Gabriele v. Gabriele

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: ______________

Filing Date: January 3, 2018

Docket No. A-1-CA-34523

JOHNNY A. GABRIELE,

Petitioner-Appellant,

v.

DEBORRAH L. GABRIELE, a/k/a
DEBBIE GABRIELE,

Respondent-Appellee.

APPEAL FROM THE DISTRICT COURT OF COLFAX COUNTY
Sarah C. Backus, District Judge

Michael Danoff & Associates, P.C.
Michael L. Danoff
Albuquerque, NM

for Appellant

Kamm & McConnell, L.L.C.
Terrence R. Kamm
Raton, NM

for Appellee

OPINION

HANISEE, Judge.

{1} Husband appeals the district court’s division of property that resulted from the
parties’ dissolution of marriage. Specifically, Husband contends the district court erred by
failing to distribute all property and finding that four sole and separate property agreements
that Husband signed shortly before Husband filed for divorce were valid. For the reasons
discussed below, we affirm in part, reverse in part, and remand for further proceedings.

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BACKGROUND

{2} Johnny Gabriele (Husband) and Deborrah Gabriele (Wife) were married on February
15, 2006. Husband filed a petition for divorce on July 22, 2013. A trial was held to determine
how the marital property would be divided, after which the parties submitted proposed
findings of fact and conclusions of law. The district court issued its decision and order in
which it granted dissolution of the parties’ marriage and distributed the marital property,
including real estate, cash, other assets, and liabilities.

{3} Husband appealed and makes the following claims: (1) the district court erred by
concluding that the sole and separate property agreements (SSPAs) that Husband signed were
valid, enforceable contracts; (2) the district court erred in its distribution of the parties’
marital residence—known as the Francis Home—which Husband had acquired prior to
marriage; and (3) the district court failed to address Husband’s claimed interests—both
separate and community—in various other property, including a 1955 Chevrolet that Wife
had given him as a birthday gift, a property located in Texas (the Texas property), and Wife’s
income earned during the marriage. We address each of Husband’s claims in turn, reserving
discussion of more specific facts when pertinent to our legal analysis.

I. Whether the Four SSPAs Are Valid, Enforceable Contracts

A. Additional Facts

{4} In 2007, Wife—who had a background as a nursing home administrator and a
Master’s degree in business—started an assisted living business called Colfax Senior Care,
LLC (CSC), a limited liability company (LLC) in which Wife was the single registered
member. CSC purchased a residential property (262 Francis) out of which to operate an
assisted living facility for $92,000. Wife testified that the “start-up money” for CSC came
from $50,000 of her separate savings and a $20,000 loan from her children. Husband testified
that he contributed $29,000 from his smaller retirement fund for the down payment on 262
Francis and that he participated in the business by helping to remodel and maintain the
facility. Wife disputed that Husband contributed any funds to purchase 262 Francis. The
district court resolved this dispute in Husband’s favor, finding that Husband “contributed
approximately $29,000 of his separate funds to [the] purchase [of 262 Francis].”

{5} CSC was expanded in 2009-10 in order to meet growing demand in the community,
and the business purchased a lot (251 Francis) on which to construct a new, larger facility.
Both parties agree that Husband contributed $10,000 from his retirement savings to purchase
251 Francis and loaned CSC $80,000 to construct the new facility. CSC took out a $528,000
bank loan to finance the remainder of the construction project. 262 Francis was sold after 251
Francis opened.

{6} In July 2012, Wife started making plans to expand the business again, including

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construction of a new, $1.5 million facility. According to Wife, when she discussed her
expansion plans with Husband, he was “adamant that [she] not do it” because he was
concerned about “[s]o much liability[,]” both financial and legal. Wife consulted a business
lawyer about forming a new LLC for the expanded business that could be Wife’s separate
property in order to release Husband from all liability associated with the new business. The
lawyer helped Wife “draw up the new LLC” and informed her that she “could create a
document” that would put “all the liability, financial, legal” on Wife. Wife testified that
Husband was “very pleased that there was . . . a way that we could both have what we
wanted. It was a good compromise.”

{7} On April 25, 2013, the parties signed four SSPAs. In addition to two SSPAs
designating, respectively, the new LLC (Colfax Senior Living, LLC (CSL)) and the property
for the new facility (the State Street property) as the separate property of Wife, there were
two SSPAs that designated CSC (the existing LLC) and 251 Francis (the existing assisted
living facility) as Wife’s separate property. The SSPAs provided that Husband “expressly
waives, relinquishes, and releases any and all right, title, claim, or interest in and to” both
pieces of real property as well as the LLCs’ “Membership Interest.” After Husband and Wife
signed the SSPAs, Wife continued with the development of CSL.1 She purchased the State
Street property in May 2013 for $120,000 with money from “[her] business” and two bank
loans. However, once divorce proceedings commenced in July 2013, Wife decided not to go
forward with the expansion project.

{8} At the time of trial, CSC was under contract for sale for $620,000. Subsequent to
trial, after the sales transaction was completed and CSC’s debts were paid off, $257,461.26
was placed in the registry of the court. Regarding CSL, Wife testified that she believed the
plans for the State Street project that she had commissioned were sellable but that she was
not aware of anyone who was interested in purchasing the project. She also described CSL’s
outstanding debts, but the district court did not make any specific findings or conclusions
regarding the amount of those debts.

{9} Husband argued to the district court that he “received no consideration” under the
SSPAs, thereby invalidating them, and that Wife “breached her fiduciary duty to [Husband]
by her conversion of community property to her sole and separate property.” Wife contended
that “[t]he consideration for the [SSPAs] was to free [Husband] of all liability and debt
associated with the business then and in the future, which was considerable.” The district
court found that Husband “desired to be relieved of responsibility for existing debt and
liability of both companies, and future debt and liability of the businesses and the property”
and concluded that “[b]y signing the agreements [Husband] was relieved of responsibility

1
The record does not specify CSL’s date of creation.

3
for the debt as well as the liability.”2 As such, the district court awarded Wife, among other
things, 251 Francis, the State Street property, CSL and its assets, and CSC—including the
entire $257,461.26 of proceeds from the sale of CSC—all subject to debt thereon.

B. Analysis

{10} Husband relies on general principles of contract law and argues that the district court
erred in concluding that the SSPAs are valid because (1) they lacked mutual assent, and (2)
Wife’s promise of releasing Husband from liability was illusory, thus they also lacked valid
consideration. Wife relies on the definition of “separate property” contained in NMSA 1978,
Section 40-3-8 (1990), to support the validity of the designation of the businesses and
properties identified in the SSPAs as Wife’s separate property.3 Neither party has addressed
the import of NMSA 1978, Section 40-2-2 (1907), wherein the Legislature statutorily set
forth the contract rights of married persons. We begin with the statute. See Hughes v.
Hughes, 1981-NMSC-110, ¶ 19, 96 N.M. 719, 634 P.2d 1271 (“In New Mexico, transactions
between husbands and wives are governed by Section 40-2-2[.]”); Primus v. Clark, 1944-
NMSC-030, ¶ 13, 48 N.M. 240, 149 P.2d 535 (explaining that “[t]ransactions between
husband and wife are controlled by the . . . statute” and analyzing the challenged agreement
within the context of the statute).

1. Section 40-2-2: Contract Rights of Married Persons

{11} In New Mexico, “[e]ither husband or wife may enter into any engagement or
transaction with the other, or with any other person respecting property, which either might,
if unmarried[.]” Section 40-2-2. However, such transactions between spouses are subject to

2
The district court made these findings in its amended decision and order as a result
of this Court’s order of limited remand for entry of detailed findings of fact concerning
whether each of the four SSPAs was supported by consideration.
3
As this Court has previously explained, Section 40-3-8 merely “deals with classes
of property and not with how property may be changed to a different class.” Estate of
Fletcher v. Jackson, 1980-NMCA-054, ¶ 45, 94 N.M. 572, 613 P.2d 714; see § 40-3-8(A)(5)
(defining one type of “separate property” as “property designated as separate property by a
written agreement between the spouses, including a deed or other written agreement
concerning property held by the spouses . . . [,] in which the property is designated as
separate property”). Wife fails to explain how coming within the statutory classification of
“separate property” alone renders the SSPAs—which attempted to transmute community
property to separate property—valid, enforceable contracts. To the extent Wife argues that
Section 40-3-8(A)(5) is dispositive of the question whether the properties identified in the
SSPAs are Wife’s separate property, we reject such argument as unsupported by any
authority. See Curry v. Great Nw. Ins. Co., 2014-NMCA-031, ¶ 28, 320 P.3d 482 (“Where
a party cites no authority to support an argument, we may assume no such authority exists.”).

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“the general rules of common law which control the actions of persons occupying
confidential relations with each other.” Id. Interpreting this statute, our Supreme Court has
held that transactions between spouses in which one spouse “secured a decided advantage
over the [other]” are “presumptively fraudulent.” Beals v. Ares, 1919-NMSC-067, ¶¶ 73, 82,
90, 25 N.M. 459, 185 P. 780. That is because a husband and wife are fiduciaries upon whom
are imposed “ ‘the obligation of exercising the highest good faith towards [each other] in any
dealing between them, and [which] preclude[s each] from obtaining any advantage over [the
other] by means of any misrepresentation, concealment, or adverse pressure.’ ” Id. ¶ 76
(quoting with approval Dolliver v. Dolliver, 30 P. 4, 5 (Cal. 1892) (in bank)); see Primus,
1944-NMSC-030, ¶ 15 (explaining that the statute governing the contract rights of married
persons “creates in law a fiduciary relationship between husband and wife”). In such cases,
in order to overcome the presumption of fraud, it is the duty of the spouse who has gained
the advantage “to show (a) the payment of an adequate consideration, (b) full disclosure by
him [or her] as to the rights of the [other] and the value and extent of the community
property, and (c) that the [other] had competent and independent advice in conferring the
benefits upon [him or her].” Beals, 1919-NMSC-067, ¶ 90. Where the advantaged spouse
fails to make this showing, the district court is to “set aside the [agreements] . . . in question,
to ascertain the value and extent of the community property, . . . and to divide the community
property between the parties[.]” Id. ¶ 93.

2. Whether Wife Gained a Decided Advantage Over Husband, Thereby Creating
a Presumption of Constructive Fraud

{12} Where one spouse receives grossly inadequate consideration for forfeiting his or her
interest in community property, the other spouse is considered to have gained a decided
advantage through constructive fraud,4 rendering the transaction voidable. See Primus, 1944-
NMSC-030, ¶¶ 12, 21, 22 (concluding that there existed a “legal presumption of constructive
fraud” where the wife received only $1,000 from the community estate worth $50,000);
Beals, 1919-NMSC-067, ¶¶ 72, 82 (concluding that the husband had “secured a decided
advantage over the wife” where the wife received only $4,000 and her interest in the subject
property was between $35,000 and $75,000). Our Supreme Court has also found constructive
fraud where one spouse “had and took an advantage in the matters surrounding the
conveyance of . . . property.” Trujillo v. Padilla, 1968-NMSC-090, ¶ 6, 79 N.M. 245, 442
P.2d 203. The main question we are concerned with is whether the parties were “bargaining
on an equal footing” in satisfaction of their fiduciary duties to one another. Primus, 1944-
NMSC-030, ¶¶ 15, 21. Where the evidence indicates they were not, we may find constructive
fraud.

{13} Here, the record indicates that the net value of CSC was $257,461.26 as reflected by

4
Constructive fraud is “a breach of a legal or equitable duty irrespective of the moral
guilt of the fraud feasor, and it is not necessary that actual dishonesty of purpose nor intent
to deceive exist.” Snell v. Cornehl, 1970-NMSC-029, ¶ 8, 81 N.M. 248, 466 P.2d 94.

5
the proceeds placed in the registry of the court following the sale and payment of debts of
CSC. Thus, Husband’s one-half community interest was approximately $128,000. Under the
SSPAs, Husband received $0 in exchange for conveying his interest to Wife. Even assuming
Husband received the non-monetary “consideration” of being relieved of all financial and
legal liability by signing the SSPAs—which argument we address below—Husband’s
considerable forfeiture supports a presumption of constructive fraud. Additionally, we note
that prior to asking Husband to sign the SSPAs, Wife had consulted a divorce attorney as
well as a business attorney, and it was Wife who drafted and provided Husband with the
SSPAs. The record contains no indication that Husband—though he had a chance to review
the SSPAs prior to signing them—had independent counsel regarding the agreements. Based
on the foregoing facts, along with our statutory authority and legal precedent, we conclude
that Wife gained a decided advantage over Husband through the SSPAs. We, therefore, next
consider whether Wife met her burden to show (a) provision of adequate consideration, (b)
full disclosure to Husband as to his rights and extent of the community property, and (c) that
Husband had competent and independent legal advice prior to signing the SSPAs. See Beals,
1919-NMSC-067, ¶ 90.

3. Whether Wife Met Her Burden of Proving She Met Her Fiduciary Duties in
Entering Into the SSPAs With Husband

a. Consideration

{14} In a contract between spouses where one spouse gains a decided advantage over the
other, the advantaged spouse bears the burden of proving that adequate consideration was
provided to support the contract. See id. “Consideration consists of a promise to do
something that a party is under no legal obligation to do or to forbear from doing something
he has a legal right to do.” Heye v. Am. Golf Corp., 2003-NMCA-138, ¶ 12, 134 N.M. 558,
80 P.3d 495. A promise by one party to release from liability and indemnify or hold harmless
the other party against damages sought by a third party may constitute adequate consideration
to support a contract. See Nakashima v. State Farm Mut. Auto. Ins. Co., 2007-NMCA-027,
¶ 13, 141 N.M. 239, 153 P.3d 664 (“Adequate consideration is present in a contract where
something is sought by the promisor in exchange for his promise and is given by the
promisee in exchange for that promise.” (internal quotation marks and citation omitted)).
Likewise, promising to assume the debt of another may be valid consideration. See id.; see
also Thornton v. Wolf, 2007-132, p. 2 (La. App. 3 Cir. 5/30/07); 958 So. 2d 131, 133
(“Assumption of a debt is valid consideration for the transfer of property.”). To determine
the parties’ intent—including as to the consideration provided—we consider “the language
employed by them; and where such language is not ambiguous, it is conclusive.” Greentree
Solid Waste Auth. v. Cty. of Lincoln, 2016-NMCA-005, ¶ 14, 365 P.3d 509 (internal
quotation marks and citation omitted). Where the parties’ language is unambiguous, we
“cannot change [the] language for the benefit of one party to the detriment of another.”
Nearburg v. Yates Petroleum Corp., 1997-NMCA-069, ¶ 23, 123 N.M. 526, 943 P.2d 560.

6
{15} Here, Wife contends that the consideration she provided to support the SSPAs was
a promise that Husband would be released from all financial responsibility and legal liability
for each of the properties identified in the SSPAs. The district court, apparently relying on
Wife’s testimony to that effect, agreed, finding that Husband “desired to be relieved of
responsibility for existing debt and liability of both companies, and future debt and liability
of the businesses and the propert[ies]” and concluding that “[a]s consideration for the
[SSPAs, Husband] was relieved of all further financial responsibility and legal liability for
the businesses.” The problem with this conclusion, however, is that the SSPAs themselves
contain no indication of this purported consideration.

{16} Each of the two SSPAs relating to real property (one for 251 Francis and one for the
State Street property) provides, in full, the following:

Pursuant to . . . [Section] 40-3-8(A)(5) . . . , [Wife] and [Husband] agree that
the property located at:

[(address)]

is hereby designated as the separate property of [Wife]. [Husband] hereby
expressly grants and conveys the above described property to [Wife], with
Special Warranty Covenants. [Husband] further expressly waives,
relinquishes, and releases any and all right, title, claim, or interest in and to
the above described property, heretofore or hereafter acquired.

The parties further agree that all community income of the parties used to
acquire or purchase the premises or make repairs or improvements thereon
now or in the future, including community funds or income of the parties
used to pay any indebtedness now or hereafter secured by lien against the
premises is hereby designated as the separate property of [Wife].

The SSPAs for the LLCs provide:

Pursuant to . . . [Section] 40-3-8(A)(5) . . . , [Wife] and [Husband] agree that
the Membership Interest in [CSC/CSL], a New Mexico limited liability
corporation, [is] hereby designated as the separate property of [Wife].
[Husband] expressly grants and conveys the above described Membership
Interest to [Wife]. [Husband] further expressly waives, relinquishes, and
releases any and all right, title, or interest in and to the above described
Membership Interest, heretofore or hereafter acquired.

On their face, the SSPAs contain no language indicating what consideration Husband
received in exchange for his relinquishment of all rights and interest in the properties and
businesses. The district court concluded—and we agree—that the SSPAs “are not

7
ambiguous.” Critically, they are unambiguously silent as to Wife’s consideration to support
the agreements, yet the district court took and apparently relied on parol evidence—Wife’s
testimony that Husband was released of “all liability”—in order to find consideration. This
was error because parol evidence is properly admitted only in circumstances where a
document or contract is facially ambiguous or to aid the court in determining whether a
contract’s terms are ambiguous. See Ruggles v. Ruggles, 1993-NMSC-043, ¶¶ 56-57, 116
N.M. 52, 860 P.2d 182 (explaining that because of ambiguity in the parties’ marital
settlement agreement, “extrinsic evidence of the parties’ intent may be considered to aid in
interpreting its terms”); Mark V, Inc. v. Mellekas, 1993-NMSC-001, ¶ 11, 114 N.M. 778, 845
P.2d 1232 (stating that courts “may also consider the context in which the agreement was
made to determine whether the party’s words are ambiguous”). However, “no [extrinsic]
evidence should be received when its purpose or effect is to contradict or vary the
agreement’s terms.” Mark V, 1993-NMSC-001, ¶ 13.

{17} The clear purpose of Wife’s testimony was to vary the terms of the SSPAs by
supplying consideration where none was expressly provided. When asked to explain “what
it is you explained to [Husband] that [the SSPAs] would do[,]” Wife testified:

Release him of all liability. At one point I basically read it. It’s like a two
sentence document. It says that [Husband] does not want to have any interest
or involvement in whatever project or property and that he assigned that to
me. And we discussed it, that he wouldn’t have any liability. He wouldn’t be
responsible for the, you know, 1.5 million dollars I was going to borrow.
And, again, if we got sued he wouldn’t be . . . a property owner in that.

This testimony is revealing in that Wife’s explanation of what she understood the SSPAs to
say clearly goes beyond what the agreements, in fact, say. The SSPAs simply do not say that
Husband “wouldn’t have any liability” or that he “wouldn’t be responsible for the . . . 1.5
million dollars [Wife] was going to borrow.” And to the extent there is language in the
SSPAs that could arguably be construed as indicating an intent to indemnify Husband as
Wife described, ambiguities in a contract are to be construed most strongly against the
drafter—here, Wife. See Schultz & Lindsay Constr. Co. v. State, 1972-NMSC-013, ¶ 6, 83
N.M. 534, 494 P.2d 612. By admitting this evidence and failing to give primacy to the
unambiguous SSPAs in its construction of the agreements, the district court effectively read
into the SSPAs a provision that is not there, which it was not at liberty to do. See Archunde
v. Int’l Surplus Lines Ins. Co., 1995-NMCA-110, ¶ 23, 120 N.M. 724, 905 P.2d 1128 (“We
will not read into a contract provisions that the parties themselves have not seen fit to
include.”). Particularly in light of Wife’s fiduciary duties in contracting with Husband and
the heightened good faith obligation to prevent Wife from taking advantage of Husband by
means of concealment or misrepresentation, we conclude that the SSPAs are unenforceable
as contracts for lack of consideration. See Figueroa v. THI of N.M. at Casa Arena Blanca,
LLC, 2013-NMCA-077, ¶ 17, 306 P.3d 480 (“Consideration is a prerequisite to the legal
formation of a valid contract.”).

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b. Full Disclosure and Independent Legal Counsel

{18} Even assuming arguendo that Wife’s testimony was admissible and supplied
sufficient evidence of consideration—meaning a valid contract was formed—the SSPAs are
nevertheless voidable. That is because there is no evidence that (1) Wife disclosed to
Husband the value of the properties and businesses to be conveyed or Husband’s
rights—and, importantly, potential liability5—therein; and (2) Husband had received
competent and independent advice prior to signing the SSPAs. See Beals, 1919-NMSC-067,
¶ 90. The undisputed facts of this case are that Wife had a Master’s degree in business, was
an experienced business woman, and was in charge of managing and decision-making for the
business. It is also undisputed that Husband had a high school education and was not
involved in the management of the business, other than providing general maintenance work
at the assisted living facility. Particularly in light of this power imbalance and Wife’s
dominant position respecting the business, it was imperative that Wife disclose to Husband
the business’s assets and his rights therein and that Husband have independent counsel in
considering the ramifications of entering into the SSPAs. See Fate v. Owens, 2001-NMCA-
040, ¶ 25, 130 N.M. 503, 27 P.3d 990 (“[A] fiduciary[] is required to fully disclose material
facts and information relating to the [fiduciary relationship] . . . even if the [one to whom the
duty is owed] ha[s] not asked for the information. . . . The duty of disclosure is a hallmark
of a fiduciary relationship.” (internal quotation marks and citations omitted)). Cf. Unser v.
Unser, 1974-NMSC-063, ¶¶ 16-17, 86 N.M. 648, 526 P.2d 790 (explaining that in order for
there to be presumptive fraud, one party must be “in the dominant position[,]” and finding
no presumption of fraud because it was “questionable as to whether the relationship of
dominance” existed where the wife had been “advised by independent legal counsel” prior
to signing the agreement).

{19} Because the record indicates that Wife failed to meet her burden to overcome the
presumption of constructive fraud, we hold that the SSPAs—even if validly formed—were
voidable at Husband’s election and must be set aside. See Trujillo, 1968-NMSC-090, ¶ 7;
Beals, 1919-NMSC-067, ¶ 93. We reverse the district court’s distribution of the properties

5
Given that CSC and CSL were set up as single-member LLCs with Wife as the
member and that the real property at issue (251 Francis and the State Street property) was the
property of the LLCs, we fail to see—and the parties fail to explain—how Husband had any
personal financial responsibility or legal liability for any of the subject properties to begin
with. See NMSA 1978, § 53-19-13 (1993) (providing that “the debts, obligations and
liabilities of a [LLC], whether arising in contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the [LLC]”). To the extent he did not, this further supports our
conclusion that the SSPAs lacked consideration. See Hurley v. Hurley, 1980-NMSC-067,
¶ 16, 94 N.M. 641, 615 P.2d 256 (explaining that “a promise to do what a party is already
obligated by contract or law to do is not sufficient consideration for a promise made in
return”), overruled on other grounds by Ellsworth v. Ellsworth, 1981-NMSC-132, ¶ 6, 97
N.M. 133, 637 P.2d 564.

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covered by the SSPAs and remand for further proceedings in light of this opinion.

II. Whether the District Court Erred in Distributing the Equity in the Francis
Home

{20} Husband argues that the district court erred in its distribution of the Francis Home by
failing to award him his $30,000 separate property interest in the home, which was the down
payment he made when he purchased the home prior to meeting Wife. Wife argues that there
was substantial evidence to support the district court’s findings and conclusions regarding
distribution of the Francis Home, which were premised upon the conclusion that whatever
separate interest Husband possessed in the Francis Home was transmuted to a community
interest. We agree with Husband that the district court erred.

A. Standard of Review

{21} To the extent Husband argues that there is an insufficient factual basis to support the
district court’s findings of fact regarding the Francis Home, “we review the evidence in the
light most favorable to support the [district] court’s findings, resolving all conflicts and
indulging all permissible inferences in favor of the decision below.” Jones v. Schoellkopf,
2005-NMCA-124, ¶ 8, 138 N.M. 477, 122 P.3d 844. However, to the extent Husband attacks
the district court’s conclusions of law respecting the Francis Home—including those findings
that function as conclusions—our review is de novo. See id.; see also Benavidez v.
Benavidez, 2006-NMCA-138, ¶ 21, 140 N.M. 637, 145 P.3d 117 (“We are deferential to
facts found by the district court, but we review conclusions of law de novo.”). We also
review de novo questions of law, including threshold determinations regarding whether
property is separate or community or whether the community has acquired an interest in
separate property. See Arnold v. Arnold, 2003-NMCA-114, ¶ 6, 134 N.M. 381, 77 P.3d 285
(explaining that “the threshold question of whether [the h]usband’s accumulated vacation
leave and sick leave are community property is a question of law, which we review de
novo”); Ross v. Negron-Ross, 2017-NMCA-061, ¶ 7, 400 P.3d 305 (explaining that
“[w]hether the district court erred in finding no community lien on the Spring Creek
residence [(separate property)] is a question of law that we review de novo”).

B. The District Court Erred in Concluding That the Francis Home Was
Transmuted From Husband’s Separate Property to Community Property

{22} The district court entered the following findings of fact regarding the Francis Home:

5. Prior to the marriage, in 2004, [Husband] had purchased [the Francis
Home]. The purchase price was $147,000 and [Husband] had made
an approximate $30,000 down-payment.

....

10
 14. Soon after the marriage, [Husband] transferred the [Francis Home] to
himself and [Wife]. The parties refinanced the debt on the house to
get a more favorable interest rate. [Husband] testified that the reason
he did so was because he believed marriage was “sacred.” This act
transmuted the [Francis Home] into community property.

15. During the marriage, the parties made the mortgage payments and
made approximately $40,000 worth of improvements to the house. At
the time of trial the value of the [Francis Home] was $150,000. No
appraisal was offered. ([Husband] estimated the value at $140,000
and [Wife] estimated the value at $160,000.) There is $94,000 owing
on the mortgage. The equity in the property is approximately $56,000.
From these findings, the district court concluded, “The Francis [Home] is community
property. The parties are entitled to one-half each of the $56,000 equity in the house.”

{23} The first flaw in the district court’s conclusion is that Wife never contended that
Husband’s separate interest in the Francis Home had been transmuted into community
property. Wife’s claims and contentions—as well as her opening and closing arguments to
the district court—reveal that Wife believed she was entitled to either (1) reimbursement of
one-half of the $40,000 of improvements the community made to the Francis Home, or (2)
one-half of the remaining “community equity” in the home after Husband was repaid his
down payment.6 In other words, the position Wife took and her proposed distribution of
property evince her belief that the Francis Home was Husband’s separate property.7 See

6
We note that two days after submitting her written closing argument, Wife filed a
document titled “Supplement to Closing Argument” in which she cited in her “list of
authorities” this Court’s decision in Macias v. Macias, 1998-NMCA-170, 126 N.M. 303, 968
P.2d 814, and provided the following parenthetical explanations: “(Separate property, the
[Francis Home], placed in joint ownership along with intent to transmute results in
transmutation) and (Court should consider factors 1) deed to community, 2) mortgage by
community, 3) intent of grantor, 4) community payment of mortgage, taxes, maintenance and
upgrades) and (property acquired during marriage presumed to be community and burden
rests with protesting spouse to prove otherwise).” However, Wife cited no other authority
and offered no additional argument or analysis to support a finding of transmutation. Wife’s
appellate arguments—which make no reference to transmutation or cite any relevant
authority to defend the district court’s conclusion that a transmutation occurred—further
support our understanding that it was never Wife’s position that the Francis Home was
transmuted. See State ex rel. Human Servs. Dep’t v. Staples (In re Doe), 1982-NMSC-099,
¶¶ 3, 5, 98 N.M. 540, 650 P.2d 824 (explaining that appellate courts should not reach issues
that the parties have failed to raise in their briefs).
7
Even though Wife asserted in her proposed findings that Husband deeded the Francis
Home to himself and Wife “with the intent to make the property community

11
Trego v. Scott, 1998-NMCA-080, ¶ 5, 125 N.M. 323, 961 P.2d 168 (explaining that the wife
had “conceded, by her chosen method of calculating the monies due her, that the properties
in dispute remained separate” because the wife’s “own computations” revealed that she
assumed the community’s interest was an apportioned interest in the increased value of the
separate property). As we discuss below, Wife only contended that there was a community
lien on the Francis Home, which would entitle Wife to a different, lesser interest in the
Francis Home than would the conclusion that a transmutation occurred.

{24} The second and more problematic flaw in the district court’s conclusion that a
transmutation had occurred is that it is contrary to New Mexico case law, which establishes
a high legal standard for proving transmutation. “Transmutation is a general term used to
describe arrangements between spouses to convert property from separate property to
community property and vice versa.” Allen v. Allen, 1982-NMSC-118, ¶ 13, 98 N.M. 652,
651 P.2d 1296. While New Mexico recognizes transmutation, this Court has explained that
“[t]he spouse who argues in favor of transmutation carries what has been variously described
as a ‘difficult’ or a ‘heavy’ burden[.]” Macias, 1998-NMCA-170, ¶ 12. Transmutation must
be proven by “clear and convincing evidence of spousal intent to do so.” Id. A deed, other
document showing joint title, or mortgage note alone is not conclusive of intent to transmute.
See id. ¶ 13 (explaining that “a deed or other document showing joint title does not transmute
separate property if there is no intent to do so” and that “a mortgage may be evidence of such
intent to transmute, but it is not conclusive and is not, by itself, substantial evidence of intent
to transmute” (omission, emphasis, internal quotation marks, and citation omitted)). Proving
“transmutation requires evidence of intent on the part of the grantor spouse.” Id.

{25} Here, the district court’s findings make clear that it relied on three things to support
its conclusion that transmutation occurred: (1) that soon after marriage, Husband “transferred
the [Francis Home] to himself and [Wife;]” (2) that Husband and Wife “refinanced the debt
on the house to get a more favorable interest rate[;]” and (3) Husband’s statement that he
“thought being married was kind of a sacred thing” when asked by his attorney what his
intention was when he added Wife’s name to the deed. Nowhere did the district court find
that Husband intended to make a gift to Wife or create in her an undivided one-half interest
in the Francis Home. And indeed, under New Mexico transmutation law and given (1) the
absence of evidence in the record indicating that Husband had the requisite intent to effect
transmutation, (2) the fact that Wife conceded that the Francis Home was Husband’s separate

property[,]”within that same proposed finding Wife suggests the inherently contradictory
conclusion that “[i]f [Husband] gets credit for his $32,000 down payment there is still
$34,000 in community equity.” In other words, Wife’s assertion as to Husband’s intent
cannot be reconciled with the way in which she calculated her claimed interest in the Francis
Home, i.e., as a community lien rather than an undivided one-half interest. If Wife was truly
claiming that Husband intended to transmute the Francis Home from his separate property
to community property, Wife would have claimed one-half interest in the full equity of the
home rather than the full equity minus Husband’s down payment (separate property).

12
property, and (3) that Wife employed a litigation strategy designed to protect only her interest
in the community lien on the property, it could not have. We hold that the district court’s
conclusion that the Francis Home was transmuted from Husband’s separate property into
community property is incorrect as a matter of law. Thus, we reverse the district court’s
award to Wife of an automatic one-half interest in the Francis Home’s equity. The question
that remains, then, is to what portion—if any—of the equity in the Francis Home is Wife
entitled?

C. Acquisition of a Community Interest in Separate Property and Apportionment
Thereof

{26} As previously noted, Wife’s position during trial was that the marital community had
acquired an interest in the Francis Home of which Wife was entitled to one-half. Wife’s
primary argument in this regard was that the community had contributed $40,000 to various
home improvements—including the addition of “hardwood floors, a large nice deck, some
new doors, new window treatments, kitchen, bathroom, sinks, countertops, kitchen
appliances, furniture”—that Wife believed increased the value of the home. Wife initially
contended she should “recover [one-half] of the remodel cost to” the Francis Home, or
$20,000. In her closing argument, Wife added a claim for one-half “the community equity”
in the home, which she calculated to be $17,000. Wife arrived at the figure of $17,000 by
first assuming the district court would find that there was $66,000 in total equity in the
home,8 then subtracting what Wife described as Husband’s “down payment as sole and
separate property ($32,000),” which would leave $34,000 in “community equity” to which
Wife would be entitled to one-half, or $17,000. Wife continued to seek one-half of the
$40,000 remodel cost in addition to the $17,000 of community equity. As stated, the district
court awarded Wife one-half ($28,000) of the total equity it determined to exist in the Francis
Home ($56,000) based on its conclusion that a transmutation occurred.

{27} Where, as here, a party claims that appreciation during marriage of separate property
is owing to community contributions, apportionment is the proper method of determining the
respective interests—i.e., separate and community—in the asset upon dissolution. See
Dorbin v. Dorbin, 1986-NMCA-114, ¶ 15, 105 N.M. 263, 731 P.2d 959. “[A]pportionment
is a legal concept that is properly applied to an asset acquired by married people with mixed
monies—that is, partly with community and partly with separate funds.” Id. ¶ 29 (internal
quotation marks omitted). An “asset acquired” may include the increased equity in one
spouse’s separate real property. See id. ¶¶ 11, 24, 27 (apportioning the “appreciation equity”
in the wife’s separately owned townhouse between the wife’s separate interest and the
community’s interest); see also Michelson v. Michelson, 1976-NMSC-026, ¶¶ 20-22, 89
N.M. 282, 551 P.2d 638 (affirming the district court’s apportionment of the equity in the

8
This figure is based on an assumption that the Francis Home was valued at $160,000
at the time of trial per Wife’s testimony and that there remained a balance of $94,000 on the
mortgage.

13
parties’ home—which was originally acquired with the husband’s separate
property—between “community expenditures of time, effort and money” (the community’s
interest) and “the normal appreciation of property” (the husband’s separate interest)).

{28} To determine whether apportionment is appropriate, the district court must first
decide whether the community has, in fact, acquired an interest in the separate property. See
Martinez v. Block, 1993-NMCA-093, ¶ 13, 115 N.M. 762, 858 P.2d 429 (“Apportionment
is appropriate only when an asset has been acquired or its equity value increased through the
use of both separate and community funds.”). If there is no evidence of a community interest
in the equity of separate property, the separate interest is entitled to the full value of the
property and apportionment is not proper. See Hertz v. Hertz, 1983-NMSC-004, ¶¶ 22-23,
99 N.M. 320, 657 P.2d 1169 (holding that the husband was entitled to the full value of
appreciation of his separate property rather than only “proportionate appreciation” where
there was no evidence to support apportionment of the appreciation).

{29} In general, when property is “acquired as separate property, it retains such character
even though community funds may later be employed in making improvements or
discharging an indebtedness thereon.” Campbell v. Campbell, 1957-NMSC-001, ¶ 80, 62
N.M. 330, 310 P.2d 266. However, the community may acquire an interest in—specifically
a lien on—separate property where the community’s contributions have enhanced the value
of the separate property. See Ross, 2017-NMCA-061, ¶ 8 (“The community is . . . entitled
to a lien against the separate property of a spouse for the contributions made by the
community that enhanced the value of the property during marriage.”). Contributions by the
community do not, alone, give rise to a community interest. See Martinez, 1993-NMCA-093,
¶ 12 (explaining that “the simple fact that the community has expended funds or labor on a
separate asset does not, by itself, give rise to either a community interest in the asset or a
right to reimbursement for money spent on the asset”). Rather, it is only the increase—if
any—in the value of the asset attributable to community contributions that is apportioned
among separate and community interests. See Jurado v. Jurado, 1995-NMCA-014, ¶ 10, 119
N.M. 522, 892 P.2d 969; Martinez, 1993-NMCA-093, ¶ 11 (“[U]nder New Mexico law the
community is entitled to an equitable lien against [a spouse’s] separate property only to the
extent that the community can show that its funds or labor enhanced the value of the property
or increased the equity interest in the property.”). “Any increase in the value of separate
property is presumed to be separate unless it is rebutted by direct and positive evidence that
the increase was due to community funds or labor.” Jurado, 1995-NMCA-014, ¶ 11. The
party claiming the existence of a community lien on separate property bears the burden of
proving that the property’s appreciation is attributable to the expenditure of community,
rather than separate, funds. See Trego, 1998-NMCA-080, ¶ 8.

{30} Here, in order to be entitled to a community lien on the Francis Home, it was Wife’s
burden to prove that some portion (up to the full amount) of the home’s appreciation equity
at the time of dissolution was attributable to the home improvements made with community
funds and/or the community’s contributions to paying down the principal balance on the

14
mortgage. See Dorbin, 1986-NMCA-114, ¶ 21; cf. Mitchell v. Mitchell, 1986-NMCA-028,
¶¶ 48-49, 104 N.M. 205, 719 P.2d 432 (affirming the district court’s calculation of the
community’s lien and its refusal “to credit the community with any appreciation in the value
of [the husband’s separate] property” where there was “no evidence as to the value of [the
claimed] improvements”). However, the district court’s findings—which addressed the non-
issue of transmutation rather than the disputed issue of whether the community had acquired
an interest in (to wit, a community lien on) the Francis Home—are insufficient to allow us
to decide whether Wife met her burden. See Green v. Gen. Accident Ins. Co. of Am.,
1987-NMSC-111, ¶ 21, 106 N.M. 523, 746 P.2d 152 (“When findings wholly fail to resolve
in any meaningful way the basic issues of fact in dispute, they become clearly insufficient
to permit the reviewing court to decide the case at all.” (alterations, internal quotation marks,
and citation omitted)). As such, we remand to the district court for the entry of findings of
fact on the question of the existence of a community lien on the Francis Home. See Green,
1987-NMSC-111, ¶ 22 (“Where the ends of justice require, [an appellate court] may remand
a case to district court for the making of proper findings of fact.”). If the district court
determines that the community acquired an interest in the Francis Home, it must then
proceed to apportion the equity in the Francis Home between Husband’s separate interest and
the community’s interest in accordance with New Mexico case law.9 See Ross, 2017-NMCA-
061, ¶ 12.

{31} We emphasize that we do not pass on (1) whether the community acquired an interest
in Husband’s separate property, or (2) the proper apportionment of such interest, assuming
the evidence supports a finding that one exists. Those determinations must be made in the
first instance on remand. We hold only that the district court erred in concluding that the
Francis Home was transmuted from Husband’s separate property to community property and

9
See, e.g., Trego, 1998-NMCA-080, ¶ 13 (“No one method of apportionment is
favored above all others; the trial court may use whatever method will achieve substantial
justice, and is supported by substantial evidence in the record.”); Dorbin, 1986-NMCA-114,
¶¶ 23-24, 31-33 (discussing two formulas for apportioning property, one that the Dorbin
Court adopted and applied (the Moore formula) and one that our Supreme Court had applied
in earlier cases (“fair return” formula)); see also Chance v. Kitchell, 1983-NMSC-012, ¶ 6,
99 N.M. 443, 659 P.2d 895 (explaining that a party claiming a community interest in separate
property is entitled only to “the value of the improvements to the property, not the cost of the
improvements” and that “when determining a community interest in community funds
expended on behalf of property purchased by a spouse before marriage, the rule has
commonly excluded payments for taxes, insurance and interest”); Michelson, 1976-NMSC-
026, ¶¶ 20-22 (affirming the trial court’s calculation of the value of the community lien on
the parties’ home (the husband’s separate property) where the trial court first deducted from
the home’s value at the time of trial $14,000 of the husband’s separate property used to
purchase the lot on which the home was built); Dorbin, 1986-NMCA-114, ¶ 21 (explaining
that the community is “entitled to a lien for mortgage payments made with community
money, but only to the extent that the mortgage principal was reduced”).

15
in distributing the equity in the Francis Home in accordance with that conclusion.

III. Whether the District Court Properly Addressed and Distributed Other Property

The 1955 Chevrolet

{32} Husband argues that the district court failed to make a determination about and
properly distribute Husband’s interests in a 1955 Chevrolet. At trial, Husband testified that
Wife had given him the car for his birthday in either 2009 or 2010 and that because Husband
was busy, Wife registered the car in her name. Wife objected to Husband’s testimony based
on Husband’s failure to include the property in his claims and contentions, but the district
court overruled the objection and allowed the testimony. Husband then testified that the
vehicle was worth anywhere from $14,000 to $20,000 and that he had invested $5,000 of
separate property to install a new engine in the car. The only other testimony regarding the
1955 Chevrolet was made during Husband’s explanation of his basis for believing that Wife
was laying groundwork “to finally get rid of [him,]” a plan that he stated included,
“Everything that happened throughout the marriage now that I opened my eyes. The
[SSPAs], the giving her daughter the house, the ‘55 Chevy leaving, the Duramax leaving, the
mule leaving.” (Emphasis added.) Husband offered no other testimony regarding the 1955
Chevrolet nor did he cross-examine Wife about the car.

{33} Husband’s proposed findings included the following related to the 1955 Chevrolet:

24. [Wife] gave [Husband] the 1955 Chevrolet as a gift.

25. The engine installed into the 1955 Chevrolet was the separate
property of [Husband].

26. The value of the 1955 Chevrolet was $20,000.

27. [Wife] appropriated the 1955 Chevrolet and re-gifted it to her children
or sold it.

28. [Husband] did not relinquish or consent to the removal of the 1955
Chevrolet.

29. [Husband] did not receive compensation for the loss of the 1955
Chevrolet.

Husband’s requested conclusions of law included that he is entitled to compensation for the
value of the 1955 Chevrolet and reimbursement for the value of his separate property in the
car. Wife’s proposed findings and conclusions did not contain any mention of the 1955
Chevrolet. The district court did not include any findings or conclusions regarding the 1955

16
Chevrolet in its order, which Husband argues constituted error and requires remand.

{34} We first observe that the district court was under no obligation to take evidence
regarding property that Husband conceded at trial was not listed in his claims and
contentions. See Rutter v. Rutter, 1964-NMSC-242, ¶ 17, 74 N.M. 737, 398 P.2d 259
(holding that the district court properly rejected evidence related to an issue “outside of the
issues raised by the pleadings”). Once the district court allowed Husband to testify regarding
the 1955 Chevy, however, the question is whether it erred by not entering findings or a
conclusion about the vehicle. It is well-established that a district court’s failure to make a
specific requested finding of fact constitutes a finding against the requesting party. See
Olivas v. Olivas, 1989-NMCA-064, ¶ 15, 108 N.M. 814, 780 P.2d 640. Particularly where
the requesting party has the burden of proof as Husband did here, cf. Wallace v. Wanek,
1970-NMCA-049, ¶ 9, 81 N.M. 478, 468 P.2d 879 (explaining that “[h]e who alleges the
affirmative must prove”), “the district court properly could have decided that [the] husband
did not meet his burden . . . and therefore could reject [the] husband’s proposed findings of
facts and conclusions of law on this matter.” Olivas, 1989-NMCA-064, ¶ 15. Here, the
district court—presented with little more than Husband’s stand-alone testimony about “the
‘55 Chevy leaving” and his assertion regarding its engine—could have decided that Husband
was not credible and failed to meet his burden of proving that there were property interests
in the 1955 Chevy that required distribution. “It is the sole responsibility of the trier of fact
to weigh the testimony, determine the credibility of the witnesses, reconcile inconsistencies,
and determine where the truth lies, and we, as the reviewing court, do not weigh the
credibility of live witnesses.” N.M. Taxation & Revenue Dep’t v. Casias Trucking, 2014-
NMCA-099, ¶ 23, 336 P.3d 436 (alteration, internal quotation marks, and citation omitted).

{35} Not only do we conclude that the district court did not err in refusing to adopt
Husband’s proposed findings and conclusions regarding the 1955 Chevrolet, it would have
been error to adopt Husband’s proposed findings number twenty-seven, twenty-eight, and
twenty-nine given that there was no evidence to support them. There was no testimony that
Wife appropriated or re-gifted the car, that Husband did not consent to removal of the car,
or that he had never received compensation for it. As such, the district court’s effective
conclusion that Husband failed to meet his burden of claiming and proving that he had
separate and community property interests in the 1955 Chevrolet supported its rejection of
Husband’s proposed findings. See Russell v. Russell, 1990-NMCA-080, ¶ 17, 111 N.M. 23,
801 P.2d 93 (“A trial court is only required to make findings of such ultimate facts as are
necessary to determine the issues.”). We hold that the district court did not err by entering
no findings or conclusions regarding the 1955 Chevrolet in its order.

The Texas Property

{36} Husband makes a markedly similar argument with respect to the Texas property
which he and Wife co-signed for and acquired during the marriage. Husband acknowledges
that the district court made the following finding regarding the Texas property:

17
 24. The parties co-signed a purchase for [Wife]’s daughter . . . . They
were named on the deed and mortgage. The money for the purchase
came from [Wife’s daughter]. When they were no longer co-signers,
the parties quitclaimed the property to [Wife’s daughter]. The parties
had no real interest in the property.

But Husband contends that the district court “fail[ed] to determine the community interest
in the Texas [p]roperty,” which we understand to be a challenge to the sufficiency of the
evidence to support the district court’s finding. We review for substantial evidence to
determine whether there is “such relevant evidence that a reasonable mind would find
adequate to support a conclusion.” State ex rel. King v. B & B Inv. Grp., Inc., 2014-NMSC-
024, ¶ 12, 329 P.3d 658 (internal quotation marks and citation omitted). “[W]e review the
evidence in the light most favorable to support the trial court’s findings, resolving all
conflicts and indulging all permissible inferences in favor of the decision below.” Jones,
2005-NMCA-124, ¶ 8.

{37} Wife testified that she and Husband co-signed a note in order for her daughter to
purchase the Texas property and that Wife’s daughter paid the down payment. Wife and
Husband eventually deeded the house to Wife’s daughter after Wife’s daughter had been
working for a while and “felt like she . . . could handle it [by] herself[.]” Husband testified
that he did not know the source of the funds used for the down payment for the Texas
property. This, alone, is substantial evidence to support the district court’s finding that the
parties had no real interest in the Texas property, thus making it unnecessary for the district
court to distribute anything related thereto.

Wife’s Income

{38} Husband argues that the district court erred by failing to address and distribute Wife’s
$283,000 of earnings during the marriage. In support of this argument, Husband cites to this
Court’s decision in Irwin v. Irwin in which we explained that “under New Mexico
community property law[,] each spouse has a one-half ownership interest in all community
income or community assets acquired during the marriage.” 1996-NMCA-007, ¶ 13, 121
N.M. 266, 910 P.2d 342. But Irwin does not stand for the proposition that any money earned
during the marriage was community property that needed to be divided between the parties
at the time of divorce as Husband contends. Irwin, in fact, applied the limiting principle to
the general rule regarding income earned during marriage that “once community . . . earnings
are expended, rather than being converted into an asset, there is no community asset to be
shared or managed, and the spouse making the expenditure has no duty to reimburse the
community absent some special circumstance.” Id. This Court rejected the wife’s argument
in Irwin that she was entitled to an automatic one-half interest in the husband’s income
earned during their separation period when the husband had already expended all of the
funds. Id. ¶ 14.

18
{39} Here, Husband presented no evidence regarding the status of Wife’s $283,000 in
earnings, i.e., what portion, if any, had not been expended or converted to assets and would
thus be available for distribution. His theory—that Wife “converted community assets to her
own use and the community is entitled to reimbursement for the value of those assets”—was
not supported by substantial evidence, or any evidence for that matter. We thus hold that the
district court properly rejected Husband’s request and did not err by not distributing Wife’s
income earned during the marriage.

CONCLUSION

{40} We reverse the district court’s judgment with respect to the SSPAs and the Francis
Home and remand for further proceedings consistent with this opinion. We affirm the district
court’s distribution of all other property.

{41} IT IS SO ORDERED.

____________________________________
J. MILES HANISEE, Judge

WE CONCUR:

_________________________________
LINDA M. VANZI, Chief Judge

_________________________________
TIMOTHY L. GARCIA, Judge

19