusts into self-settled spendthrift trusts (SSSTs) funded with their respective separate properties. In 2009, the parties began divorce proceedings and the SSSTs were added as parties. Issues presented within the divorce proceedings at the Family Court and then the District Court brought the case to the Nevada Supreme Court. The District Court, in the main, equalized the two SSSTs so as to pay Eric’s personal obligations and also awarded Lynita a lump sum alimony award against Eric’s Trust – not Eric in his personal capacity. The Nevada Supreme Court reversed the financially relevant District Court findings, upholding the validity and protection of Eric’s SSST under Nevada law.

Precedential Court findings included the following:

NRS Chapters 163 and 166 evince a clear intention to protect spendthrift trust assets against a court order, like an equalization, so long as there is no fraudulent transfer.

The District Court had ordered Eric’s SSST to satisfy his personal obligations—specifically, his child and spousal support arrears. In doing so, the District Court relied upon SSST statutes from South Dakota and Wyoming, as well as case law from Florida, which specifically allow for SSST assets to be reached to satisfy child and spousal support. The Court easily found the District Court’s order contrary to Nevada law. Paraphrasing the Court…” despite the public policy rationale used in the other jurisdictions, Nevada statutes explicitly protect spendthrift trust assets from the personal obligations of beneficiaries. The Nevada Legislature enacted the SSST statutory framework to fortify trusts like the present and explicitly mentions child and spousal support as examples of debts that are protected from attachment so long as the obligations are unknown at the time the trust was created.”

The SSSTs were valid signed written agreements and the terms were unambiguous. Evidence of oral agreements between the parties altering the SSSTs was not admissible to contradict an unambiguous written agreement.

In order to support her claim that Eric had commingled trust assets, Lynita had an obligation to trace the trust assets, either through a reliable expert or other available means.

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