New Mexico community property: what it means for a home

What counts as community property and what counts as separate?

The Community Property Act of 1973 (NMSA 40-3-6 to 40-3-17) draws the line in § 40-3-8. Separate property is:

1. property acquired by either spouse before marriage or after a decree of dissolution of marriage;
2. property acquired after a decree under § 40-4-3 (a division of property without divorce), unless the decree says otherwise;
3. property a court designates as separate;
4. property acquired by gift, bequest, devise or descent (an inheritance);
5. property the spouses designate as separate in a written agreement, including a deed.

Community property is property acquired by either or both spouses during marriage that is not separate. Section 40-3-12 adds a presumption: property acquired during marriage by either spouse, or both, is presumed community. Property that spouses acquire by a written instrument, as tenants in common or joint tenants, is also presumed community unless it is separate under the list above.

The statute defines “property” to include “the rents, issues and profits thereof” (§ 40-3-8(E)).

A house bought with wages during the marriage is presumed community property, even if only one name is on the deed. A house one spouse owned before the wedding is separate.

What about couples who moved here?

Section 40-3-8(C) creates quasi-community property: property acquired while living elsewhere that would have been community property had the couple lived in New Mexico. In a divorce or legal separation, it is treated as community property if both spouses live in New Mexico at that time (§ 40-3-8(D)).

Do both spouses have to sign when you sell or borrow?

Yes. Under NMSA 40-3-13(A), except for purchase-money mortgages, the spouses “must join in all transfers, conveyances or mortgages or contracts to transfer, convey or mortgage any interest in community real property” and in separate real property they own together as joint tenants or tenants in common. They must also join in a lease whose term, with options, exceeds five years or has no fixed term.

A transfer, mortgage or lease signed by one spouse alone in violation of the section is void. There are three exceptions in the text:

• One spouse may transfer or mortgage directly to the other without the other joining.
• A spouse can act alone under a validly executed and recorded power of attorney (§ 47-1-7 requires a power of attorney affecting real estate to be acknowledged and recorded).
• A spouse who did not sign can ratify the instrument in writing at any time.

A spouse may sell or mortgage separate real property alone, unless the spouses hold it together as joint tenants or tenants in common. If you are buying from a married seller, ask whether the other spouse will sign. See also closing costs in New Mexico and title insurance.

What about debts and the family home?

Sections 40-3-10 and 40-3-11 protect the marital residence. Unless both spouses join in writing in creating a debt incurred after the marriage, a judgment against one spouse does not create a lien on the other spouse’s interest in the marital residence.

How can spouses hold title?

NMSA 40-3-2 says spouses “may hold property as joint tenants, tenants in common or as community property.” The Act does not change the legal incidents of joint tenancy, including the right of survivorship (§ 40-3-8(F)).

Spouses may also hold as tenants in common. The chapters we read contain no “community property trust”; IRS Publication 555 mentions such elections only under Alaska, Tennessee and South Dakota law.

What happens in a divorce?

Section 40-4-7 lets the court rule on spousal support and on the property of the parties, but it does not set a percentage. The official annotations to Chapter 40 summarize court decisions saying that the trial court’s duty is to divide the community property equally (for example Otto v. Otto, 1969-NMSC-074, and Mitchell v. Mitchell, 1986-NMCA-028). Separate property stays with its owner.

Other points that matter for a home:

• If a decree does not divide property, the failure to divide does not change either spouse’s rights, and either may sue later for division (§ 40-4-20(A)).
• A divorce severs joint tenancy between the former spouses and turns it into equal tenancies in common (§ 45-2-804(B)(2)).
• At the final decree, a court can declare a debt “unreasonable” as between the spouses if it was incurred while living apart and did not benefit both (§ 40-3-10.1).

What happens when a spouse dies?

On the death of either spouse, one-half of the community property belongs to the surviving spouse, and the other half is subject to the decedent’s will (NMSA 45-2-807(A)). Without a will, the half the decedent could dispose of passes to the surviving spouse (§ 45-2-102(B)). For separate property, the survivor takes the whole intestate estate if the decedent left no children or other descendants, and one-fourth if there are descendants (§ 45-2-102(A)).

How are community property homes taxed on the federal side?

IRS Publication 555 says that when a spouse dies, the total fair market value of the community property, including the survivor’s half, generally becomes the basis of the entire property, provided at least half of its value is includible in the deceased spouse’s gross estate. In the IRS example, property with a basis of $80,000 was worth $100,000 at death, and the basis of each half became $50,000. A higher basis means a smaller taxable gain on a later sale; see our guide to capital gains on a home sale.