“Transmutation”: Changing the Nature of Assets Can Drastically Affect Your Dissolution Proceeding

When a marriage ends, one of the first and foremost questions people have is “who gets what?” In a New Mexico dissolution proceeding, one of the primary tasks of the court is the division of the couple’s property. This task can be made much more difficult if community and separate property have been mixed. This is known as “transmutation.”

“Transmutation” is just a fancy way of saying that something has been transformed or changed. When a marriage ends, all property must be classified as either “community” or “separate.” Generally speaking, items acquired during the marriage are considered community property. Separate property generally consists of items owned before the marriage or acquired during the marriage by gift or inheritance. You can read more about the basic concepts of community and separate property at our earlier blog here.

The court does not divide separate property in a dissolution proceeding. Rather, separate property is skimmed off the top before any division occurs. Community property, on the other hand, is distributed to the parties, along with debt, in a way that equalizes the value of the individual estates.

The characterization of each item of property — as separate or community — drives this entire process. Transmutation of an asset, whether a house, a car, or a bank account, can substantially change the distribution of property from the marriage.

A 1982 case from the Supreme Court of New Mexico illustrates transmutation well. In Nichols v. Nichols, the husband owned a house as his separate property before he and his wife married. After the marriage, he sold the house and put the money from the sale in the couple’s joint bank accounts. They paid the down payment on a new house, titled in both of their names, from those joint accounts. The trial judge determined that the new house was community property.

On appeal, the Supreme Court of New Mexico agreed that the house was community property. The court held that the husband had made a gift to the community when he deposited the money into the joint accounts. The correctness of this finding was also supported by the facts that the wife wrote checks on the joint account and the house payments were made from the joint account.

An experienced New Mexico family lawyer can help you understand the issues that must be navigated in a dissolution, particularly the nature of community and separate assets. If you have questions, contact the Lightning Legal Group. We understand the typically acrimonious nature of proceedings, and we’ll help you find your way. Contact us today at (505) 247-2390 for experienced legal advice.

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