When it comes to bankruptcy, a debtor must actually live in a residence to claim Nevada’s homestead protection, the state Supreme Court ruled Thursday.
In a unanimous opinion, justices clarified the state’s homestead law at the request of the U.S. Bankruptcy Court in a case involving a home owned jointly by a divorced couple.
Nevada law allows homeowners to file a declaration of homestead, which protects up to $550,000 of a person’s equity in their primary residence from financial judgments such as bankruptcy.
At issue was whether David Nilsson can claim the protection in his bankruptcy case for a home he owns jointly with his ex-wife, even though he hasn’t lived there since 2006. Among other things, Nilsson argued he should be allowed to claim the exemption to protect the interests of his three minor children who still reside in the home.
Justices, in a 7-0 opinion, said no, ruling that a homestead declaration must involve someone’s “bona fide residence.”
According to court documents, Nilsson and his wife purchased property in Reno and built a home on it where they lived with their children until 2006, when Nilsson moved out and lived in a travel trailer in Sparks.
His wife, Kelli, filed for divorce the same year.
The divorce decree said the wife and children would live at the home until it sold, but it was never listed for sale, and the couple still owns the home jointly, with each holding half interest in the property, court documents said.
In 2011, more than three years after the divorce was finalized, Nilsson’s ex-wife recorded a declaration of homestead listing the property as her individual homestead but noting that Nilsson was on the property title.
David Nilsson subsequently filed for personal bankruptcy and sought to claim his half-interest in the home as an exemption from creditors. The bankruptcy trustee objected, and a federal judge referred the question to the Nevada Supreme Court for clarification.