140 Nev.,Advance Opinion 14 IN THE SUPREME COURT OF THE STATE OF NEVADA

ROBERT M. DRASKOVICH, Appellant/Cross-Respondent, vs. LAURINDA F. DRASKOVICH, Respondent/Cross-Appellant. No. 84998 

# FILE

MAR 2 1 2024

A BROWN

DEP CLERK Appeal and cross-appeal from a district court decree ofdivorce. Eighth Judicial District Court, Family Division, Clark County; Bryce C. Duckworth, Judge.

Reversed inpart, vacated inpart, and remanded.

The ParienteLawFirm, P.C., John GlennWatkinsandMichaelD.Pariente, Las Vegas, for Appellant/Cross-Respondent.
Law Offices ofF. Peter James, Esq., and F. Peter James, Las Vegas, for Respondent/Cross-Appellant.

BEFORE THE SUPREME COURT, CADISH, C.J., and STIGLICH and PICKERING, JJ.

OPINION By the Court, CADISH, C.J.:

In this divorce case, we consider whether a law firm, established by one spouse before the marriage and incorporated under a different name during the marriage, constitutes that spouse's separate

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# - 01993property. We hold that the district court erred in determiningthat the law

firm was entirely community property because the uncontested evidence demonstrated that, even after incorporation, it was a continuation of the spouse'soriginal, separatepropertylawpractice, andthus,thepresumption of community property does not properly apply. Further, because the district court refused to award alimony based in part on its erroneous community property determination, we necessarily vacate that ruling and remand for further proceedingsconsistent with this opinion.

FACTSANDPROCEDURAL HISTORY Appellant/cross-respondent Robert Draskovich has been practicing criminal law since 1997. At the time he and respondent/crossappellant Laurinda Draskovich married in 2012, he wasa partner at Turco & Draskovich (T&D) with a 65% ownership stake in the firm. At T&D, Robert and the only other partner were paid separately for the work they each performed, and each partner maintained his own staff and clients, although they shared a bank account and paid taxes together. Laurinda brought no significant financial assets to the marriage and was a homemaker throughout the marriage.

In December 2018, T&D dissolved, and the next month, Robert incorporated the Draskovich Law Group (DLG) as his wholly owned corporation. Robert later offered uncontested testimonythat DLGwas "the very same practice" as his share of T&D. Robert kept the same office location, as well as his clients, staff, assets, and practices, after the incorporation and statedthat he changed onlytheletterhead and the name stickers on the firm vehicles to match the name change ofthe firm. By the time Robert and Laurinda began divorce proceedings in 2022, DLG was worth approximately $1,210,000.

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(0) 1947A 440: 0 2At trial, DLG wasthe primary asset in dispute. To analyze the

value ofDLG, Robert and Laurinda jointly retained a forensic accountant. The accountant determined the present value of DLG, but neither party asked her to determine the historic value ofthe practice. The accountant also noted during trial that she could not provide any valuation for a separate property share ofDLG because neither party had engaged her to allocate the separate and community property interests.

After a two-day trial, the district court concludedthatDLG was community property. The district court relied on the date of DLG's incorporation to find that DLG was acquired during the marriage and was thus presumptively community property under NRS 123.220. The district court then concluded that Robert had failed to overcome the community property presumption because he had not offered clear and convincing evidence regarding the value of any separate property interest in DLG, rendering the entire practice community property.

The district court also considered and rejected Laurinda's request for rehabilitative and periodic alimony. While the district court foundthatsomefactorssupported alimony, thecourt did not award alimony at least in part because the court determined that the share ofcommunity assets distributed to Laurinda would provide sufficient support through passive income. Robert now appeals, and Laurinda cross-appeals.

During oral argument before this court, Laurinda's attorney conceded that T&D was separate property with a community property component and that had the divorce occurred in 2018, it would have been Laurinda's burden to show a community property share of T&D. Robert's counsel conceded during oral argument that DLG almost certainly did

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5 :7';•• 3contain some community property interest subject to at least some

apportionment. DISCUSSION

Robert and Laurinda ask this court to consider DLG's status andthequestionofalimony, andwethereforeconsideronlythosetwoissues in this opinion and do not opine on the rest ofthe district court'sjudgment. SeePowell v. LibertyMut. FireIns. Co., 127 Nev. 156, 161n.3, 252 P.3d 668, 672 n.3 (2011) (declining to consider issues not properly raised by the parties). We first address the division ofDLG's value. In this, we consider the proper character of DLG as separate or community property. Concluding that Robert brought the business into the marriage with him,
we hold that DLG is Robert's separate property, and the community property presumption does not apply. Yet, because the business may have grown owing to community resources, Laurinda must be given an opportunity to show a community portion of DLG by clear and convincing evidence such that the district court may have to apportion DLG between the separate and community property interests. Finally, we consider the question of alimony and conclude that, given the change in circumstances concerningtheparties'communityproperty, alimony mustbe reconsidered. DLG represents the continuation ofT&Dand is Robert's separateproperty

"When reviewing a district court's determination of the character ofproperty, this court will uphold the district court'sdecision ifit
wasbased on substantial evidence. However, we will review a purely legal question, such as the application of a presumption, de novo." Waldman v. Maini, 124 Nev. 1121, 1128, 195P.3d 850, 855 (2008). We therefore review the district court's factual classification of DLG with deference but review the application ofthe communitypropertypresumption to DLG de novo.

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(0) I947A 4With limited exceptions, Nevada law provides that "[a]ll

property, other than that stated in NRS 123.130, acquired after marriage by either spouse or both spouses, is community property. ..." NRS 123.220. We have held that any property acquired during the marriage is presumptively community property, and the spouse claimingsuch property
astheir separateproperty mustprove theirinterestbyclear and convincing evidence. Pryor v. Pryor, 103Nev. 148, 150, 734 P.2d 718, 719 (1987). This presumption and burden also apply to entitiescreated duringthe marriage from mixedcommunity and separate funds. SeeMoberg v. First Nat'l Bank of Nev., 96 Nev. 235, 237, 607 P.2d 112, 114 (1980) (presuming property purchased during the marriage with funds of uncertain origin was community property). By contrast, any property a spouse brings into a rnarriage, alongwiththe "rents, issues andprofitsthereof,"isthat spouse's separateproperty. NRS 123.130;see Smith v. Smith, 94Nev. 249, 251, 578 P.2d 319, 320 (1978).

Caselaw from this court and from California, which this court often looks to for principles ofcommunity property, shows that the date of incorporation is not the decisive factor in determining a property's character. Rather, the court must look to the totality ofthe circumstances to determine whether a business is an asset acquired during the marriage and thuspresumptively community property, or merely a continuation ofa pre-marriage enterprise and thus separate property. Schulman v. Schulman, a case involving a husband who owned a wholesale meat processor as a sole proprietorship for approximately 40 years before his marriage, is illustrative. 92 Nev. 707, 709, 558 P.2d 525, 526 (1976). Four years after marrying and continuing to run his business as a sole proprietorship, the husband incorporated the business, received all shares

SUPREME COURT OF NEVADA 5 10) 1947A .416*4of the newly incorporated business, and undertook operations expansions,

but the essential nature and character ofthe businessremained unchanged. Id. at 709, 558 P.2d at 526-27. We concluded apportionment between separate and community interests was necessary. Id. at 716-17, 558 P.2d
at 530. In determining that the underlying business remained the husband's separate property, this court implicitly determined that the date ofincorporation alone did not dictate the character ofthe property.

California has likewise declined to consider an act of incorporation as dispositive, opting instead to consider the essential character of the business in dispute. Take, for instance, In re Marriage of Koester, where a husband operated his business as a sole proprietorship before the marriage and incorporated the operation during the marriage. 87 Cal. Rptr. 2d 76, 79 (Ct. App. 1999). The court reasoned that the incorporation represented a mere change in "form or identity" and thus did
not represent the acquisition of new property; all customers and accounts receivable were the same before and after the incorporation. Id. at 80. The
court concluded that "Rjo say ... that an asset was 'acquired' by the community.

.. because some aspect of corporate formation took place during the marriage is to elevate semantics over substance." Id. at 81.

Here, in determining that DLG was community property, the district court relied exclusively on the fact that DLG was incorporated during the marriage. The district court deemed this single fact dispositive and characterized DLG as entirely community property by applying the community property presumption. That analysis was incorrect. We now expressly hold that district courts must consider the totality of the circumstances when determining whether a business represents the continuation of a pre-marriage enterprise.

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(0, I 947A 4411. 6The parties do not contest the salient circumstances present in

this case. Robert testified that he operated functionally the same business before and after the change from T&D to DLG. All his assets, staff, pay, and clients remained the same when he practiced at T&D and at DLG. Robert remained in thesameoffice location. Histestimony establishedthat he only changed the letterhead on his papers and the name on the firm vehicles to match the new name. As in Schulman and In re Marriage of Koester, this is unrebutted evidence that DLG was a continuation of Robert'sinterest in T&D—a mere change in form or identity ofhis share in T&D—rather than a new property acquisition. DLG is thus his separate propertyunderthetotality ofthecircumstances, andthedistrict court erred byinsteadrelyingonthe dateofincorporationalonetoapplythecommunity property presumption. We therefore reverse the portion of the divorce decree pertainingto the DLG interests and remand for further proceedings
asinstructed below. Laurinda bears the burden to show acommunityportion ofDLG

Robert'sbusinessislikelynotpresentlyworththesameamount
as it was at the time ofhis marriage to Laurinda in 2012. A business can increaseinvalueovertime from separatepropertyinputorfrom community property input. Where an increase in the value of a property stems from both, "that increase should be apportioned between separate and community property." Johnson v. Johnson, 89 Nev. 244, 246, 510 P.2d 625, 626 (1973). The "rents, issues, and profits" of separate property presumptively remain separate. Srnith, 94 Nev. at 251, 578 P.2d at 320. Therefore, when a spouse claims that the increase in value of separate property ispartially attributable to the community, that spouse must show clear and convincing evidence of the community share. Kelly v. Kelly, 86 Nev. 301, 310, 468P.2d 359, 365 (1970) (citing, inter alia, Barrett v.Franke,
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(DI I947A • 746Nev. 170, 208P.435(1922))("Appellanthastherefore notprovenbyclear

and satisfactory proofthese assets were purchased with community funds
or credit or acquired by

. . . community toil or talent."); see also Sprenger v. Sprenger, 110 Nev.855, 858, 878P.2d 284, 286(1994)("Transmutationfrom separate to community property must be shown by clear and convincing evidence."). Here, Robertbrought thebusinessintothe marriage, soitishis separate property, and any increase in itsvalue over time is also presumed to be separate. See Smith, 94 Nev. at 251, 578 P.2d at 320. This means Laurindabearstheburden ofshowingbyclearandconvincingevidencethat
a portion of any increase to his practice's value over the course of the marriage belongs to the community. The community is entitled to that portion of the property "purchased with community funds or credit or acquired by.

. community toil or talent." Kelly, 86 Nev. at 310, 468 P.2d at 365. Laurinda can demonstrate this by showing that Robert's active work as an attorney at the firm duringthe periodofthe marriage increased the value of the firm in some way. See Sly v. Sly, 100 Nev. 236, 240, 679 P.2d 1260, 1263 (1984) (citing Ormachea v. Ormachea, 67 Nev. 273, 297, 217 P.2d 355, 467 (1950)) (noting that "Mlle labor and skills of a spouse belong to the community"). If, on remand, Laurinda meets her burden to make such a showing, the district court must then apportion the property between separate and community interests, an undertaking Robert conceded in oral argument would likely be necessary should DLG be classified as his separate property.

Because the district court mischaracterized DLG as entirely community property, it did not determine whether Laurinda had provided clear and convincing evidence of a community share of DLG such that an

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would be necessary. On remand, we instruct the district court to follow Kelly v.Kellyandpermit Laurindatoprovideclear andconvincingevidence, if she has such, that any part of DLG's value can be attributed to ((community toil or talent" (or other community sources) and determine whether apportionment of DLG's value between separate and community interests is appropriate. We necessarily vacate and remand as to alimony in light of the changed communityproperty circumstances

"The decision of whether to award alimony is within the discretion ofthe district court." Kogod v. Cioffi-Kogod, 135 Nev. 64, 66, 439 P.3d 397, 400 (2019). The court should ultimately award such alimony "as appears just and equitable." NRS 125.150(1)(a). Central to the district court's determination to deny alimony in this case was its finding that Laurinda would be able to earn a passive income of more than $3,000 per month based on the liquid assets she received from community property. See Kogod, 135 Nev. at 74-75, 439 P.3d at 406 (requiring district courts to consider the passive income generation capacity from community property when awarding alimony).

As detailed, the district court must reconsider its community property determination with respect to DLG. The court will therefore need torevisit itsalimonyanalysisfollowing itsdecision astoany distribution to Laurinda for DLG's value. For that reason, we vacate and remand the district court's alimony determination for further consideration in light of the changed circumstances surroundingDLG. CONCLUSION Courts must consider the totality of the circumstances when determining whether a disputed business interest represents a new

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acquisition or purchase subject to the community property presumption or merely the continuation of a spouse's preexisting enterprise and thus separate property, subject to a subsequent apportionment. Under the totality of the circumstances in this case, DLG's incorporation alone does not show that it was a newly acquired community property business, and the undisputed evidence makes clear that DLG is simply a continuation of Robert's pre-marriage legal practice. Thus, DLG is Robert's separate property, though on remand Laurinda may show by clear and convincing evidence that growth in the business duringthe marriage is attributable to community resources and apportionment is appropriate. The district court's application of the community property presumption to DLG based solelyonthefactofDLG'sincorporationduringthemarriagewas,therefore, legal error. Because the district court erred in concluding that DLG was community property and applying the community property presumption,
we reverse the portion ofthe decree dividing DLG interests as community property. In addition, we vacate the portion ofthe decree denyingalimony. We remand for further proceedings consistent with thisopinion.

, C.J. Cadish

We concur:

J. Stiglich

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