If you or someone you know is dealing with divorce, you have probably heard the term “community property,” but, what does it mean and how is it applied in the state of New Mexico?
Community property is a legal concept that defines the ownership of assets acquired during a marriage. In New Mexico, any property acquired during a marriage is considered equally owned by both spouses, regardless of who earned the income to pay for the asset or whose name it is in. This is not limited to physical assets like homes or cars, but also applies to rental income, businesses started during a marriage, investment or retirement accounts and the wages each spouse earned while married.
Any asset that is acquired before the legal date of marriage or after the filing of a final decree of divorce is considered to be a person’s separate property. Any inheritance or gifts received during the marriage and any income received from a separate asset (i.e. rental payments received from a residence owned prior to marriage) are also considered separate property or separate income, even if those gifts were given during the marriage. There are some instances in which assets purchased after the filing of the petition for dissolution of marriage can be deemed separate property, however the “community” usually extends until the date the final decree is entered. It is a common misconception that accounts or assets in one person’s name alone makes that account or asset that person’s separate property.
Debts are treated in the same ways as assets during a divorce, and there can be separate and community debt. Community debt is defined as debt incurred during the marriage, regardless of which spouse incurred the debt. The debt does not have to be in both spouses’ names to be considered community debt. Separate debt is defined as debt incurred prior to marriage, child support debt for the child or children of one spouse, and gambling debt, even if the gambling debt was incurred during the marriage. Gambling winnings are considered community property. During a divorce, an Asset & Liabilities worksheet is used to outline the totality of the parties’ finances and assist the parties in reaching an equitable division of the assets and debts. Prenuptial and postnuptial agreements can be employed to allow spouses more control over how some assets and debts are categorized during the marriage in the event of a divorce. It is also important to understand that community property laws in New Mexico apply to ALL property acquired during a marriage, even if the other spouse is unaware of the asset or debt.
Careful considerations must be made when determining the percentage of ownership of property when separate property and community property have been mixed during a marriage. For example, determining the ownership share of a house purchased by one spouse before the marriage and retained as the marital residence after the parties’ marriage is based on several factors. Some of these factors include the amount of the down payment when the house was first purchased, how much the principal of the mortgage loan was paid down during the marriage, whether the mortgage was paid from community funds or from separate funds, gifts from one spouse’s parent towards the payment of the mortgage or the downpayment for the house and whether the original mortgage loan was refinanced after the marriage. This list is not exhaustive; there are additional factors that can be taken into consideration, however the above factors tend to be the most common.
It is important to keep detailed records whenever you obtain, transfer and/or sell property. These records are vital when tracing funds and supporting separate property claims.
Determining whether assets and debts are separate or community can be complicated and nuanced, which is why it is crucial to engage the help of an attorney who is well-versed in the laws and statutes in New Mexico. Experienced attorneys can help you trace funds and prepare detailed worksheets to determine the percentage of ownership of the assets and debts of each spouse and of the community.
The attorneys at Terry & deGraauw, P.C. are experts in community property division with over 40 years of combined experience. To schedule a consultation to discuss any of this information and how it applies to you, call us at (505) 206-5044.
Kelly Squires, Managing Director of Terry & deGraauw, P.C. November 2023
