133 Nev., Advance Opinion 24
IN THE SUPREME COURT OF THE STATE OF NEVADA
MATT KLABACKA, DISTRIBUTION No. 66772
TRUSTEE OF THE ERIC L. NELSON
NEVADA TRUST DATED MAY 30, 2001,
Appellant/Cross-Respondent, ED
vs.
LYNITA SUE NELSON, MAY 2 5 2017
INDIVIDUALLY AND IN HER EL'
CL.FR1
CAPACITY AS INVESTMENT CHI
TRUSTEE OF THE LSN NEVADA
TRUST DATED MAY 30, 2001; AND
ERIC L. NELSON, INDIVIDUALLY
AND IN HIS CAPACITY AS
INVESTMENT TRUSTEE OF THE
ERIC L. NELSON NEVADA TRUST
DATED MAY 30, 2001,
Respondents/Cross-Appellants.
MATT KLABACKA, AS DISTRIBUTION No 68292
TRUSTEE OF THE ERIC L. NELSON
NEVADA TRUST DATED MAY 30, 2001,
Appellants,
vs.
ERIC L. NELSON; LYNITA SUE
NELSON, INDIVIDUALLY; AND LSN
NEVADA TRUST DATED MAY 30, 2001,
Respondents.
Consolidated appeal and cross-appeal from a decree of divorce
and appeal from findings of fact and conclusions of law modifying a divorce
decree. Eighth Judicial District Court, Family Court Division, Clark
County; Frank P. Sullivan, Judge.
Affirmed in part, vacated in part, and remanded.
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Solomon Dwiggins & Freer, Ltd., and Jeffrey P. Luszeck and Mark A.
Solomon, Las Vegas,
for Matt Klabacka, distribution trustee of the Eric L. Nelson Nevada
Trust.
Dickerson Law Group and Josef M. Karacsonyi, Robert P. Dickerson, and
Katherine L. Provost, Las Vegas,
for Lynita Sue Nelson, individually and in her capacity as investment
trustee of the LSN Nevada Trust.
Rhonda K. Forsberg, Chtd., and Rhonda K. Forsberg, Henderson,
for Eric L. Nelson, individually and in his capacity as investment trustee
of the Eric L. Nelson Nevada Trust.
BEFORE THE COURT EN BANC.
OPINION
By the Court, GIBBONS, J.:
These appeals involve a divorce and a division of assets held in
self-settled spendthrift trusts owned by the former husband and wife.
Suffice it to say, the parties have substantial trust issues. Ten years into
their marriage, Eric and Lynita Nelson signed a separate property
agreement (the SPA) that transmuted their property into separate
property and placed that property into the parties' respective separate
property trusts. Later, the parties converted those trusts into self-settled
spendthrift trusts (SSSTs) and funded them with their respective separate
property. The SSSTs were, respectively, the Eric L. Nelson Nevada Trust
(Eric's Trust) and the Lynita S. Nelson Nevada Trust (Lynita's Trust). In
2009, the parties began divorce proceedings and subsequently added the
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SSSTs as necessary parties. Issues presented within the divorce
proceedings bring us to the instant appeals.
We conclude (1) the family court has subject-matter
jurisdiction over the trust-related claims in the Nelsons' divorce; (2) the
SPA and SSSTs are valid and unambiguous; (3) the district court erred in
considering parol evidence to determine the parties' intent behind the SPA
and SSSTs; (4) the district court erred in equalizing the trust assets;
(5) the district court erred in ordering Eric's personal obligations to be
paid by Eric's Trust; (6) the district court did not err in awarding Lynita a
lump sum alimony award of $800,000, but erred insofar that the alimony
was awarded against Erie's Trust, and not Eric in his personal capacity;
(7) the district court erred in making findings of unjust enrichment after
the claim was dismissed; (8) the constructive trusts placed over the
Russell Road and Lindell properties should be vacated; and (9) the June 8,
2015, order should be vacated to the extent it enforces or implements
portions of the divorce decree relating to assets in Eric's Trust and
Lynita's Trust and affirmed in all other respects.
Given the complexity of the divorce decree (the decree), we
conclude that (1) the dissolution of marital bonds between Eric and Lynita
is affirmed, (2) the district court's alimony award is affirmed in part but
vacated to the extent it is awarded against Eric's Trust instead of Eric in
his personal capacity, (3) the district court's child support award is
affirmed in part but vacated to the extent it is awarded against Eric's
Trust instead of Eric in his personal capacity, (4) all other portions of the
decree are vacated, (5) the June 8, 2015, order, is vacated to the extent it
enforces or implements portions of the divorce decree relating to assets in
Eric's Trust and Lynita's Trust and affirmed in all other respects, and
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(6) the case is remanded to the district court for further proceedings
consistent with this opinion.
FACTS AND PROCEDURAL HISTORY
The SPA
In 1993, Eric and Lynita entered into the SPA in order to
transmute the family's community assets into the parties' respective
separate property. The SPA equally divided the parties' assets into two
separate property trusts. Both parties consulted counsel prior to signing
the document, and Lynita consulted additional outside counsel prior to her
signing.
In relevant part, the SPA states that "the parties hereto desire
to split the community estate into the sole and separate property of each
spouse in accordance with and for the purposes contained in NRS 123.130
through 123.170, inclusive." Additionally, the SPA provides that "[t]he
fp] arties agree that [the SPA] shall be controlling in determining the
ownership of each party's property regardless of the manner in which the
property was previously held or titled, acquired through capital or
personal efforts, or whether the property is real, personal or any variation
thereof."
The SSSTs
In 2001, Eric and Lynita converted their separate property
trusts into Eric's Trust and Lynita's Trust, respectively, and funded the
SSSTs with the separate property contained within the separate property
trusts. The trust agreements for Eric's Trust and Lynita's Trust are
nearly identical. Both trust agreements are in writing and establish an
irrevocable trust. Each trust has a spendthrift provision that provides, in
relevant part:
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No property (income or principal) distributable
under this Trust Agreement, shall be subject to
anticipation or assignment by any beneficiary, or
to attachment by or of the interference or control
of any creditor or assignee of any beneficiary, or be
taken or reached by any legal or equitable process
in satisfaction of any debt or liability of any
beneficiary, and any attempted transfer or
encumbrance of any interest in such property by
any beneficiary hereunder shall be absolutely and
wholly void.
Both trust agreements named Lana Martin, a Nevada resident, as the
initial distribution trustee.' The parties' respective trusts give them the
right to veto any distribution and require that the distribution trustee
provide ten days' notice of any impending distribution.
The parties named themselves as the investment trustee for
their respective trusts. Pursuant to Section 11.14 of the trust agreements,
the "Investment Trustee(s)" shall at all times have
the exclusive custody of the entire Trust estate
and shall be the legal owner of the Trust estate.
The title to Trust properties need not include the
name of the Distribution Trustee, and all Trustee
powers . . . may be effected under the sole and
exclusive control of the Investment Trustees,
subject to the requirements for authorization of
distributions to Trustor,. . .
'There have been several distribution trustees for the trusts since
2001. Appellant Matt Klabacka was acting in that capacity when the first
notice of appeal was filed.
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Many transfers of property occurred between the trusts
between 2001 and 2009, most of which were gifts from one trust to the
other.
Initial divorce proceeding
Eric filed for divorce in 2009. During the initial stages of trial,
Eric testified that the SPA and trust agreements were signed in an effort
to protect the parties' assets from creditors and that much of the property
contained within the trusts was community property. After six days of
trial, the SSSTs were added to the divorce action as necessary parties.
Lynita then filed an amended complaint against Eric's Trust and its
former distribution trustees alleging various torts. Eric's Trust moved to
dismiss Lynita's tort claims. The district court dismissed nearly all of the
tort claims, including unjust enrichment and breach of fiduciary duty.
Additionally, the district court denied the motion to dismiss as to several
of Lynita's other claims against Eric and Eric's Trust, including
constructive trust.
During the trial, Eric's Trust retained an expert certified
public accountant to analyze the trust accounting for both SSSTs. The
expert "found no evidence that any community property was transferred to
[Eric's Trust] or that any community property was commingled with the
assets of [Eric's Trust]." The district court, noting the expert's financial
relationship with Eric and the expert's purportedly unreliable testimony,
found the expert's report and testimony to be of little probative value.
Decree of divorce
On June 3, 2013, the district court issued the decree. The
district court found that the SPA was valid and the parties' SSSTs were
validly established and funded with separate property. The district court
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kept Eric's Trust and Lynita's Trust intact for creditor-protection
purposes. However, the district court noted "the [c]ourt could [have]
invalidate [d] both Trusts" under theories of constructive trust or unjust
enrichment based on Eric's extensive testimony regarding the community
nature of the assets held by each trust, the breaches of Eric's fiduciary
duties, and the lack of trust formalities.
Additionally, the district court found "that the testimony of
the parties clearly established that the intent of creating the spendthrift
trusts was to provide maximum protection from creditors and was not
intended to be a property settlement in the event that the parties
divorced." The district court based these findings, in large part, on
testimony that purportedly established: (1) the parties intended to
occasionally "level off the trusts," (2) the trust assets had become
community property through Eric's comingling, (3) Lynita had delegated
her role as investment trustee to Eric, and (4) an oral transmutation
agreement occurred between the parties to transmute the separate
property back into community property.
In addition to the dissolution of marriage, the district court
ordered: (1) an equalization of $8.7 million in total trust assets to remain
in or be transferred into each trust, (2) the Brianhead cabin property to be
divided equally between the trusts, (3) the interest in the Russell Road
property and its note/deed for rents and taxes be divided equally between
the trusts, (4) Eric's Trust to use the distribution of $1.5 million from a
previously enjoined trust account to pay Lynita spousal support in a lump
sum of $800,000, (5) Eric's Trust to pay Lynita child support arrears;
(6) Eric's Trust to pay Lynita's attorney fees, (7) Eric's Trust to pay expert
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fees, and (8) Eric to pay child support for each child and half of the private
school tuition for his daughter.
Constructive trusts: Eric's purported breach of fiduciary duty and
unjust enrichment
The district court found that Lynita delegated her role as
investment trustee to Eric and that Eric had acted as the de facto
investment trustee since the inception of Lyrtita's Trust. The district court
reasoned that, because Eric acted in such a capacity, his actions involving
the transfer of property between the trusts and his various corporate
entities amounted to a breach of fiduciary duty. Further, the district court
reasoned this breach of fiduciary duty resulted in transfers of property
that unjustly enriched Eric. This finding of unjust enrichment led to the
district court imposing constructive trusts over two properties held within
the SSSTs—the Lindell property and the Russell Road property.
Wyoming Downs and the June 8, 2015, order
The decreeS disposed of all property, with the exception of
Wyoming Downs, an asset purchased during the pendency of the divorce. 2
A corporate entity owned by Lynita's Trust loaned Eric's Trust money
toward the purchase price of Wyoming Downs, and Eric's Trust
subsequently purchased the property. Eric testified this loan was paid
back. The district court noted it was "without sufficient information" to
2Eric's Trust petitioned this court for writ relief stemming from the
decree on June 21, 2013, and July 9, 2013. We ultimately dismissed both
petitions, noting that an appeal would be available to all parties upon the
disposition of Wyoming Downs. See Harber v. Eighth Judicial Dist. Court,
Docket Nos. 63432/63545 (Order Denying Petitions for Writs of
Prohibition, May 23, 2014).
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make a determination regarding the disposition of Wyoming Downs at the
time it issued the decree, and therefore, did not make any findings or
decisions as to the disposition of the property in the decree. On September
22, 2014, the district court disposed of Wyoming Downs, thereby making
its judgment final. Eric and Eric's Trust subsequently filed their first
notice of appeal.
Following the first notice of appeal, Lynita filed a motion with
the district court to enforce the decree. Specifically, Lynita sought a court
order mandating Eric or Eric's Trust to disclose certain documents and
rent payments for, among other things, the Lindell and Russell Road
properties. On June 8, 2015, the district court ordered Eric and Eric's
Trust to pay the additional monies to Lynita pursuant to her motion to
enforce the decree (the June 8, 2015, order). Eric's Trust also appealed the
June 8, 2015, order, filing the second notice of appeal.
DISCUSSION
Subject-matter jurisdiction of district court to hear trust-related claims
As a preliminary matter, Eric's Trust argues the family court
in which he initiated the divorce lacked subject-matter jurisdiction over
the trust-related claims brought during the divorce. We disagree.
Subject matter jurisdiction is a question of law we review de
novo. Ogawa v. Ogawa, 125 Nev. 660, 667,
221 P.3d 699, 704 (2009). "alf
the district court lacks subject matter jurisdiction, the judgment is
rendered void." Landreth v. Malik, 127 Nev. 175, 179,
251 P.3d 163, 166
(2011).
Eric's Trust contends the family court lacked jurisdiction to
hear the trust-related claims in the divorce and that the claims should
have instead been heard by a probate judge. Eric's Trust argues that the
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trust claims were "a proceeding commenced pursuant to" NRS Title 12
(Wills and Estates of Deceased Persons) or Title 13 (Guardianships;
Conservatorships; Trusts), which Eric's Trust argues are under the
exclusive jurisdiction of the probate court, citing NRS 166.120 and NRS
164.015(1) to support this proposition. NRS 166.120(2) provides in part:
Any action to enforce [a spendthrift trust]
beneficiary's rights, to determine if the
beneficiary's rights are subject to execution, to
levy an attachment or for any other remedy must
be made only in a proceeding commenced
pursuant to. . . NRS 164.010, if against a
nontestamentary trust. A court has exclusive
jurisdiction over any proceeding pursuant to this
section.
Additionally, under NRS 164.015(1), "Mlle court has exclusive
jurisdiction of proceedings initiated by the petition of an interested person
concerning the internal affairs of a nontestamentary trust." As used in
both statutes, "court" is defined as "a district court of this State sitting in
probate or otherwise adjudicating matters pursuant to this title." NRS
132.116; see also NRS 164.005 (applying NRS 132.116 to trust proceedings
under Title 13).
We conclude that this case was not initiated for the purpose of
enforcing or determining a spendthrift beneficiary's rights under NRS
164.120(2) or determining the internal affairs of a nontestamentary trust
under NRS 164.015(1). Rather, the case was initiated as a divorce
proceeding under NRS Chapter 125. Whether a family court has subject-matter jurisdiction in divorce proceedings involving issues outside the
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scope of NRS 3.223 3 has been firmly decided by this court. In Landreth,
this court held a "district court judge sitting in the family court division
did not lack the power and authority to dispose of [a] case merely because
it involved a subject matter outside the scope of NRS 3.223." 127 Nev. at
180-81,
251 P.3d at 167. The claims at issue here are no different.
Accordingly, we reach the same result as we did in Landreth—we conclude
that the family court had subject-matter jurisdiction over all claims
brought in the Nelsons' divorce, including those relating to property held
within the SSSTs.
Validity of the SPA I SSSTs
Next, we examine the validity of the SPA and the SSST
agreements. "When the facts in a case are not in dispute, contract
interpretation is a question of law, which this court reviews de novo."
Lehrer McGovern Bovis, Inc. v. Bullock Insulation, Inc., 124 Nev. 1102,
1115,
197 P.3d 1032, 1041 (2008). Both the SPA and the parties'
respective SSSTs were signed, written agreements. We hold the written
instruments at issue here are all valid and the terms therein are
unambiguous.
The SPA is a valid transmutation agreement
The parties contest the validity of the SPA, and Lynita argues
the parties understood and intended the SPA would have no effect in the
event of divorce. We conclude the SPA is a valid transmutation
agreement, and the plain terms of the SPA indicate it remains in effect
during divorce.
3 The powers of family courts are enumerated in NRS 3.223.
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NRS 123.220(1) provides that laill property, other than
[separate property outlined] in NRS 123.130, acquired after marriage by
either husband or wife, or both, is community property unless otherwise
provided by . . . fain agreement in writing between the spouses." (Emphasis
added.) Additionally, "[w]here a written contract is clear and
unambiguous on its face, extraneous evidence cannot be introduced to
explain its meaning." Kaldi v. Farmers Ins. Exch., 117 Nev. 273, 281,
21
P.3d 16, 21 (2001) (internal quotation marks omitted). "Extrinsic or parol
evidence is not admissible to contradict or vary the terms of an
unambiguous written instrument, since all prior negotiations and
agreements are deemed to have been merged therein." Frei v. Goodsell,
129 Nev. 403, 409,
305 P.3d 70, 73 (2013) (internal quotation marks
omitted).
We conclude the SPA is a valid transmutation agreement and
that the parties' community property was converted into separate
property. The terms of the SPA are clear and unambiguous: the parties
agree "to split the community estate into the sole and separate property of
each spouse." Lynita argues that, despite these plain terms, the parties
intended for the property to remain community property. Lynita's
argument fails because, as discussed above, it relies on extraneous
evidence—a purported agreement between the parties not contained
within the four corners of the SPA—that would contradict the
unambiguous language of the SPA. Both parties were apprised of the
legal consequences of the agreement by their attorney. Additionally,
Lynita had her own outside counsel review the agreement prior to signing
and provide additional legal advice regarding the consequences of the
SPA. Therefore, we conclude the SPA was valid, and the parties' property
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was validly separated into their respective separate property trusts at that
time.
The parties' respective SSSTs are valid
Lynita argues the district court erred in finding the SSSTs to
be validly created under NRS Chapter 166. Lynita contends the trusts
should be invalidated because "testimony and evidence presented at trial
conclusively established that [Eric's Trust] and [Lynita's Trust] were not
valid trusts." We disagree.
For the reasons set forth below, we hold the SSSTs are valid
and the trusts were funded with separate property stemming from a valid
separate property agreement. Additionally, we conclude the district court
had substantial evidence to make its finding of fact and, thus, did not err
in finding the parties' SSSTs to be validly created.
Requirements of a valid SSST in Nevada
Na specific language is necessary to create a spendthrift trust.
NRS 166.050. A spendthrift trust is created "if by the terms of the writing
(construed in the light of [NRS Chapter 1661 if necessary) the creator
manifests an intention to create such a trust." Id. In addition to the
spendthrift requirements, to create a valid SSST, NRS 166.015(2)(a)
requires the settlor to name as trustee a person who is a Nevada resident.
Further, NRS 166.040(1)(b) provides that the SSST must (1) be in writing,
(2) be irrevocable, (3) not require that any part of the trust's income or
principal be distributed to the settlor, and (4) not be "intended to hinder,
delay or defraud known creditors."
Validity of Eric's Trust and Lynita's Trust
To determine the validity of the trusts, one must first look to
the words of the trust agreement to determine if the settlor had the intent
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to create a spendthrift trust. 76 Am. Jur. 2d Trusts § 29 (2016).
Accordingly, "courts look first and foremost to the language in the trust
and interpret that language to effectuate the intent of the settlors." Id. If
a trust's language is plain and unambiguous, then courts determine intent
from this language alone. Id. § 30.
On the contrary, if the meaning of the writing is uncertain,
incomplete, or ambiguous, parol evidence of the circumstances is
admissible to determine the settlor's intent. Restatement (Third) of
Trusts § 21 cmt. a (Am. Law Inst. 2003). However, "parol evidence is not
admissible to contradict or vary the terms of an unambiguous written
instrument." Frei, 129 Nev. at 409,
305 P.3d at 73.
A plain reading of the written terms of Eric's Trust agreement
reveals the following: Eric's Trust has a spendthrift provision, manifesting
a plain and unambiguous intent to create a spendthrift trust, in
accordance with NRS 166.050; Eric's Trust names Lana Martin, a Nevada
resident, as distribution trustee, satisfying NRS 166.015(2)(a); the trust
agreement is in writing, and the trust is irrevocable; and there is no
requirement that any part of the trust's income or principal be distributed
to the settlor. Finally, there is no evidence that the trust was created to
hinder, delay, or defraud known creditors. Thus, we hold Eric's Trust is a
valid Nevada SSST. 4
4 We note that the parties' respective trust agreements are nearly
identical. The analysis here is also applicable to Lynita's Trust, which we
also conclude is a valid Nevada SSST.
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The validity of the trusts brings into question many of the
district court's findings in the decree. As discussed below, the district
court found that it could have invalidated the SSSTs based on Eric's
purported breach of trust formalities. Breaching trust formalities of an
otherwise validly created SSST does not invalidate a spendthrift trust;
rather, it creates liability upon the trustee(s) for that breach. Indeed, if,
after an SSST is validly formed, the trust formalities are breached by a
trustee, the proper remedy is a civil suit against the trustee—not an
invalidation of the trust itself. See NRS 163.115. Lynita filed such claims
against Eric's Trust, and the district court then dismissed many of those
claims. As such, we conclude the district court's findings regarding the
potential invalidity of Eric's Trust and Lynita's Trust were made in error.
Tracing trust assets
The parties contest whether the assets within the SSSTs
remained separate property or whether, because of the many transfers of
property between the trusts, the assets reverted back to community
property. In a divorce involving trust assets, the district court must trace
those trust assets to determine whether any community property exists
within the trusts—as discussed below, the parties' respective separate
property in the SSSTs would be afforded the statutory protections against
court-ordered distribution, while any community property would be
subject to the district court's equal distribution. We conclude the district
court did not trace the assets in question.
Eric's Trust retained a certified public accountant to prepare a
report tracing the assets within the two trusts. However, as noted by the
district court, the certified public accountant maintained a business
relationship with Eric and Eric's Trust for more than a decade. Although
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the certified public accountant's report concluded that there was "no
evidence that any community property was transferred to [Eric's Trust] or
that any community property was commingled with the assets of [Eric's
Trust]," the district court found the report and corresponding testimony to
be unreliable and of little probative value. We recognize that the district
court is in the best position to weigh the credibility of witnesses, and we
will not substitute our judgment for that of the district court here. See In
re Parental Rights as to J.D.N., 128 Nev. 462, 477,
283 P.3d 842, 852
(2012). However, the subject of the certified public accountant's report—
the tracing of trust assets, specifically any potential commingling of trust
assets with personal assets—must still be performed. See Schmanski v.
Schmanski, 115 Nev. 247,
984 P.2d 752 (1999) (discussing transmutation
of separate property and tracing trust assets in divorce). Without proper
tracing, the district court is left with only the parties' testimony regarding
the characterization of the property, which carries no weight. See Peters v.
Peters, 92 Nev. 687, 692,
557 P.2d 713, 716 (1976) ("The opinion of either
spouse as to whether property is separate or community is of no weight
[whatsoever]."). Accordingly, we conclude the district court erred by not
tracing the assets contained within the trusts, either through a reliable
expert or other available means. Separate property contained within the
spendthrift trusts is not subject to attachment or execution, as discussed
below. However, if community property exists within the trusts, the
district court shall make an equal distribution of that community
property. See NRS 125.150(1)(b).
Distribution of parties' assets held in trust
Having concluded the district court had subject-matter
jurisdiction, the written instruments at issue are valid, and the district
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court must trace trust assets to determine whether any community
property exists within the trusts, we now turn our attention to the district
court's various decisions regarding the division of property. Distribution
of the parties' assets held in the SSSTs was perhaps the most contested
issue in the Nelsons' divorce.
Despite recognizing the validity of the SPA and SSSTs in the
decree, the district court made several missteps in fashioning the ultimate
distribution of property, namely: (1) considering parol evidence to
determine the parties' intent, despite the written instruments at issue
being unambiguous; (2) equalizing assets held within the valid SSSTs; and
(3) ordering Eric's personal obligations to be paid by a trust for which he is
a beneficiary.
The district court erred by using parol evidence to determine the
intent of the parties' respective trusts
The district court ordered the trust assets equalized between
Eric's Trust and Lynita's Trust, and for Eric's personal obligations to be
paid by Eric's Trust. In order to fashion these remedies, the district court
improperly considered parol evidence—namely, testimony from Eric and
Lynita regarding their purported intent. We hold the district court abused
its discretion in doing so.
"Where a written contract is clear and unambiguous on its
face, extraneous evidence cannot be introduced to explain its meaning."
Kaldi, 117 Nev. at 281,
21 P.3d at 21 (internal quotation marks omitted).
"Extrinsic or parol evidence is not admissible to contradict or vary the
terms of an unambiguous written instrument, since all prior negotiations
and agreements are deemed to have been merged therein." Frei, 129 Nev.
at 409,
305 P.3d at 73 (internal quotation marks omitted). This court
"review[s] a district court's decision to admit or exclude evidence for abuse
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of discretion, and we will not interfere with the district court's exercise of
its discretion absent a showing of palpable abuse." Id. at 408-09,
305 P.3d
at 73.
Here, both Eric's Trust and Lynita's Trust are valid Nevada
SSSTs with plain, unambiguous language indicating a clear intent to
create a spendthrift trust. Where, as here, a valid SSST agreement is
clear and unambiguous, the district court may not consider the parties'
testimony regarding their purported intent when fashioning remedies
related to that SSST. 76 Ant Jur. 2d Trusts § 30 (2016). The parties'
inconsistent testimony regarding the purported community or separate
property characterization of the trust assets carries no weight and should
not have been considered when the district court fashioned the property
division. See Peters, 92 Nev. at 692,
557 P.2d at 716. Accordingly, the
district court was precluded from considering this extrinsic evidence to
discern the parties' intent, and the district court abused its discretion in
doing so.
The district court erred in equalizing the trust assets
Eric's Trust argues that, in addition to improperly considering
parol evidence, the district court erred by ordering the trust assets to be
equalized and Eric's Trust to pay Eric's personal obligations—namely,
child support arrears and spousal support. We agree.
This court defers to a district court's findings of fact and will
only disturb them if they are not supported by substantial evidence.
Ogawa, 125 Nev. at 668,
221 P.3d at 704. Questions of law, including
statutory interpretation, are reviewed de novo. Waldman v. Maini, 124
Nev. 1121, 1136,
195 P.3d 850, 860 (2008).
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NRS Chapters 163 and 166 evince a clear intention to protect
spendthrift trust assets against court order. 5 NRS 163.417(1)(c)(1)
provides that "a court may not order the exercise of. . . [a] trustee's
discretion to. . . [d]istribute any discretionary interest." Additionally,
NRS 166.120(2) provides in relevant part:
Payments by the trustee to the
beneficiary. . must be made only to or for the
benefit of the beneficiary and not .. . upon any
order, written or oral, given by the beneficiary,
whether such ... order. . be made pursuant to or
by virtue of any legal process in judgment,
execution, attachment, garnishment, bankruptcy
or otherwise, or whether it be in connection with
any contract, tort or duty.
Finally, NRS 166.120(3) uses mandatory language indicating
the beneficiary lacks the ability to make dispositions of trust property,
even in response to a court order. NRS 166.120(3) provides:
[A spendthrift trust beneficiary] shall have
no power or capacity to make any disposition
whatever of any of the income . . . whether made
upon the order or direction of any court or courts,
5We note that these protections do not apply if a court order is
enforcing a judgment levied against the trust by a creditor able to prove,
by clear and convincing evidence, that a "transfer of [trust] property was a
fraudulent transfer pursuant to chapter 112 of NRS or that the transfer
violates a legal obligation owed to the creditor under a contract or a valid
court order that is legally enforceable by that creditor." NRS 166.170(3).
The court order at issue here, the decree, is not legally enforceable because
it requires Eric or the trustees of Eric's Trust to violate NRS 166.120. We
note the record here does not indicate that a fraudulent transfer under
NRS 166.170(3) occurred between the SSSTs.
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whether of bankruptcy or otherwise; nor shall the
interest of the beneficiary be subject to any
process of attachment issued against the
beneficiary, or to be taken in execution under any
form of legal process directed against the
beneficiary or against the trustee, or the trust
estate, or any part of the income thereof, but the
whole of the trust estate and the income of the
trust estate shall go to and be applied by the
trustee solely for the benefit of the beneficiary,
free, clear, and discharged of and from any and all
obligations of the beneficiary whatsoever and of all
responsibility therefor.
We conclude the statutory framework governing SSSTs does
not allow a court to equalize spendthrift trust assets between or among
different SSSTs. Such an equalization would require the district court to
order the exercise of a trustee's discretion to distribute some discretionary
interest, in contravention of NRS 163.417(1)(c)(1). Additionally, such a
court order would require the trustee to make a distribution outside the
scope of the trust agreement and, perhaps more importantly, would run
afoul of .NIRS 166.120(2), which prohibits payments made pursuant to or
by virtue of any legal process. Finally, pursuant to NRS 166.120(3), Eric,
as the beneficiary of Eric's Trust, has no power to make any disposition of
any of Eric's Trust income upon order of the district court. Thus, we
conclude the district court erred in ordering trust assets to be equalized
between Eric's Trust and Lynita's Trust.
The district court erred in ordering Eric's personal obligations to be
paid by Eric's Trust
The district court also ordered Eric's Trust to satisfy Eric's
personal obligations—specifically, Eric's child- and spousal-support
arrears. In doing so, the district court relied upon SSST statutes from
South Dakota and Wyoming, as well as caselaw from Florida, which
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specifically allow for SSST assets to be reached to satisfy child and spousal
support. The statutes and caselaw relied upon by the district court
annunciate public policy concerns for allowing spendthrift trusts to be
reached for child and spousal support. See Gilbert v. Gilbert, 447 So. 2d
299, 301 (Fla. Dist. Ct. App. 1984) ("The cardinal rule of construction in
trusts is to determine the intention of the settlor and give effect to his
wishes. . . . On the other hand, there is a strong public policy argument
which favors subjecting the interest of the beneficiary of a trust to a claim
for alimony. .. . [T]he obligation to pay alimony is a duty, not a debt."
(internal quotation marks omitted)); see also S.D. Codified Laws § 55-16-
15(1) (2016) (providing that many of South Dakota's statutory spendthrift
trust protections "do[ ] not apply in any respect to any person to whom at
the time of transfer the transferor is indebted on account of an agreement
or order of court for the payment of support or alimony in favor of the
transferor's spouse, former spouse, or children, or for a division or
distribution of property in favor of the transferor's spouse or former
spouse, to the extent of the debt"); Wyo. Stat. Ann. § 4-10-503(b) (2015)
("Even if a trust contains a spendthrift provision, a person who has a
judgment or court order against the beneficiary for child support or
maintenance may obtain from a court an order attaching present or future
distributions to, or for the benefit of, the beneficiary."). The district court
also cites to the Restatement (Third) of Trusts § 59 (Am. Law Inst. 2003),
which provides "Mlle interest of a beneficiary in a valid spendthrift trust
can be reached in satisfaction of an enforceable claim against the
beneficiary for. . . support of a child, spouse, or former spouse."
We conclude the district court's order runs contrary to Nevada
law. Despite the public policy rationale used in the other jurisdictions,
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Nevada statutes explicitly protect spendthrift trust assets from the
personal obligations of beneficiaries. Indeed, "[p]rovision for the
[spendthrift trust] beneficiary will be for the support, education,
maintenance and benefit of the beneficiary alone, and without reference
to . . . the needs of any other person, whether dependent upon the
beneficiary or not." NRS 166.090(1) (emphasis added).
The legislative history of SSSTs in Nevada supports this
conclusion. It appears that the Legislature enacted the statutory
framework allowing SSSTs to make Nevada an attractive place for
wealthy individuals to invest their assets, which, in turn, provides Nevada
increased estate and inheritance tax revenues. See Hearing on A.B. 469
Before the Assembly Judiciary Comm., 70th Leg. (Nev., Mar. 26, 1999)
(statement of Assemblyman David Goldwater). When crafting the
language to allow SSSTs, the Legislature contemplated a statutory
framework that protected trust assets from unknown, future creditors, as
opposed to debts known to the settlor at the time the trust was created.
See id. The legislative history explicitly mentions child support as an
example of a debt that would not be free from attachment if known at the
time the trust was created. Id. However, the trust assets would be
protected from attachment as to debts unknown at the time the trust was
created—presumably, this protection extended to child- and spousal-support obligations unknown at the time the trust was created.
Additionally, in 2013, the Legislature proposed changes to NRS Chapter
166 that would have allowed a spouse or child to collect spousal support or
child support from otherwise-protected spendthrift trust assets. See
Hearing on A.B. 378 Before the Senate Judiciary Comm., 77th Leg. (Nev.,
May 8, 2013) (statement of Assemblywoman Marilyn Dondero Loop).
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However, the proposed changes to NRS Chapter 166 did not pass, and, as
a result, the Nevada spendthrift trust statutes were not amended to allow
for an exception for child- and spousal-support orders of a beneficiary to be
enforced against a spendthrift trust.
This rigid scheme makes Nevada's self-settled spendthrift
framework unique; indeed, the "key difference" among Nevada's self-settled spendthrift statutes and statutes of other states with SSSTs,
including Florida, South Dakota, and Wyoming, "is that Nevada
abandoned the interests of child- and spousal-support creditors, as well as
involuntary tort creditors," seemingly in an effort to "attract the trust
business of those individuals seeking maximum asset protection." Michael
Sjuggerud, Defeating the Self-Settled Spendthrift Trust in Bankruptcy, 28
Fla. St. U. L. Rev. 977, 986 (2001).
We conclude Nevada SSSTs are protected against the court-ordered child-support or spousal-support obligations of the
settlor/beneficiary that are not known at the time the trust is created. 6
6 We note the possible confusion between our conclusion here
protecting spendthrift trust assets from the personal child- and spousal-support obligations of the beneficiary and our conclusion above requiring
the court to dispose of community property within the spendthrift trust.
To clarify: because the nonbeneficiary spouse retains a property interest in
community property contained within the spendthrift trust, the restraints
on the court-ordered alienation of spendthrift trust assets would not apply
to the nonbeneficiary spouse's community property share of that property.
Accordingly, the district court's equal distribution of community property
pursuant to the dissolution of marriage does not implicate the protections
against a trust being ordered to pay the personal obligations of a
beneficiary articulated in NRS Chapters 163 and 166.
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Here, Eric's child- and spousal-support obligations were not known at the
time the trust was created. Accordingly, the district court abused its
discretion in ordering Eric's Trust to pay Eric's child- and spousal-support
arrears. We further conclude the child- and spousal-support exception
articulated in section 59 of the Third Restatement of Trusts is inconsistent
with Nevada's statutory framework and the legislative history of NRS
Chapter 166, and we expressly reject that exception here.
The district court did not err in awarding spousal support as a
lump sum but erred in ordering it paid by Eric's Trust
In his individual capacity, Eric argues the amount of spousal
support awarded to Lynita was inequitable and should not have been
awarded in a lump sum. Eric argues that the $800,000 lump sum alimony
award was not just and equitable considering the NRS 125.150(9) factors
because Lynita can adequately support herself on trust income. We
disagree.
The district court "Imlay award such alimony. . . in a specified
principal sum or as specified periodic payments, as appears just and
equitable." NRS 125.150(1)(a). Additionally, this court reviews an award
of spousal support for an abuse of the discretion. Gardner v. Gardner, 110
Nev. 1053, 1055-56,
881 P.2d 645, 646 (1994); see also Williams v.
Waldman, 108 Nev. 466, 471,
836 P.2d 614, 617 (1992) (noting this court
generally affirms district courts' rulings in divorce proceedings where
supported by substantial evidence and free from appearance of abuse of
discretion).
We conclude the district court did not abuse its discretion in
awarding spousal support. The district court properly considered the
factors under NRS 125.150(9). Additionally, the court has discretion to
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award spousal support as a lump sum or a periodic payment, and, here, we
conclude the district court did not abuse that discretion in awarding a
lump sum. See Sargeant v. Sargeant, 88 Nev. 223, 228,
495 P.2d 618, 622
(1972) (affirming a lump sum award of spousal support where the
husband's conduct indicated the possibility he might liquidate or interfere
with his assets to avoid paying support). However, we conclude the only
error was in orderingS the spousal support to be paid by Eric's Trust
instead of by Eric because, as noted above, Nevada's statutory framework
explicitly protects spendthrift trust assets from the personal obligations of
beneficiaries—in this case, Eric. Accordingly, we vacate the award in
order for the district court to reassess that award against Eric in his
personal capacity.
Unjust enrichment, constructive trusts, and the delegation of Lynita's role
as investment trustee of Lynita's Trust
The district court found that Lynita delegated to Eric her role
as investment trustee of Lynita's Trust. Based on this delegation, the
district court found that Eric had a fiduciary duty to disclose pertinent
facts related to the transfer of assets held by Lynita's Trust. The district
court found Eric breached this fiduciary duty by not disclosing that
information.
The district court erred in relying upon a dismissed claim of unjust
enrichment to afford relief
Based on• this purported breach, the district court provided
relief upon a theory of unjust enrichment when imposing constructive
trusts over two contested properties. Eric's Trust contends the district
court improperly relied upon a theory of unjust enrichment to fashion its
remedies. Eric's Trust argues that, because a claim of unjust enrichment
was dismissed without prejudice and never repleaded, the district court
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could not rely upon that claim to assess damages or provide relief.
Additionally, Eric's Trust argues that at no point in the trial transcript is
the phrase "unjust enrichment" used—accordingly, there could not have
been consent. Lynita argues that a claim of unjust enrichment was tried
by express or implied consent because the pleadings in the case conformed
to evidence demonstrating that Eric was being unjustly enriched by way of
his power over Lynita's Trust.
This court defers to a district court's findings of fact and will
only disturb them if they are not supported by substantial evidence.
Ogawa, 125 Nev. at 668,
221 P.3d at 704. Questions of law are reviewed
de novo. Waldman, 124 Nev. at 1136,
195 P.3d at 860.
We conclude the district court erred in relying upon a
dismissed claim to afford relief to the parties. We further conclude Eric's
Trust did not expressly or impliedly consent to the claim being tried.
Indeed, Eric's Trust moved to dismiss the claim of unjust enrichment; this
alone evinces the trust's lack of express consent for the claim. Further,
the crux of Eric's Trust's entire argument was that trust formalities and
property transactions were done legally and in accordance with the trust
agreement—in other words, Eric's Trust argues that Eric was justified in
his actions, running contrary to any notions of unjust enrichment. We
conclude Lynita's claims of express consent for the claims of unjust
enrichment fail.
Likewise, we conclude Lynita's argument on implied consent
fails. Implied consent is a high threshold. For example, this court has
determined that an issue was tried by implied consent where counsel "had
raised the issue in his opening argument, [opposing counsel] had
specifically referred to the matter as an issue in the case, . . . the factual
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issue had been explored in discovery, [and] no objection had been raised at
trial to the admission of evidence relevant to the issue." Schwartz v.
Schwartz, 95 Nev. 202, 205,
591 P.2d 1137, 1140 (1979). Lynita's unjust
enrichment claim fails to meet this standard. The phrase "unjust
enrichment" was not used during trial; it therefore was not specifically
referred to as an issue in the case following its dismissal. Eric's Trust
moved to dismiss it, which demonstrates an objection was raised to the
admission of evidence relevant to the issue. Therefore, we hold the issue
of unjust enrichment was not tried by implied consent and, therefore, the
district court erred in considering it when fashioning its remedies in the
decree. 7
The district court erred in placing constructive trusts over the Russell
Road and Lindell properties
Eric's Trust argues the district court erred in its imposition of
a constructive trust over the Russell Road and Lindell properties, while
Lynita argues the imposition of the constructive trusts was proper because
of Eric's purported breaches of fiduciary duty as a de facto investment
trustee of Lynita's Trust. Consistent with our analysis in the above
sections, we conclude the constructive trusts should be vacated.
"A constructive trust is a remedial device by which the holder
of legal title to property is held to be a trustee of that property for the
benefit of another who in good conscience is entitled to it." Locken v.
Locken, 98 Nev. 369, 372,
650 P.2d 803, 804-05 (1982). Although remedial,
7 This court makes no conclusions regarding the merits of Lynita's
trust-related tort claims. However, we conclude the district court
exceeded its authority to make findings based upon a dismissed claim.
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a constructive trust is "the result of judicial intervention." Restatement
(Third) of Trusts § 1 cmt. e (Am. Law Inst 2003). Additionally, a
constructive trust violates a spendthrift prohibition on assignment or
alienation of benefits. See Guidry v. Sheet Metal Workers Nat'l Pension
Fund, 493 U.S. 365, 376-77 (1990).
We conclude the district court erred in placing constructive
trusts over the Russell Road and Lindell properties because the imposition
of a constructive trust violates the statutory protections shielding
spendthrift trusts from court order. See NRS 166.120; see also NRS
163.417(1)(c)(1). Placing a constructive trust over assets in a valid
spendthrift trust violates the trust's prohibition on assignment or
alienation of assets. See, e.g., Guidry, 493 U.S. at 376-77 (holding
imposition of a constructive trust over a pensioner's ERISA benefits
violated the plan's spendthrift provisions and that statutorily defined
spendthrift protections "reflect[ ] a considered. . . policy choice, a decision
to safeguard a stream of income for pensioners . . . even if that decision
prevents others from securing relief [from the assets protected by
spendthrift provision]"). 8 Accordingly, we conclude the district court erred
in imposing equitable remedies over assets that were held in a valid SSST.
8Although we reach a result here that is similar to the result in
Guidry, we recognize there are several factual distinctions between
Guidry and the instant appeals. Here, the parties are not arguing over
pension benefits, they are arguing over assets held in SSSTs. Here, the
trusts are not created by federal statute, they are enacted by state law.
Despite these differences, Guidry demonstrates that, at least with respect
to certain spendthrift provisions, the imposition of equitable remedies
runs afoul of the protections afforded by those spendthrift provisions.
Additionally, like the congressionally approved ERISA provisions, we
continued on next page . . .
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The June 8, 2015, order
Lastly, Eric's Trust and Eric argue the district court lacked
subject-matter jurisdiction to enter the June 8, 2015, order because the
order was entered after the final order and during the pendency of the
first appeal.
The district court can enforce an order that is pending on
appeal and retains jurisdiction over matters that are collateral and
independent from the order appealed, such as attorney fees. See Foster v.
Dingwall, 126 Nev. 49, 52,
228 P.3d 453, 455 (2010). We conclude that
although the district court retains jurisdiction to enforce an order during
the pendency of an appeal, most of the June 8, 2015, order will
nonetheless be vacated because it concerns property distribution that will
be vacated pursuant to this opinion. We therefore vacate the June 8,
2015, order to the extent it enforces or implements portions of the divorce
decree relating to assets in Eric's Trust and Lynita's Trust, which are
being reversed in this opinion. However, we affirm the June 8, 2015, order
with respect to the directives regarding health care costs of the son and
Lynita's insurance costs, Eric's payment of costs to remove the security
gate, and attorney fees for contempt.
. . . continued
conclude the self-settled spendthrift provisions of NRS Chapter 166 reflect
a considered legislative policy choice, and if exceptions to the policy are to
be made for equitable remedies, it is for the Legislature to undertake that
task.
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CONCLUSION
Accordingly, we affirm in part and vacate in part the district
court's decree of divorce, affirm in part and vacate in part the district
court's June 8, 2015, order modifying and implementing the divorce
decree, and remand this matter for further proceedings consistent with
this opinion. 9
Gibbons
C.J.
Douglas
ei&EA/1
Pickering
J.
' sty
Parraguirre
-s+kisLtb2 J.
Stiglich
9 We have considered the parties' other arguments and conclude they
are without merit.
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