Court Opinion

ID: 9953399
Source: CourtListenerOpinion
Date Created: 2024-03-22 00:07:36.351257+00
Date Added: 2024-06-11T14:46:06.170049
License: Public Domain

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

                ROBERT M. DRASKOVICH,                                 No. 84998
                Appellant/Cross-Respondent,
                vs.
                LAURINDA F. DRASKOVICH,                               FILE
                Respondent/Cross-Appellant.
                                                                       MAR 2 1 2024
                                                                              A BROWN

                                                                        DEP   CLERK

                           Appeal and cross-appeal from a district court decree of divorce.
                Eighth Judicial District Court, Family Division, Clark County; Bryce C.
                Duckworth, Judge.
                           Reversed in part, vacated in part, and remanded.

                The Pariente Law Firm, P.C., John Glenn Watkins and Michael D. Pariente,
                Las Vegas,
                for Appellant/Cross-Respondent.

                Law Offices of F. 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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                        property. We hold that the district court erred in determining that the law
                        firm was entirely community property because the uncontested evidence
                        demonstrated that, even after incorporation, it was a continuation of the
                        spouse's original, separate property law practice, and thus, the presumption
                        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 proceedings consistent with this opinion.
                                        FACTS AND PROCEDURAL HISTORY
                                    Appellant/cross-respondent Robert Draskovich has been
                        practicing criminal law since 1997. At the time he and respondent/cross-
                        appellant Laurinda Draskovich married in 2012, he was a 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 testimony that DLG was "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 stated that he changed only the letterhead and the name
                        stickers on the firm vehicles to match the name change of the firm. By the
                        time Robert and Laurinda began divorce proceedings in 2022, DLG was
                        worth approximately $1,210,000.

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                                       At trial, DLG was the primary asset in dispute. To analyze the
                            value of DLG, 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 of the practice. The accountant
                            also noted during trial that she could not provide any valuation for a
                            separate property share of DLG because neither party had engaged her to
                            allocate the separate and community property interests.
                                       After a two-day trial, the district court concluded that DLG 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
                            found that some factors supported alimony, the court did not award alimony
                            at least in part because the court determined that the share of community
                            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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                contain some community property interest subject to at least some
                apportionment.
                                             DISCUS SION
                             Robert and Laurinda ask this court to consider DLG's status
                and the question of alimony, and we therefore consider only those two issues
                in this opinion and do not opine on the rest of the district court's judgment.
                See Powell v. Liberty Mut. Fire Ins. Co., 127 Nev. 156, 161 n.3, 252 P.3d 668,
                672 n.3 (2011) (declining to consider issues not properly raised by the
                parties). We first address the division of DLG'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
                concerning the parties' community property, alimony must be reconsidered.
                DLG represents the continuation of T&D and is Robert's separate property
                          "When reviewing a district court's determination of the
                character of property, this court will uphold the district court's decision if it
                was based 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, 195 P.3d 850, 855 (2008). We therefore review
                the district court's factual classification of DLG with deference but review
                the application of the community property presumption to DLG de novo.

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                               With 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 claiming such property
                   as their separate property must prove their interest by clear and convincing
                   evidence. Pryor v. Pryor, 103 Nev. 148, 150, 734 P.2d 718, 719 (1987). This
                   presumption and burden also apply to entities created during the marriage
                   from mixed community and separate funds. See Moberg 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, along with the "rents, issues and profits thereof," is that spouse's
                   separate property. NRS 123.130; see Smith v. Smith, 94 Nev. 249, 251, 578
                   P.2d 319, 320 (1978).
                               Caselaw from this court and from California, which this court
                   often looks to for principles of community 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 of the circumstances
                   to determine whether a business is an asset acquired during the marriage
                   and thus presumptively community property, or merely a continuation of a
                   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

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                      of the newly incorporated business, and undertook operations expansions,

                      but the essential nature and character of the business remained 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
                      of incorporation alone did not dictate the character of the 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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                                The 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 the same office location. His testimony established that
                  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's interest in T&D—a mere change in form or identity of his share in
                  T&D—rather than a new property acquisition. DLG is thus his separate
                  property under the totality of the circumstances, and the district court erred
                  by instead relying on the date of incorporation alone to apply the community
                  property presumption. We therefore reverse the portion of the divorce
                  decree pertaining to the DLG interests and remand for further proceedings
                  as instructed below.
                  Laurinda bears the burden to show a community portion of DLG
                             Robert's business is likely not presently worth the same amount
                  as it was at the time of his marriage to Laurinda in 2012. A business can
                  increase in value over time from separate property input or from 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 is partially attributable to the community, that spouse must show
                  clear and convincing evidence of the community share. Kelly v. Kelly, 86
                  Nev. 301, 310, 468 P.2d 359, 365 (1970) (citing, inter alia, Barrett v. Franke,
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                  46 Nev. 170, 208 P. 435 (1922)) ("Appellant has therefore not proven by clear
                  and satisfactory proof these assets were purchased with community funds
                  or credit or acquired by . . . community toil or talent."); see also Sprenger v.
                  Sprenger, 110 Nev. 855, 858, 878 P.2d 284, 286 (1994) ("Transmutation from
                  separate to community property must be shown by clear and convincing
                  evidence.").
                                 Here, Robert brought the business into the marriage, so it is his
                  separate property, and any increase in its value over time is also presumed
                  to be separate. See Smith, 94 Nev. at 251, 578 P.2d at 320. This means
                  Laurinda bears the burden of showing by clear and convincing evidence that
                  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 during the period of the 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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                apportionment between separate and community interests of the firm
                would be necessary. On remand, we instruct the district court to follow
                Kelly v. Kelly and permit Laurinda to provide clear and convincing evidence,
                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
                community property circumstances
                          "The decision of whether to award alimony is within the
                discretion of the 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
                to revisit its alimony analysis following its decision as to any 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 surrounding DLG.
                                            CONCL USION
                            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 during the marriage is attributable to
                community resources and apportionment is appropriate.           The district
                court's application of the community property presumption to DLG based
                solely on the fact of DLG's incorporation during the marriage was, 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 of the decree dividing DLG interests as community
                property. In addition, we vacate the portion of the decree denying alimony.
                We remand for further proceedings consistent with this opinion.

                                                                                ,   C.J.
                                                    Cadish

                We concur:

                                               J.
                Stiglich

                                               J.
                Pickering
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