Is passive appreciation divisible in New Mexico?

[MarcyS]

The title says it all. Sorry if it's a dumb question but many places online I see that in some states only active appreciation of an asset is divisible in a divorce (not passive appreciation) but I can't seem to find anywhere that specifically mentions which states are which way. I need to know if, in my New Mexico divorce, passive appreciation on my separate property would be divided.

 

[MarcyS]

Of course the minute I write a question here, I find a resource that I think answers my question: https://www.divorcesource.com/ds/property/property-classification-upon-divorce-618.shtml

 

[Litigator22]

I don't know what you could have possible learned from that "dual classification" link with respect to your question. But generally speaking whether it is a community property state or otherwise where the increase in value of separate property is due to inflation or market forces and not ascribable to either spouse's efforts it is regarded as sole and separate.

 

[MarcyS]

I don't know what you could have possible learned from that "dual classification" link with respect to your question. But generally speaking whether it is a community property state or otherwise where the increase in value of separate property is due to inflation or market forces and not ascribable to either spouse's efforts it is regarded as sole and separate.

There is a chart on the bottom of the page that says whether in each state increase in value of property is separate or marital.
I wish you had stated your answer more plainly. New Mexico is a community property state. Are you saying that in all community property states passive appreciation is sole and separate or it is community?

 

[LdiJ]

There is a chart on the bottom of the page that says whether in each state increase in value of property is separate or marital.
I wish you had stated your answer more plainly. New Mexico is a community property state. Are you saying that in all community property states passive appreciation is sole and separate or it is community?

In my opinion in a community property state all appreciation accrued during the marriage is community appreciation. However, a local NM divorce attorney can certainly clarify that for you one way or another.

 

[Whoops2u]

In a community property state like New Mexico, this so called "passive" appreciation would only apply to the underlying character of the asset. If the asset was separate, the appreciation stays separate. If the asset is community, the appreciation will be to the community.

("Active" appreciation through the work of community members MIGHT be community property. I say might as the character of the underlying asset may not change in certain circumstances. If so, the community may not gain any ownership rights over the property but may gain reimbursement rights.)

 

[LdiJ]

In a community property state like New Mexico, this so called "passive" appreciation would only apply to the underlying character of the asset. If the asset was separate, the appreciation stays separate. If the asset is community, the appreciation will be to the community.

("Active" appreciation through the work of community members MIGHT be community property. I say might as the character of the underlying asset may not change in certain circumstances. If so, the community may not gain any ownership rights over the property but may gain reimbursement rights.)

If marital assets (ie wages) both paid the mortgage payments and maintained the home, any equity that accrued during the marriage is going to be community property, whether active OR passive.

 

[Whoops2u]

If marital assets (ie wages) both paid the mortgage payments and maintained the home, any equity that accrued during the marriage is going to be community property, whether active OR passive.

That is not correct. Community property states do not follow the same rules as marital property states.

If COMMUNITY assets (Like wages) were used to pay the mortgage payments on separate property, the community gains some ownership rights to the property for the amount of PRINCIPAL paid. Appreciation of the portion that transfers to the community with the payment of principal will belong to the community. Payments of other things like interest on the note, insurance, lawn mowing if made with community assets MAY give the right of reimbursement to the community for the amounts paid--but do not give the community any ownership rights of the separate property. (Some MAY be a gift as well.) Hence, none of the appreciation would be transmuted to the community.

The usual calculation on community property buy in/transmutation on a separate property fully paid off is going to use "debt reduction" in the formula:

(Principal debt reduction)/(Purchase Price)

The formula gets harder if the house was not paid off at the time of dissolution.

 

[Litigator22]

So, do you think your "chart" states it more plainly when it makes no differentiation between "passive" and "active" appreciation? Or where it fails to cite any legal authority in support of its self proclaimed state-wide-statistical findings?

And yes I am very well aware that New Mexico is a community property state. Also to my awareness there are no reported decisions out of your state.

However, the matter of resolving the character of the enhanced value of a spouse's separate property for purposes of allocation in a divorce proceeding is not confined to community property states! And hours upon hours could be spent collating, analyzing and comparing the decisions across the country. All which could result in finding such diversity in opinions as in Texas which has adopted the "inception-of-title-rule" described as follows:

". . . . separate asset brought into the marriage remains exclusively separate property, even if community funds or labor enhance its value . . . " (See: The Partnership Theory of Marriage: A Borrowed Solution Fails, 68 Tex. L. Rev. 689)

Or New Jersey and other jurisdictions under which the appreciation of a separate or immune asset is equitably distributed provided it is caused by direct or indirect marital contribution.

And notably that the efforts of a non-owning spouse as a homemaker and caretaker of children is an indirect contribution entitling that spouse to an equitable distribution of an enhanced business asset. (Article: "Allocating Active and Passive Appreciation of a Separate Business Asset for Equitable Distribution" by David M. Wildstein - www.wilentz.com/files/articlesandpublicationsfilefiles/42/article...

Or vague and inconclusive as from the Arizona Supreme where it speaks of profits from separate property and appreciation of separate property; fails to define what it means by "both factors" and what is meant by "capital investment itself" as in Cockrill vs. Cockrill, 601 Pac2nd 1334:

"We now depart from the all or nothing approach and announce the rule that the increase in the value of separate property during marriage should be apportioned between the separate property of the owner and the community property of the spouses. Profit or increase in value of property may result either from the capital investment itself, or from the labor, skill and industry of one or both spouses or from both the investment of separate property and the labor and skill of the parties. Where both factors (?) contribute to the increase in value of a business, that increase should be apportioned between separate and community property. "
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So in sum, unless you can point to some controlling precedent you will just have to take your chances with a New Mexico family court.

And here we haven't even touched on the question of the burden of proof, have no knowledge of the nature of the asset and can only presume that your definition of "passive" will stand up under judicial scrutiny.
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[LdiJ]

MarcyS, I am going to advise you to get a consult with a local divorce attorney. There is too much disagreement here for you to rely on the advice here.

 

[MarcyS]

Thanks everyone. I thought "passive appreciation" was an accepted term for when an asset, such as a piece of property, increases in value just due to luck of market conditions as opposed to increasing in value due to effort by a human. Correct me if I'm wrong. I've certainly come to realize dividing assets in a marriage isn't as straight-forward as a layperson would think.

 

[LdiJ]

Thanks everyone. I thought "passive appreciation" was an accepted term for when an asset, such as a piece of property, increases in value just due to luck of market conditions as opposed to increasing in value due to effort by a human. Correct me if I'm wrong. I've certainly come to realize dividing assets in a marriage isn't as straight-forward as a layperson would think.

Passive appreciation is a valid term. Don't feel that you used that term inaccurately. You did.