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Understanding Community Property in New Mexico

New Mexico is one of only nine states that have community property laws relating to divorce and marital property division. And like many other legal concepts, it starts out simple enough but becomes much more complicated once spouses begin exploring the option of divorce and arguing about fairness. Unless you have substantial New Mexico Family Law knowledge and experience, you should not wade into this process alone without reliable information and competent advice so can you can make informed decisions about your rights and obligations.

What Is Community Property?

Community property is an umbrella term that encompasses all property acquired during the marriage (assets) as well as all debts incurred during the marriage (liabilities) with few exceptions.

Community property exceptions include:

  • Anything you had before the marriage
  • Anything you got during the marriage as a gift from someone other than your spouse
  • An inheritance you receive during the marriage
  • Anything you got after the filing of the Petition.

These rules also apply to debt. However, the New Mexico legislature made an additional statutory exception to gambling debt. Gambling debt is the separate debt of the spouse that incurred it. Student loan debt is handled a little differently as well, so you should speak to an attorney if this is an issue. Once the community assets and the community liabilities are identified, we refer to them together as the “marital estate,” which is then supposed to be divided equally between the parties. That’s pretty much community property in a nutshell. Simple enough, right?

Before we explore how these relatively simple rules get complicated, there are a few foundational concepts that need to be understood.

Common Law Marriage

First, there is no common law marriage in New Mexico. This means that it does not matter how long you and your spouse lived together before you got married, whether or not you bought property together or co-mingled finances prior to the marriage, if you had children together and in all other ways acted as though you were married to one another, holding yourselves out to your friends and family and one another as spouses.

Under New Mexico law, you do not begin accumulating a marital estate or community property until you are actually and legally married. Often times during consultations, when we ask potential clients how long they have been married, we hear something like, “We’ve been together for 19 years and married for 6.” Unfortunately, we need to let that potential client know that the first 13 do not count as it regards community property, which is not always so easy for them to hear or accept. Frustration at this point is completely understandable, but that is simply the lay of the law in New Mexico.

Fair or not, because there is no common law marriage in New Mexico and it is a community property state, there are three critical dates associated with the identification and equitable allocation of your marital estate.

These are:

  • The date of the marriage (wedding date)
  • The date the Petition for Dissolution of Marriage is filed
  • The date your Final Decree of Dissolution of Marriage is entered by the Court.

Secret Assets & Debt

Second, there are no exceptions for undisclosed or secret assets and debt. If you or your spouse obtained a credit card during the marriage that the other did not know about and then secretly maxed it out, that outstanding debt will be considered 100% community debt and the parties will be equally responsible for it, regardless of what the card was used for or who’s name it’s in. Likewise, if one spouse secretly purchased, say a motorcycle, during the marriage, using community resources, which was titled, registered and insured in that spouse’s name alone, and completely hidden from the other spouse, it is still community property and subject to division by the Court, regardless of who’s name it’s in.

Prenuptial Agreement & Separate Property Conveyance

Third, community property laws can be superseded if the parties entered a valid Prenuptial Agreement prior to the marriage or entered an enforceable form of Sole and Separate Property Conveyance during the marriage regarding a particular asset or assets.

Ultimately, the entire allocation of the marital estate will be resolved in the form of a Marital Settlement Agreement (MSA) reached outside of Court or a Court ruling after trial.

Common Community Property Issues

Issues that complicate the proper identification and resulting equitable allocation of community assets and liabilities involve the concept that a property item (be it asset or liability) takes its characterization as being either separate or community at the time of its acquisition, leading to the process of transmutation. Transmutation is the process of the community obtaining and growing a lien on an item that began in the marriage as a separate item but becomes more and more a community item during the course of the marriage, or all at once, depending on how it’s applied.

Example #1:

One example of this would be the equity in a home that was initially purchased by one of the spouses prior to the marriage and then was used as the marital residence during the marriage. Suppose the home was purchased five years before the marriage and on the date of marriage, there was $30,000 in equity. Then the parties divorce 10 years later and at that time, there is $100, 000 in equity.

The basic idea is that because the mortgage payments made during the marriage were made from community resources, and any improvements made to the home during the marriage were made by the community, any increase in the value of the equity in the home that occurs during the marriage is community property and therefore subject to division by the Court.

So the spouse that initially purchased the home would have a $30,000 separate property lien on the equity and the rest would be community, so the community property portion of the equity should be considered to be the change in the value of equity that occurred during the marriage, or $65,000/$35,000.

Example #2:

Another example would be assets like a 401(k) or other IRA, money market or other financial accounts, whole life insurance policy cash value or participation in a pension/retirement plan that began before the marriage.

The same basic principle applies that the change of value during the marriage is community property. In the case of pensions like PERA (New Mexico State employees), FERS (Federal employees), ERA (educators), this same analysis is expressed using the following formula: “years of marriage during qualifying service over total years of qualifying service x 50%.”

The formula leads to the result that the separate property portion of an asset can diminish proportionally as a percentage of the value of the asset over time. Military retirements are handled in a similar way but there are also some substantial differences that you should discuss with competent counsel if that is an issue in your case.

Example #3

Transmutation can also occur with debt. If one spouse has a credit card with a limit of $20,000 and owes a balance of $5,000 on the date of marriage, then the parties max the card out during the marriage, the difference incurred during the marriage ($15,000) would be community debt, so the equitable allocation might look something like $12,500/$7,500. In this case, transmutation might also occur with the separate portion if the parties refinanced or consolidated that debt with other mixed type debt.

Please note that these are only very basic illustrative examples, and you are highly urged to consult with competent counsel here at Cortez & Hoskovec to discuss your specific rights and responsibilities in your unique situation.

Assets & Liabilities

Once the marital estate is fully identified and the values of items are more or less established, we typically reduce the entire marital estate to an Assets and Liabilities (A&L) spreadsheet reflecting both the minute and global allocation of community assets and liabilities.

Here we demonstrate that, for instance, if a marital estate has a total of $30,000 in credit card debt and one spouse is taking $25,000 of it, and the other is only taking $5,000 of it, then the one taking the lower amount will need to make an equalization payment to the other in the amount of $10,000 to even it out.

The same principle applies to community assets. If one spouse wants to take more of the community assets in terms of monetary value, then that spouse must equalize half of the difference to the other so the values end up equal. Again, the A&L spreadsheet is one of the primary tools we use to accomplish this.

Because of disagreements over the values of property items and in the larger context of other divorce-related issues like child custody/timesharing, child support, spousal support, business and tax issues, etc., negotiating the settlement of a marital estate is usually more art than science in that we are weighing and leveraging competing interests and the differing priorities of the parties against one another.

If money drives your spouse, but your priority is maximizing timesharing with the children, sometimes it is worth taking a little hit in the property division in order to get the timesharing schedule you want. You are entitled under the law to hold out for both, but in doing so, you are also accepting the risk involved with submitting the matter or matters to the Court for resolution rather than reaching an agreement outside of Court.

What Is Important to You?

Given the investment you have made in your marriage, you owe it to yourself to make sure you have the information and advice you need in order to make informed decisions regarding the allocation of your marital estate and to understand fully the decisions you are making. This will make it much less likely that you will spend years to come second-guessing decisions that you made during one of the most stressful experiences one can endure.

Consult with Our Legal Team Today

At Cortez & Hoskovec, we have represented spouses in hundreds of divorces through the years, identifying their priorities and developing successful plans for achieving and protecting them. Going through a divorce is mentally, emotionally, and financially draining enough without the added burden of self-educating yourself in the subtleties of community property law in the larger context of divorce law.

Put our substantial New Mexico family law knowledge and experience to work for you so you can proceed with confidence knowing that you fully understand your options, so you can have peace about the decisions you make.

Call us at (505) 544-5126 to make an appointment for a consultation to see how we can help with your case today.

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