Gabriele v. Gabriele , 421 P.3d 828 ( 2018 )

1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
2 Opinion Number: ______________
3 Filing Date: January 31, 2018
4 NO. A-1-CA-34523
5 JOHNNY A. GABRIELE,
6 Petitioner-Appellant,
7 v.
8 DEBORRAH L. GABRIELE, a/k/a
9 DEBBIE GABRIELE,
10 Respondent-Appellee.
11 APPEAL FROM THE DISTRICT COURT OF COLFAX COUNTY
12 Sarah C. Backus, District Judge
13 Michael Danoff & Associates, P.C.
14 Michael L. Danoff
15 Albuquerque, NM
16 for Appellant
17 Kamm & McConnell, L.L.C.
18 Terrence R. Kamm
19 Raton, NM
20 for Appellee
1 OPINION
2 HANISEE, Judge.
3 {1} The formal opinion filed in this case on January 3, 2018, is hereby withdrawn,
4 and this opinion is substituted in its place.
5 {2} Husband appeals the district court’s division of property that resulted from the
6 parties’ dissolution of marriage. Specifically, Husband contends the district court
7 erred by failing to distribute all property and finding that four sole and separate
8 property agreements that Husband signed shortly before Husband filed for divorce
9 were valid. For the reasons discussed below, we affirm in part, reverse in part, and
10 remand for further proceedings.
11 BACKGROUND
12 {3} Johnny Gabriele (Husband) and Deborrah Gabriele (Wife) were married on
13 February 15, 2006. Husband filed a petition for divorce on July 22, 2013. A trial was
14 held to determine how the marital property would be divided, after which the parties
15 submitted proposed findings of fact and conclusions of law. The district court issued
16 its decision and order in which it granted dissolution of the parties’ marriage and
17 distributed the marital property, including real estate, cash, other assets, and
18 liabilities.
1 {4} Husband appealed and makes the following claims: (1) the district court erred
2 by concluding that the sole and separate property agreements (SSPAs) that Husband
3 signed were valid, enforceable contracts; (2) the district court erred in its distribution
4 of the parties’ marital residence—known as the Francis Home—which Husband had
5 acquired prior to marriage; and (3) the district court failed to address Husband’s
6 claimed interests—both separate and community—in various other property,
7 including a 1955 Chevrolet that Wife had given him as a birthday gift, a property
8 located in Texas (the Texas property), and Wife’s income earned during the marriage.
9 We address each of Husband’s claims in turn, reserving discussion of more specific
10 facts when pertinent to our legal analysis.
11 I. Whether the Four SSPAs Are Valid, Enforceable Contracts
12 A. Additional Facts
13 {5} In 2007, Wife—who had a background as a nursing home administrator and a
14 Master’s degree in business—started an assisted living business called Colfax Senior
15 Care, LLC (CSC), a limited liability company (LLC) in which Wife was the single
16 registered member. CSC purchased a residential property (262 Francis) out of which
17 to operate an assisted living facility for $92,000. Wife testified that the “start-up
18 money” for CSC came from $50,000 of her separate savings and a $20,000 loan from
19 her children. Husband testified that he contributed $29,000 from his smaller
2
1 retirement fund for the down payment on 262 Francis and that he participated in the
2 business by helping to remodel and maintain the facility. Wife disputed that Husband
3 contributed any funds to purchase 262 Francis. The district court resolved this dispute
4 in Husband’s favor, finding that Husband “contributed approximately $29,000 of his
5 separate funds to [the] purchase [of 262 Francis].”
6 {6} CSC was expanded in 2009-10 in order to meet growing demand in the
7 community, and the business purchased a lot (251 Francis) on which to construct a
8 new, larger facility. Both parties agree that Husband contributed $10,000 from his
9 retirement savings to purchase 251 Francis and loaned CSC $80,000 to construct the
10 new facility. CSC took out a $528,000 bank loan to finance the remainder of the
11 construction project. 262 Francis was sold after 251 Francis opened.
12 {7} In July 2012, Wife started making plans to expand the business again,
13 including construction of a new, $1.5 million facility. According to Wife, when she
14 discussed her expansion plans with Husband, he was “adamant that [she] not do it”
15 because he was concerned about “[s]o much liability[,]” both financial and legal.
16 Wife consulted a business lawyer about forming a new LLC for the expanded
17 business that could be Wife’s separate property in order to release Husband from all
18 liability associated with the new business. The lawyer helped Wife “draw up the new
19 LLC” and informed her that she “could create a document” that would put “all the
3
1 liability, financial, legal” on Wife. Wife testified that Husband was “very pleased that
2 there was . . . a way that we could both have what we wanted. It was a good
3 compromise.”
4 {8} On April 25, 2013, the parties signed four SSPAs. In addition to two SSPAs
5 designating, respectively, the new LLC (Colfax Senior Living, LLC (CSL)) and the
6 property for the new facility (the State Street property) as the separate property of
7 Wife, there were two SSPAs that designated CSC (the existing LLC) and 251 Francis
8 (the existing assisted living facility) as Wife’s separate property. The SSPAs provided
9 that Husband “expressly waives, relinquishes, and releases any and all right, title,
10 claim, or interest in and to” both pieces of real property as well as the LLCs’
11 “Membership Interest.” After Husband and Wife signed the SSPAs, Wife continued
12 with the development of CSL.1 She purchased the State Street property in May 2013
13 for $120,000 with money from “[her] business” and two bank loans. However, once
14 divorce proceedings commenced in July 2013, Wife decided not to go forward with
15 the expansion project.
16 {9} At the time of trial, CSC was under contract for sale for $620,000. Subsequent
17 to trial, after the sales transaction was completed and CSC’s debts were paid off,
18 $257,461.26 was placed in the registry of the court. Regarding CSL, Wife testified
19 1
The record does not specify CSL’s date of creation.
4
1 that she believed the plans for the State Street project that she had commissioned
2 were sellable but that she was not aware of anyone who was interested in purchasing
3 the project. She also described CSL’s outstanding debts, but the district court did not
4 make any specific findings or conclusions regarding the amount of those debts.
5 {10} Husband argued to the district court that he “received no consideration” under
6 the SSPAs, thereby invalidating them, and that Wife “breached her fiduciary duty to
7 [Husband] by her conversion of community property to her sole and separate
8 property.” Wife contended that “[t]he consideration for the [SSPAs] was to free
9 [Husband] of all liability and debt associated with the business then and in the future,
10 which was considerable.” The district court found that Husband “desired to be
11 relieved of responsibility for existing debt and liability of both companies, and future
12 debt and liability of the businesses and the property” and concluded that “[b]y signing
13 the agreements [Husband] was relieved of responsibility for the debt as well as the
14 liability.”2 As such, the district court awarded Wife, among other things, 251 Francis,
15 the State Street property, CSL and its assets, and CSC—including the entire
16 $257,461.26 of proceeds from the sale of CSC—all subject to debt thereon.
17 2
The district court made these findings in its amended decision and order as a
18 result of this Court’s order of limited remand for entry of detailed findings of fact
19 concerning whether each of the four SSPAs was supported by consideration.
5
1 B. Analysis
2 {11} Husband relies on general principles of contract law and argues that the district
3 court erred in concluding that the SSPAs are valid because (1) they lacked mutual
4 assent, and (2) Wife’s promise of releasing Husband from liability was illusory, thus
5 they also lacked valid consideration. Wife relies on the definition of “separate
6 property” contained in NMSA 1978, Section 40-3-8 (1990), to support the validity
7 of the designation of the businesses and properties identified in the SSPAs as Wife’s
8 separate property.3 Neither party has addressed the import of NMSA 1978, Section
9 40-2-2 (1907), wherein the Legislature statutorily set forth the contract rights of
10 married persons. We begin with the statute. See Hughes v. Hughes, 1981-NMSC-110,
11 ¶ 19, 96 N.M. 719, 634 P.2d 1271 (“In New Mexico, transactions between husbands
12 As this Court has previously explained, Section 40-3-8 merely “deals with
3
13 classes of property and not with how property may be changed to a different class.”
14 Estate of Fletcher v. Jackson, 1980-NMCA-054, ¶ 45, 94 N.M. 572, 613 P.2d 714;
13 see § 40-3-8(A)(5) (defining one type of “separate property” as “property designated
14 as separate property by a written agreement between the spouses, including a deed or
15 other written agreement concerning property held by the spouses . . . [,] in which the
16 property is designated as separate property”). Wife fails to explain how coming
17 within the statutory classification of “separate property” alone renders the
18 SSPAs—which attempted to transmute community property to separate
19 property—valid, enforceable contracts. To the extent Wife argues that Section 40-3-
20 8(A)(5) is dispositive of the question whether the properties identified in the SSPAs
21 are Wife’s separate property, we reject such argument as unsupported by any
22 authority. See Curry v. Great Nw. Ins. Co., 2014-NMCA-031, ¶ 28, 320 P.3d 482
23 (“Where a party cites no authority to support an argument, we may assume no such
24 authority exists.”).
6
1 and wives are governed by Section 40-2-2[.]”); Primus v. Clark, 1944-NMSC-030,
2 ¶ 13, 48 N.M. 240, 149 P.2d 535 (explaining that “[t]ransactions between husband
3 and wife are controlled by the . . . statute” and analyzing the challenged agreement
4 within the context of the statute).
5 1. Section 40-2-2: Contract Rights of Married Persons
6 {12} In New Mexico, “[e]ither husband or wife may enter into any engagement or
7 transaction with the other, or with any other person respecting property, which either
8 might, if unmarried[.]” Section 40-2-2. However, such transactions between spouses
9 are subject to “the general rules of common law which control the actions of persons
10 occupying confidential relations with each other.” Id. Interpreting this statute, our
11 Supreme Court has held that transactions between spouses in which one spouse
12 “secured a decided advantage over the [other]” are “presumptively fraudulent.” Beals
13 v. Ares, 1919-NMSC-067, ¶¶ 73, 82, 90, 25 N.M. 459, 185 P. 780. That is because a
14 husband and wife are fiduciaries upon whom are imposed “ ‘the obligation of
15 exercising the highest good faith towards [each other] in any dealing between them,
16 and [which] preclude[s each] from obtaining any advantage over [the other] by means
17 of any misrepresentation, concealment, or adverse pressure.’ ” Id. ¶ 76 (quoting with
18 approval Dolliver v. Dolliver, 30 P. 4, 5 (Cal. 1892) (in bank)); see Primus, 1944-
19 NMSC-030, ¶ 15 (explaining that the statute governing the contract rights of married
7
1 persons “creates in law a fiduciary relationship between husband and wife”). In such
2 cases, in order to overcome the presumption of fraud, it is the duty of the spouse who
3 has gained the advantage “to show (a) the payment of an adequate consideration, (b)
4 full disclosure by him [or her] as to the rights of the [other] and the value and extent
5 of the community property, and (c) that the [other] had competent and independent
6 advice in conferring the benefits upon [him or her].” Beals, 1919-NMSC-067, ¶ 90.
7 Where the advantaged spouse fails to make this showing, the district court is to “set
8 aside the [agreements] . . . in question, to ascertain the value and extent of the
9 community property, . . . and to divide the community property between the
10 parties[.]” Id. ¶ 93.
11 2. Whether Wife Gained a Decided Advantage Over Husband, Thereby
12 Creating a Presumption of Constructive Fraud
13 {13} Where one spouse receives grossly inadequate consideration for forfeiting his
14 or her interest in community property, the other spouse is considered to have gained
15 a decided advantage through constructive fraud,4 rendering the transaction voidable.
16 See Primus, 1944-NMSC-030, ¶¶ 12, 21, 22 (concluding that there existed a “legal
17 presumption of constructive fraud” where the wife received only $1,000 from the
18 4
Constructive fraud is “a breach of a legal or equitable duty irrespective of the
19 moral guilt of the fraud feasor, and it is not necessary that actual dishonesty of
20 purpose nor intent to deceive exist.” Snell v. Cornehl, 1970-NMSC-029, ¶ 8, 81 N.M.
21 248, 466 P.2d 94.
8
1 community estate worth $50,000); Beals, 1919-NMSC-067, ¶¶ 72, 82 (concluding
2 that the husband had “secured a decided advantage over the wife” where the wife
3 received only $4,000 and her interest in the subject property was between $35,000
4 and $75,000). Our Supreme Court has also found constructive fraud where one
5 spouse “had and took an advantage in the matters surrounding the conveyance of . . .
6 property.” Trujillo v. Padilla, 1968-NMSC-090, ¶ 6, 79 N.M. 245, 442 P.2d 203. The
7 main question we are concerned with is whether the parties were “bargaining on an
8 equal footing” in satisfaction of their fiduciary duties to one another. Primus, 1944-
9 NMSC-030, ¶¶ 15, 21. Where the evidence indicates they were not, we may find
10 constructive fraud.
11 {14} Here, the record indicates that the net value of CSC was $257,461.26 as
12 reflected by the proceeds placed in the registry of the court following the sale and
13 payment of debts of CSC. Thus, Husband’s one-half community interest was
14 approximately $128,000. Under the SSPAs, Husband received $0 in exchange for
15 conveying his interest to Wife. Even assuming Husband received the non-monetary
16 “consideration” of being relieved of all financial and legal liability by signing the
17 SSPAs as the district court found, Husband’s considerable forfeiture supports a
18 presumption of constructive fraud. Additionally, we note that prior to asking Husband
19 to sign the SSPAs, Wife had consulted a divorce attorney as well as a business
9
1 attorney, and it was Wife who drafted and provided Husband with the SSPAs. The
2 record contains no indication that Husband—though he had a chance to review the
3 SSPAs prior to signing them—had independent counsel regarding the agreements.
4 Based on the foregoing facts, along with our statutory authority and legal precedent,
5 we conclude that Wife gained a decided advantage over Husband through the SSPAs.
6 We, therefore, next consider whether Wife met her burden to show (a) provision of
7 adequate consideration, (b) full disclosure to Husband as to his rights and extent of
8 the community property, and (c) that Husband had competent and independent legal
9 advice prior to signing the SSPAs. See Beals, 1919-NMSC-067, ¶ 90.
10 3. Whether Wife Met Her Burden of Proving She Met Her Fiduciary Duties
11 in Entering Into the SSPAs With Husband
12 {15} The parties primarily focus their arguments on whether there was sufficient
13 evidence of consideration to support the contract. However, we need not decide the
14 question of consideration because, even assuming arguendo that the district court
15 properly concluded that the SSPAs were supported by adequate consideration, there
16 is no evidence that (1) Wife disclosed to Husband the value of the properties and
17 businesses to be conveyed or Husband’s rights—and, importantly, potential
18 liability5—therein; and (2) Husband had received competent and independent advice
19 5
Given that CSC and CSL were set up as single-member LLCs with Wife as the
20 member and that the real property at issue (251 Francis and the State Street property)
10
1 prior to signing the SSPAs. See Beals, 1919-NMSC-067, ¶ 90. The undisputed facts
2 of this case are that Wife had a Master’s degree in business, was an experienced
3 business woman, and was in charge of managing and decision-making for the
4 business. It is also undisputed that Husband had a high school education and was not
5 involved in the management of the business, other than providing general
6 maintenance work at the assisted living facility. Particularly in light of this power
7 imbalance and Wife’s dominant position respecting the business, it was imperative
8 that Wife disclose to Husband the business’s assets and his rights therein and that
9 Husband have independent counsel in considering the ramifications of entering into
10 the SSPAs. See Fate v. Owens, 2001-NMCA-040, ¶ 25, 130 N.M. 503, 27 P.3d 990
11 (“[A] fiduciary[] is required to fully disclose material facts and information relating
12 to the [fiduciary relationship] . . . even if the [one to whom the duty is owed] ha[s] not
13 asked for the information. . . . The duty of disclosure is a hallmark of a fiduciary
14 was the property of the LLCs, we fail to see—and the parties fail to explain—how
15 Husband had any personal financial responsibility or legal liability for any of the
16 subject properties to begin with. See NMSA 1978, § 53-19-13 (1993) (providing that
17 “the debts, obligations and liabilities of a [LLC], whether arising in contract, tort or
18 otherwise, shall be solely the debts, obligations and liabilities of the [LLC]”). To the
19 extent he did not, this would support Husband’s argument that the district court erred
20 in concluding that the SSPAs were supported by consideration. See Hurley v. Hurley,
21 1980-NMSC-067, ¶ 16, 94 N.M. 641, 615 P.2d 256 (explaining that “a promise to do
22 what a party is already obligated by contract or law to do is not sufficient
23 consideration for a promise made in return”), overruled on other grounds by
24 Ellsworth v. Ellsworth, 1981-NMSC-132, ¶ 6, 97 N.M. 133, 637 P.2d 564.
11
1 relationship.” (internal quotation marks and citations omitted)). Cf. Unser v. Unser,
2 1974-NMSC-063, ¶¶ 16-17, 86 N.M. 648, 526 P.2d 790 (explaining that in order for
3 there to be presumptive fraud, one party must be “in the dominant position[,]” and
4 finding no presumption of fraud because it was “questionable as to whether the
5 relationship of dominance” existed where the wife had been “advised by independent
6 legal counsel” prior to signing the agreement).
7 {16} Because the record indicates that Wife failed to meet her burden to overcome
8 the presumption of constructive fraud, we hold that the SSPAs—even if validly
9 formed—were voidable at Husband’s election and must be set aside. See Trujillo,
10 1968-NMSC-090, ¶ 7; Beals, 1919-NMSC-067, ¶ 93. We reverse the district court’s
11 distribution of the properties covered by the SSPAs and remand for further
12 proceedings in light of this opinion.
13 II. Whether the District Court Erred in Distributing the Equity in the Francis
14 Home
15 {17} Husband argues that the district court erred in its distribution of the Francis
16 Home by failing to award him his $30,000 separate property interest in the home,
17 which was the down payment he made when he purchased the home prior to meeting
18 Wife. Wife argues that there was substantial evidence to support the district court’s
19 findings and conclusions regarding distribution of the Francis Home, which were
20 premised upon the conclusion that whatever separate interest Husband possessed in
12
1 the Francis Home was transmuted to a community interest. We agree with Husband
2 that the district court erred.
3 A. Standard of Review
4 {18} To the extent Husband argues that there is an insufficient factual basis to
5 support the district court’s findings of fact regarding the Francis Home, “we review
6 the evidence in the light most favorable to support the [district] court’s findings,
7 resolving all conflicts and indulging all permissible inferences in favor of the decision
8 below.” Jones v. Schoellkopf, 2005-NMCA-124, ¶ 8, 138 N.M. 477, 122 P.3d 844.
9 However, to the extent Husband attacks the district court’s conclusions of law
10 respecting the Francis Home—including those findings that function as
11 conclusions—our review is de novo. See id.; see also Benavidez v. Benavidez, 2006-
12 NMCA-138, ¶ 21, 140 N.M. 637, 145 P.3d 117 (“We are deferential to facts found
13 by the district court, but we review conclusions of law de novo.”). We also review de
14 novo questions of law, including threshold determinations regarding whether property
15 is separate or community or whether the community has acquired an interest in
16 separate property. See Arnold v. Arnold, 2003-NMCA-114, ¶ 6, 134 N.M. 381, 77
17 P.3d 285 (explaining that “the threshold question of whether [the h]usband’s
18 accumulated vacation leave and sick leave are community property is a question of
19 law, which we review de novo”); Ross v. Negron-Ross, 2017-NMCA-061, ¶ 7, 400
13
1 P.3d 305 (explaining that “[w]hether the district court erred in finding no community
2 lien on the Spring Creek residence [(separate property)] is a question of law that we
3 review de novo”).
4 B. The District Court Erred in Concluding That the Francis Home Was
5 Transmuted From Husband’s Separate Property to Community Property
6 {19} The district court entered the following findings of fact regarding the Francis
7 Home:
8 5. Prior to the marriage, in 2004, [Husband] had purchased [the
9 Francis Home]. The purchase price was $147,000 and [Husband]
10 had made an approximate $30,000 down-payment.
11 ....
12 14. Soon after the marriage, [Husband] transferred the [Francis
13 Home] to himself and [Wife]. The parties refinanced the debt on
14 the house to get a more favorable interest rate. [Husband] testified
15 that the reason he did so was because he believed marriage was
16 “sacred.” This act transmuted the [Francis Home] into community
17 property.
18 15. During the marriage, the parties made the mortgage payments and
19 made approximately $40,000 worth of improvements to the
20 house. At the time of trial the value of the [Francis Home] was
21 $150,000. No appraisal was offered. ([Husband] estimated the
22 value at $140,000 and [Wife] estimated the value at $160,000.)
23 There is $94,000 owing on the mortgage. The equity in the
24 property is approximately $56,000.
25 From these findings, the district court concluded, “The Francis [Home] is community
26 property. The parties are entitled to one-half each of the $56,000 equity in the house.”
14
1 {20} The first flaw in the district court’s conclusion is that Wife never contended
2 that Husband’s separate interest in the Francis Home had been transmuted into
3 community property. Wife’s claims and contentions—as well as her opening and
4 closing arguments to the district court—reveal that Wife believed she was entitled to
5 either (1) reimbursement of one-half of the $40,000 of improvements the community
6 made to the Francis Home, or (2) one-half of the remaining “community equity” in
7 the home after Husband was repaid his down payment.6 In other words, the position
8 Wife took and her proposed distribution of property evince her belief that the Francis
9 Home was Husband’s separate property.7 See Trego v. Scott, 1998-NMCA-080, ¶ 5,
10 6
We note that two days after submitting her written closing argument, Wife
11 filed a document titled “Supplement to Closing Argument” in which she cited in her
12 “list of authorities” this Court’s decision in Macias v. Macias, 1998-NMCA-170, 126
13 N.M. 303, 968 P.2d 814, and provided the following parenthetical explanations:
14 “(Separate property, the [Francis Home], placed in joint ownership along with intent
15 to transmute results in transmutation) and (Court should consider factors 1) deed to
16 community, 2) mortgage by community, 3) intent of grantor, 4) community payment
17 of mortgage, taxes, maintenance and upgrades) and (property acquired during
18 marriage presumed to be community and burden rests with protesting spouse to prove
19 otherwise).” However, Wife cited no other authority and offered no additional
20 argument or analysis to support a finding of transmutation. Wife’s appellate
21 arguments—which make no reference to transmutation or cite any relevant authority
22 to defend the district court’s conclusion that a transmutation occurred—further
23 support our understanding that it was never Wife’s position that the Francis Home
24 was transmuted. See State ex rel. Human Servs. Dep’t v. Staples (In re Doe), 1982-
25 NMSC-099, ¶¶ 3, 5, 98 N.M. 540, 650 P.2d 824 (explaining that appellate courts
26 should not reach issues that the parties have failed to raise in their briefs).
27 7
Even though Wife asserted in her proposed findings that Husband deeded the
28 Francis Home to himself and Wife “with the intent to make the property community
15
1 125 N.M. 323, 961 P.2d 168 (explaining that the wife had “conceded, by her chosen
2 method of calculating the monies due her, that the properties in dispute remained
3 separate” because the wife’s “own computations” revealed that she assumed the
4 community’s interest was an apportioned interest in the increased value of the
5 separate property). As we discuss below, Wife only contended that there was a
6 community lien on the Francis Home, which would entitle Wife to a different, lesser
7 interest in the Francis Home than would the conclusion that a transmutation occurred.
8 {21} The second and more problematic flaw in the district court’s conclusion that
9 a transmutation had occurred is that it is contrary to New Mexico case law, which
10 establishes a high legal standard for proving transmutation. “Transmutation is a
11 general term used to describe arrangements between spouses to convert property from
12 separate property to community property and vice versa.” Allen v. Allen, 1982-
13 NMSC-118, ¶ 13, 98 N.M. 652, 651 P.2d 1296. While New Mexico recognizes
14 transmutation, this Court has explained that “[t]he spouse who argues in favor of
15 property[,]”within that same proposed finding Wife suggests the inherently
16 contradictory conclusion that “[i]f [Husband] gets credit for his $32,000 down
17 payment there is still $34,000 in community equity.” In other words, Wife’s assertion
18 as to Husband’s intent cannot be reconciled with the way in which she calculated her
19 claimed interest in the Francis Home, i.e., as a community lien rather than an
20 undivided one-half interest. If Wife was truly claiming that Husband intended to
21 transmute the Francis Home from his separate property to community property, Wife
22 would have claimed one-half interest in the full equity of the home rather than the full
23 equity minus Husband’s down payment (separate property).
16
1 transmutation carries what has been variously described as a ‘difficult’ or a ‘heavy’
2 burden[.]” Macias, 1998-NMCA-170, ¶ 12. Transmutation must be proven by “clear
3 and convincing evidence of spousal intent to do so.” Id. A deed, other document
4 showing joint title, or mortgage note alone is not conclusive of intent to transmute.
5 See id. ¶ 13 (explaining that “a deed or other document showing joint title does not
6 transmute separate property if there is no intent to do so” and that “a mortgage may
7 be evidence of such intent to transmute, but it is not conclusive and is not, by itself,
8 substantial evidence of intent to transmute” (omission, emphasis, internal quotation
9 marks, and citation omitted)). Proving “transmutation requires evidence of intent on
10 the part of the grantor spouse.” Id.
11 {22} Here, the district court’s findings make clear that it relied on three things to
12 support its conclusion that transmutation occurred: (1) that soon after marriage,
13 Husband “transferred the [Francis Home] to himself and [Wife;]” (2) that Husband
14 and Wife “refinanced the debt on the house to get a more favorable interest rate[;]”
15 and (3) Husband’s statement that he “thought being married was kind of a sacred
16 thing” when asked by his attorney what his intention was when he added Wife’s name
17 to the deed. Nowhere did the district court find that Husband intended to make a gift
18 to Wife or create in her an undivided one-half interest in the Francis Home. And
19 indeed, under New Mexico transmutation law and given (1) the absence of evidence
17
1 in the record indicating that Husband had the requisite intent to effect transmutation,
2 (2) the fact that Wife conceded that the Francis Home was Husband’s separate
3 property, and (3) that Wife employed a litigation strategy designed to protect only her
4 interest in the community lien on the property, it could not have. We hold that the
5 district court’s conclusion that the Francis Home was transmuted from Husband’s
6 separate property into community property is incorrect as a matter of law. Thus, we
7 reverse the district court’s award to Wife of an automatic one-half interest in the
8 Francis Home’s equity. The question that remains, then, is to what portion—if
9 any—of the equity in the Francis Home is Wife entitled?
10 C. Acquisition of a Community Interest in Separate Property and
11 Apportionment Thereof
12 {23} As previously noted, Wife’s position during trial was that the marital
13 community had acquired an interest in the Francis Home of which Wife was entitled
14 to one-half. Wife’s primary argument in this regard was that the community had
15 contributed $40,000 to various home improvements—including the addition of
16 “hardwood floors, a large nice deck, some new doors, new window treatments,
17 kitchen, bathroom, sinks, countertops, kitchen appliances, furniture”—that Wife
18 believed increased the value of the home. Wife initially contended she should
19 “recover [one-half] of the remodel cost to” the Francis Home, or $20,000. In her
20 closing argument, Wife added a claim for one-half “the community equity” in the
18
1 home, which she calculated to be $17,000. Wife arrived at the figure of $17,000 by
2 first assuming the district court would find that there was $66,000 in total equity in
3 the home,8 then subtracting what Wife described as Husband’s “down payment as
4 sole and separate property ($32,000),” which would leave $34,000 in “community
5 equity” to which Wife would be entitled to one-half, or $17,000. Wife continued to
6 seek one-half of the $40,000 remodel cost in addition to the $17,000 of community
7 equity. As stated, the district court awarded Wife one-half ($28,000) of the total
8 equity it determined to exist in the Francis Home ($56,000) based on its conclusion
9 that a transmutation occurred.
10 {24} Where, as here, a party claims that appreciation during marriage of separate
11 property is owing to community contributions, apportionment is the proper method
12 of determining the respective interests—i.e., separate and community—in the asset
13 upon dissolution. See Dorbin v. Dorbin, 1986-NMCA-114, ¶ 15, 105 N.M. 263, 731
14 P.2d 959. “[A]pportionment is a legal concept that is properly applied to an asset
15 acquired by married people with mixed monies—that is, partly with community and
16 partly with separate funds.” Id. ¶ 29 (internal quotation marks omitted). An “asset
17 acquired” may include the increased equity in one spouse’s separate real property. See
18 8
This figure is based on an assumption that the Francis Home was valued at
19 $160,000 at the time of trial per Wife’s testimony and that there remained a balance
20 of $94,000 on the mortgage.
19
1 id. ¶¶ 11, 24, 27 (apportioning the “appreciation equity” in the wife’s separately
2 owned townhouse between the wife’s separate interest and the community’s interest);
3 see also Michelson v. Michelson, 1976-NMSC-026, ¶¶ 20-22, 89 N.M. 282, 551 P.2d
4 638 (affirming the district court’s apportionment of the equity in the parties’
5 home—which was originally acquired with the husband’s separate
6 property—between “community expenditures of time, effort and money” (the
7 community’s interest) and “the normal appreciation of property” (the husband’s
8 separate interest)).
9 {25} To determine whether apportionment is appropriate, the district court must first
10 decide whether the community has, in fact, acquired an interest in the separate
11 property. See Martinez v. Block, 1993-NMCA-093, ¶ 13, 115 N.M. 762, 858 P.2d 429
12 (“Apportionment is appropriate only when an asset has been acquired or its equity
13 value increased through the use of both separate and community funds.”). If there is
14 no evidence of a community interest in the equity of separate property, the separate
15 interest is entitled to the full value of the property and apportionment is not proper.
16 See Hertz v. Hertz, 1983-NMSC-004, ¶¶ 22-23, 99 N.M. 320, 657 P.2d 1169 (holding
17 that the husband was entitled to the full value of appreciation of his separate property
18 rather than only “proportionate appreciation” where there was no evidence to support
19 apportionment of the appreciation).
20
1 {26} In general, when property is “acquired as separate property, it retains such
2 character even though community funds may later be employed in making
3 improvements or discharging an indebtedness thereon.” Campbell v. Campbell, 1957-
4 NMSC-001, ¶ 80, 62 N.M. 330, 310 P.2d 266. However, the community may acquire
5 an interest in—specifically a lien on—separate property where the community’s
6 contributions have enhanced the value of the separate property. See Ross, 2017-
7 NMCA-061, ¶ 8 (“The community is . . . entitled to a lien against the separate
8 property of a spouse for the contributions made by the community that enhanced the
9 value of the property during marriage.”). Contributions by the community do not,
10 alone, give rise to a community interest. See Martinez, 1993-NMCA-093, ¶ 12
11 (explaining that “the simple fact that the community has expended funds or labor on
12 a separate asset does not, by itself, give rise to either a community interest in the asset
13 or a right to reimbursement for money spent on the asset”). Rather, it is only the
14 increase—if any—in the value of the asset attributable to community contributions
15 that is apportioned among separate and community interests. See Jurado v. Jurado,
16 1995-NMCA-014, ¶ 10, 119 N.M. 522, 892 P.2d 969; Martinez, 1993-NMCA-093,
17 ¶ 11 (“[U]nder New Mexico law the community is entitled to an equitable lien against
18 [a spouse’s] separate property only to the extent that the community can show that its
19 funds or labor enhanced the value of the property or increased the equity interest in
20 the property.”). “Any increase in the value of separate property is presumed to be
21
1 separate unless it is rebutted by direct and positive evidence that the increase was due
2 to community funds or labor.” Jurado, 1995-NMCA-014, ¶ 11. The party claiming
3 the existence of a community lien on separate property bears the burden of proving
4 that the property’s appreciation is attributable to the expenditure of community, rather
5 than separate, funds. See Trego, 1998-NMCA-080, ¶ 8.
6 {27} Here, in order to be entitled to a community lien on the Francis Home, it was
7 Wife’s burden to prove that some portion (up to the full amount) of the home’s
8 appreciation equity at the time of dissolution was attributable to the home
9 improvements made with community funds and/or the community’s contributions to
10 paying down the principal balance on the mortgage. See Dorbin, 1986-NMCA-114,
11 ¶ 21; cf. Mitchell v. Mitchell, 1986-NMCA-028, ¶¶ 48-49, 104 N.M. 205, 719 P.2d
12 432 (affirming the district court’s calculation of the community’s lien and its refusal
13 “to credit the community with any appreciation in the value of [the husband’s
14 separate] property” where there was “no evidence as to the value of [the claimed]
15 improvements”). However, the district court’s findings—which addressed the non-
16 issue of transmutation rather than the disputed issue of whether the community had
17 acquired an interest in (to wit, a community lien on) the Francis Home—are
18 insufficient to allow us to decide whether Wife met her burden. See Green v. Gen.
19 Accident Ins. Co. of Am., 1987-NMSC-111, ¶ 21, 106 N.M. 523, 746 P.2d 152
20 (“When findings wholly fail to resolve in any meaningful way the basic issues of fact
22
1 in dispute, they become clearly insufficient to permit the reviewing court to decide
2 the case at all.” (alterations, internal quotation marks, and citation omitted)). As such,
3 we remand to the district court for the entry of findings of fact on the question of the
4 existence of a community lien on the Francis Home. See Green, 1987-NMSC-111,
5 ¶ 22 (“Where the ends of justice require, [an appellate court] may remand a case to
6 district court for the making of proper findings of fact.”). If the district court
7 determines that the community acquired an interest in the Francis Home, it must then
8 proceed to apportion the equity in the Francis Home between Husband’s separate
9 interest and the community’s interest in accordance with New Mexico case law.9 See
10 Ross, 2017-NMCA-061, ¶ 12.
11 9
See, e.g., Trego, 1998-NMCA-080, ¶ 13 (“No one method of apportionment
12 is favored above all others; the trial court may use whatever method will achieve
13 substantial justice, and is supported by substantial evidence in the record.”); Dorbin,
14 1986-NMCA-114, ¶¶ 23-24, 31-33 (discussing two formulas for apportioning
15 property, one that the Dorbin Court adopted and applied (the Moore formula) and one
16 that our Supreme Court had applied in earlier cases (“fair return” formula)); see also
17 Chance v. Kitchell, 1983-NMSC-012, ¶ 6, 99 N.M. 443, 659 P.2d 895 (explaining
18 that a party claiming a community interest in separate property is entitled only to “the
19 value of the improvements to the property, not the cost of the improvements” and that
20 “when determining a community interest in community funds expended on behalf of
21 property purchased by a spouse before marriage, the rule has commonly excluded
22 payments for taxes, insurance and interest”); Michelson, 1976-NMSC-026, ¶¶ 20-22
23 (affirming the trial court’s calculation of the value of the community lien on the
24 parties’ home (the husband’s separate property) where the trial court first deducted
25 from the home’s value at the time of trial $14,000 of the husband’s separate property
26 used to purchase the lot on which the home was built); Dorbin, 1986-NMCA-114,
27 ¶ 21 (explaining that the community is “entitled to a lien for mortgage payments made
28 with community money, but only to the extent that the mortgage principal was
29 reduced”).
23
1 {28} We emphasize that we do not pass on (1) whether the community acquired an
2 interest in Husband’s separate property, or (2) the proper apportionment of such
3 interest, assuming the evidence supports a finding that one exists. Those
4 determinations must be made in the first instance on remand. We hold only that the
5 district court erred in concluding that the Francis Home was transmuted from
6 Husband’s separate property to community property and in distributing the equity in
7 the Francis Home in accordance with that conclusion.
8 III. Whether the District Court Properly Addressed and Distributed Other
9 Property
10 The 1955 Chevrolet
11 {29} Husband argues that the district court failed to make a determination about and
12 properly distribute Husband’s interests in a 1955 Chevrolet. At trial, Husband
13 testified that Wife had given him the car for his birthday in either 2009 or 2010 and
14 that because Husband was busy, Wife registered the car in her name. Wife objected
15 to Husband’s testimony based on Husband’s failure to include the property in his
16 claims and contentions, but the district court overruled the objection and allowed the
17 testimony. Husband then testified that the vehicle was worth anywhere from $14,000
18 to $20,000 and that he had invested $5,000 of separate property to install a new
19 engine in the car. The only other testimony regarding the 1955 Chevrolet was made
20 during Husband’s explanation of his basis for believing that Wife was laying
24
1 groundwork “to finally get rid of [him,]” a plan that he stated included, “Everything
2 that happened throughout the marriage now that I opened my eyes. The [SSPAs], the
3 giving her daughter the house, the ‘55 Chevy leaving, the Duramax leaving, the mule
4 leaving.” (Emphasis added.) Husband offered no other testimony regarding the 1955
5 Chevrolet nor did he cross-examine Wife about the car.
6 {30} Husband’s proposed findings included the following related to the 1955
7 Chevrolet:
8 24. [Wife] gave [Husband] the 1955 Chevrolet as a gift.
9 25. The engine installed into the 1955 Chevrolet was the separate
10 property of [Husband].
11 26. The value of the 1955 Chevrolet was $20,000.
12 27. [Wife] appropriated the 1955 Chevrolet and re-gifted it to her
13 children or sold it.
14 28. [Husband] did not relinquish or consent to the removal of the
15 1955 Chevrolet.
16 29. [Husband] did not receive compensation for the loss of the 1955
17 Chevrolet.
18 Husband’s requested conclusions of law included that he is entitled to compensation
19 for the value of the 1955 Chevrolet and reimbursement for the value of his separate
20 property in the car. Wife’s proposed findings and conclusions did not contain any
21 mention of the 1955 Chevrolet. The district court did not include any findings or
25
1 conclusions regarding the 1955 Chevrolet in its order, which Husband argues
2 constituted error and requires remand.
3 {31} We first observe that the district court was under no obligation to take evidence
4 regarding property that Husband conceded at trial was not listed in his claims and
5 contentions. See Rutter v. Rutter, 1964-NMSC-242, ¶ 17, 74 N.M. 737, 398 P.2d 259
6 (holding that the district court properly rejected evidence related to an issue “outside
7 of the issues raised by the pleadings”). Once the district court allowed Husband to
8 testify regarding the 1955 Chevy, however, the question is whether it erred by not
9 entering findings or a conclusion about the vehicle. It is well-established that a
10 district court’s failure to make a specific requested finding of fact constitutes a
11 finding against the requesting party. See Olivas v. Olivas, 1989-NMCA-064, ¶ 15,
12 108 N.M. 814, 780 P.2d 640. Particularly where the requesting party has the burden
13 of proof as Husband did here, cf. Wallace v. Wanek, 1970-NMCA-049, ¶ 9, 81 N.M.
14 478, 468 P.2d 879 (explaining that “[h]e who alleges the affirmative must prove”),
15 “the district court properly could have decided that [the] husband did not meet his
16 burden . . . and therefore could reject [the] husband’s proposed findings of facts and
17 conclusions of law on this matter.” Olivas, 1989-NMCA-064, ¶ 15. Here, the district
18 court—presented with little more than Husband’s stand-alone testimony about “the
19 ‘55 Chevy leaving” and his assertion regarding its engine—could have decided that
26
1 Husband was not credible and failed to meet his burden of proving that there were
2 property interests in the 1955 Chevy that required distribution. “It is the sole
3 responsibility of the trier of fact to weigh the testimony, determine the credibility of
4 the witnesses, reconcile inconsistencies, and determine where the truth lies, and we,
5 as the reviewing court, do not weigh the credibility of live witnesses.” N.M. Taxation
6 & Revenue Dep’t v. Casias Trucking, 2014-NMCA-099, ¶ 23, 336 P.3d 436
7 (alteration, internal quotation marks, and citation omitted).
8 {32} Not only do we conclude that the district court did not err in refusing to adopt
9 Husband’s proposed findings and conclusions regarding the 1955 Chevrolet, it would
10 have been error to adopt Husband’s proposed findings number twenty-seven, twenty-
11 eight, and twenty-nine given that there was no evidence to support them. There was
12 no testimony that Wife appropriated or re-gifted the car, that Husband did not consent
13 to removal of the car, or that he had never received compensation for it. As such, the
14 district court’s effective conclusion that Husband failed to meet his burden of
15 claiming and proving that he had separate and community property interests in the
16 1955 Chevrolet supported its rejection of Husband’s proposed findings. See Russell
17 v. Russell, 1990-NMCA-080, ¶ 17, 111 N.M. 23, 801 P.2d 93 (“A trial court is only
18 required to make findings of such ultimate facts as are necessary to determine the
27
1 issues.”). We hold that the district court did not err by entering no findings or
2 conclusions regarding the 1955 Chevrolet in its order.
3 The Texas Property
4 {33} Husband makes a markedly similar argument with respect to the Texas property
5 which he and Wife co-signed for and acquired during the marriage. Husband
6 acknowledges that the district court made the following finding regarding the Texas
7 property:
8 24. The parties co-signed a purchase for [Wife]’s daughter . . . . They
9 were named on the deed and mortgage. The money for the
10 purchase came from [Wife’s daughter]. When they were no longer
11 co-signers, the parties quitclaimed the property to [Wife’s
12 daughter]. The parties had no real interest in the property.
13 But Husband contends that the district court “fail[ed] to determine the community
14 interest in the Texas [p]roperty,” which we understand to be a challenge to the
15 sufficiency of the evidence to support the district court’s finding. We review for
16 substantial evidence to determine whether there is “such relevant evidence that a
17 reasonable mind would find adequate to support a conclusion.” State ex rel. King v.
18 B & B Inv. Grp., Inc., 2014-NMSC-024, ¶ 12, 329 P.3d 658 (internal quotation marks
19 and citation omitted). “[W]e review the evidence in the light most favorable to
20 support the trial court’s findings, resolving all conflicts and indulging all permissible
21 inferences in favor of the decision below.” Jones, 2005-NMCA-124, ¶ 8.
28
1 {34} Wife testified that she and Husband co-signed a note in order for her daughter
2 to purchase the Texas property and that Wife’s daughter paid the down payment.
3 Wife and Husband eventually deeded the house to Wife’s daughter after Wife’s
4 daughter had been working for a while and “felt like she . . . could handle it [by]
5 herself[.]” Husband testified that he did not know the source of the funds used for the
6 down payment for the Texas property. This, alone, is substantial evidence to support
7 the district court’s finding that the parties had no real interest in the Texas property,
8 thus making it unnecessary for the district court to distribute anything related thereto.
9 Wife’s Income
10 {35} Husband argues that the district court erred by failing to address and distribute
11 Wife’s $283,000 of earnings during the marriage. In support of this argument,
12 Husband cites to this Court’s decision in Irwin v. Irwin in which we explained that
13 “under New Mexico community property law[,] each spouse has a one-half ownership
14 interest in all community income or community assets acquired during the marriage.”
15 1996-NMCA-007, ¶ 13, 121 N.M. 266, 910 P.2d 342. But Irwin does not stand for
16 the proposition that any money earned during the marriage was community property
17 that needed to be divided between the parties at the time of divorce as Husband
18 contends. Irwin, in fact, applied the limiting principle to the general rule regarding
19 income earned during marriage that “once community . . . earnings are expended,
29
1 rather than being converted into an asset, there is no community asset to be shared or
2 managed, and the spouse making the expenditure has no duty to reimburse the
3 community absent some special circumstance.” Id. This Court rejected the wife’s
4 argument in Irwin that she was entitled to an automatic one-half interest in the
5 husband’s income earned during their separation period when the husband had
6 already expended all of the funds. Id. ¶ 14.
7 {36} Here, Husband presented no evidence regarding the status of Wife’s $283,000
8 in earnings, i.e., what portion, if any, had not been expended or converted to assets
9 and would thus be available for distribution. His theory—that Wife “converted
10 community assets to her own use and the community is entitled to reimbursement for
11 the value of those assets”—was not supported by substantial evidence, or any
12 evidence for that matter. We thus hold that the district court properly rejected
13 Husband’s request and did not err by not distributing Wife’s income earned during
14 the marriage.
15 CONCLUSION
16 {37} We reverse the district court’s judgment with respect to the SSPAs and the
17 Francis Home and remand for further proceedings consistent with this opinion. We
18 affirm the district court’s distribution of all other property.
30
1 {38} IT IS SO ORDERED.
2 _________________________________
3 J. MILES HANISEE, Judge
4 WE CONCUR:
5 _________________________________
6 LINDA M. VANZI, Chief Judge
7 _________________________________
8 TIMOTHY L. GARCIA, Judge
31