A-1-CA-34523 | Omnilex

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Filed

Court of Appeals of New Mexico
1/31/2018 2:01:41 PM

Offige of the Clerk

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number:

Filing Date: January 31, 2018

NO. A-1-CA-34523
JOHNNY A. GABRIELE,
Petitioner-Appellant,

Vv.

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

Ruel

rk Reynolds

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OPINION
HANISEE, J udge.
43 The formal opinion filed in this case on January 3, 2018, is hereby withdrawn,
and this opinion is substituted in its place. |
3 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.
BACKGROUND
3}, Johnny Gabriele (Husband) and Deborrah Gabriele (Wife) were married on
February 15, 2006. Husband filed a petition for divorce on July 22, 20 13. 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.

{43 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

5} 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 ofhis
separate funds to [the] purchase [of 262 Francis].”

{6} | 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.

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

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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.”

483} 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.' 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.

{9} | 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

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

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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.

110} 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 “[bly signing
the agreements [Husband] was relieved of responsibility for the debt as well as the
liability.” 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.

?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.

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B. Analysis

411} 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.’ Neither party has addressed the import of NMSA 1978, Section
40-22 (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,

q 19, 96 N.M. 719, 634 P.2d 1271 (“In New Mexico, transactions between husbands

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.”).

and wives are governed by Section 40-2-2[.]”); Primus v. Clark, 1944-NMSC-030,

4 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

23 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 “the general rules of common law which control the actions of persons
occupying confidential relations with each other.” Jd. 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, JJ 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 vy. Dolliver, 30 P. 4, 5 (Cal. 1892) (in bank)); see Primus, 1944-

NMSC-03 0, { 15 (explaining that the statute governing the contract rights of married

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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[.]” Jd. {| 93.

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

{13} 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," rendering the transaction voidable.
See Primus, 1944-NMSC-030, Ff 12, 21, 22 (concluding that there existed a “legal

presumption of constructive fraud” where the wife received only $1,000 from the

‘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, 7 8, 81 N.M.
248, 466 P.2d 94.

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, J 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, {J 15, 21. Where the evidence indicates they were not, we may find
constructive fraud.

4143 Here, the record indicates that the net value of CSC was $257,461.26 as
reflected by 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 as the district court found, 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

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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 eained 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

{15} The parties primarily focus their arguments on whether there was sufficient
evidence of consideration to support the contract. However, we need not decide the

question of consideration because, even assuming arguendo that the district court

properly concluded that the SSPAs were supported by adequate consideration, 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

liability’—therein; and (2) Husband had received competent and independent advice

*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)

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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

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 would support Husband’s argument that the district court erred
in concluding that the SSPAs were supported by consideration. See Hurley v. Hurley,
1980-NMSC-067, J 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, J 6, 97 N.M. 133, 637 P.2d 564.

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relationship.” (internal quotation marks and citations omitted)). Cf Unser v. Unser,
1974-NMSC-063, q{ 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).

{163 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 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

{17}, 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

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the Francis Home was transmuted to a community interest. We agree with Husband
that the district court erred.

A. Standard of Review

{18} 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, 4 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, 4 6, 134 N.M. 381, 77
P.3d 285 (explaining that “the threshold question of whether [the hjusband’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 7, 400

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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.

493 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.

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.”

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20} 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.’ 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.’ See Trego v. Scott, 1998-NMCA-080, 45, |

‘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).

"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

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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.
21} 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

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).

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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.” Jd. 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.” Jd.

7223 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

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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, 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

23} 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

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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,® 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.

(24; 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, J 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.” Jd. § 29 (internal quotation marks omitted). An “asset

acquired” may include the increased equity in one spouse’s separate real property. See

’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.

id. Jf 11, 24, 27 (apportioning the “appreciation equity” in the wife’s separately
owned townhouse between the wife’s separate interest andthe community’s interest);
see also-Michelsony. Michelson, 1976-NMSC-026, 1] 20-22, 89 N.M. 282, 551 P.2d
638 (affirming the district court’s apportionment of the equity in the 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)).

{25} 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, J 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).

726} 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, 195 7.
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, q 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, 9 10, 119 N.M. 522, 892 P.2d 969; Martinez, 1993-NMCA-093,
q 11 C‘[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.

(27; 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 mortgage. See Dorbin, 1986-NMCA-1 14,
21; cf Mitchell v. Mitchell, 1986-NMCA-028, $9 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

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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-1 11,
{ 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.’ See

Ross, 2017-NMCA-061, § 12.

*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, {ff 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, J 6, 99 N.M. 443, 659 P.2d 895 (explaining
that a party claiming a comimunity interest in separate property is entitled only to “the
value of the improvements to the property, ot 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, Jf 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,
421 (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”).

{28} 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 in distributing the equity in
the Francis Home in accordance with that conclusion.

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

The 1955 Chevrolet

{29} 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

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groundwork “to finally get rid of thim,]” 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.

{30} 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. Thé 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 Chevrolet in its order, which Husband argues
constituted error and requires remand.

313. 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, 49, 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).

32} 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, J 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

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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
{333 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:
24. The parties co-signed a purchase for [Wife]’s daughter .... Phey
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 Im. Grp., Inc.,2014-NMSC-024, J 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.

34} 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]
herselff,) 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

35} 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 Jrwin 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. /rwin, 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.” Jd. 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. Jd. ¥ 14.

36; 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. |

CON CLUSION

37} 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.

—

383 ITISSO ORDERED.

WE CONCUR:

A Mi VANZI, Chief Judge

TIMOTHY L. GARCIA, Judge

J. MILES HANISEE, Judge

January 31, 2018- Johnny A. Gabriele v. Deborrah L. Gabriele, No. A-1-CA-34523

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