The Nebraska Supreme Court has issued a ruling in the divorce case of Larry J. Stava and Carine F. Stava, clarifying how to classify marital and nonmarital property. This decision, filed on July 24, 2026, affects how couples in divorce proceedings can expect their assets to be divided, particularly when it comes to property that has both marital and nonmarital interests.
The case, identified by docket number S-25-469, is significant because it revisits the application of the source of funds rule, which determines how much of an asset is considered marital property based on the contributions made during the marriage. The ruling is expected to have implications for future divorce cases in Nebraska.
Larry and Carine Stava were involved in a marital dissolution action that has been through multiple appeals. The dispute centers on the classification of two lots owned by Larry prior to the marriage—Lot 14 and Lot 15—and their appreciation in value during the marriage. The Nebraska Supreme Court previously ruled on the matter, establishing the source of funds rule, which allows for a more equitable division of property that has both marital and nonmarital characteristics.
In the initial decree from the district court, both parties were awarded half of the marital estate. However, the classification of the lots and their appreciation was contested. Larry Stava argued that both lots, including improvements made to them, should be considered his separate property, while Carine contended that the improvements and their appreciation were marital assets.
The case reached the Nebraska Supreme Court after the Court of Appeals found that the barn built on Lot 15 was a marital asset, while the land portions were classified as Larry's separate property. The Supreme Court affirmed some of the lower court's decisions but also reversed others, particularly regarding how the appreciation of the land should be classified.
The court ruled that the source of funds rule must be applied to determine the marital interest in the appreciation of the lots. The opinion stated, "To the extent the properties were acquired with marital funds through the acquisition of equity therein, the active appreciation rule is not applicable and passive appreciation of that portion of the properties belongs to the marital estate." This means that any increase in value due to marital contributions must be considered part of the marital estate.
In its ruling, the court emphasized that the source of funds rule is crucial for identifying the marital and nonmarital portions of an asset. The court noted that when a couple uses marital funds to pay down debt associated with a property, it creates a marital interest in that asset. The ultimate goal of this rule is to ensure an equitable distribution of property between the parties.
The court also addressed whether an evidentiary hearing was necessary on remand to determine how the source of funds rule should be applied. The district court found that the record was sufficient to make a determination without further hearings, a decision that Larry contested. However, the Supreme Court upheld the district court's decision, stating that it did not abuse its discretion in concluding that an evidentiary hearing was not needed.
The ruling clarifies that the source of funds rule applies to assets with dual characteristics and that the appreciation of those assets should be classified based on the contributions made during the marriage. This decision is expected to influence how future divorce cases are handled in Nebraska, particularly in terms of property division.
As a result of this ruling, couples going through divorce in Nebraska may need to reassess how their assets are classified and divided, especially if they have properties with both marital and nonmarital interests. The decision highlights the importance of understanding the source of funds used in acquiring assets and how those funds can impact the overall division of property in a divorce.
Looking ahead, it is unclear whether Larry Stava will seek further appeal on this ruling. However, the clarification of the source of funds rule is likely to be a reference point in similar cases moving forward.