1998 -NMCA- 170, Macias v. Macias, 18,883

Decision Date07 October 1998
Docket NumberNo. 18,883,18,883
Citation968 P.2d 814,1998 NMCA 170,126 N.M. 303
Parties, 1998 -NMCA- 170 Jan Marie MACIAS, Petitioner-Appellant, v. Jose L. MACIAS, Sr., Respondent-Appellee.
CourtCourt of Appeals of New Mexico


¶1 In this divorce case we decide an issue of first impression that federal tax law, and particularly the Tax Reform Act of 1984, 26 U.S.C. § 152(e) (1998), does not preempt the ability of state courts to allocate tax exemptions for dependent children between custodial and noncustodial parents. We also discuss the standard for determining when a spouse has transmuted separate property into community property. We affirm the trial court on the first issue but vacate and remand on the second.


¶2 The parties married in 1978 and divorced on September 12, 1997. They had three children who were approximately ages 17, 13, and 10 at the time of the divorce. The trial court awarded physical custody of the minor children to Wife and ordered Husband to pay support and maintenance equaling two-thirds of their total needs, recognizing that Wife would be responsible for the balance. Based on this ratio of support payments between the parties, the court concluded that it would be equitable for Husband to enjoy two-thirds of the federal income tax exemptions that accrue from the support of dependent children and Wife would receive one-third, despite a provision in the federal tax law providing that the tax exemptions generally go to the custodial parent. The court also established a plan for the future allocation of tax exemptions between the two parents as the children gradually reached the age of majority. Wife objects to this allocation asserting that federal law controls and that the court had no choice but to allow Wife, as the custodial parent of all three children, to receive the exemptions for each child regardless of support payments.

¶3 The parties also disputed a claim by Wife to a separate property interest in the marital residence. During the marriage Wife's mother died intestate, and Wife inherited an undivided one-third interest in a residence located at 613 Boyce in Alamogordo. Thereafter in 1986, Husband and Wife jointly purchased the remaining two-thirds interest from Wife's two sisters, and they received as community property a warranty deed to "an undivided two-thirds interest" in the residence in the name of "Jose L. Macias and Jan Macias, his wife." Husband and Wife moved into the house and made it their marital residence. To finance the purchase, Husband and Wife mortgaged the entire residence, including Wife's inherited one-third interest, and borrowed its full value from a local bank. Approximately two-thirds of the loan went to pay the sisters for their interest in the house, and the remainder went to pay unrelated community debts and to purchase various assets for the benefit of the community. Over the years, community funds were used to service the loan, to maintain the residence, and to pay property taxes on it.

¶4 Wife claimed that one-third of the value of the residence was her sole and separate property by virtue of inheritance. Husband claimed it was community property and testified that Wife had never before expressed any claim to a separate property interest in the residence and that he had always understood the entire residence to be community property. After a factual hearing, the trial court agreed with Husband. The court concluded that although Wife had acquired her undivided one-third interest by way of inheritance, her separate property interest had been transmuted into community property.

The Court May Allocate Tax Exemptions for Dependent Children Between Parents

¶5 Historically, states have allocated tax exemptions between divorcing spouses as part of their responsibility to provide for the continued support and welfare of the minor children. See Gavin L. Phillips, Annotation, State Court's Authority, in Marital or Child Custody Proceeding, to Allocate Federal Income Tax Dependency Exemption for Child to Noncustodial Parent Under § 152(e) of the Internal Revenue Code (26 USCA § 152(e)), 77 A.L.R.4th 786, 790 (1990) [hereinafter Phillips]; see also Thomas C. Montoya et al., New Mexico Domestic Relations Manual Law and Forms § 4.212, at 4-15 (1995) [hereinafter Montoya] (noting that "[i]n awarding the dependency exemption, careful consideration should be given to the tax benefits"). Before the passage of the Tax Reform Act of 1984, federal tax law generally permitted a non-custodial parent to receive the tax exemption if he or she paid more than $1200 toward the support of a child in any calendar year and if the custodial parent did not clearly establish that he or she provided more support for the child during the calendar year than the non-custodial parent. See Phillips, supra. For purposes of allocating the dependency exemption, the 1984 tax law created a presumption that child support, and therefore entitlement to the dependency exemption, attached to custody. Thus, under the tax law, the spouse having physical custody of the child "shall be treated" as providing more than half the support and thus entitled to the exemption. See 26 U.S.C. § 152(e)(1)(B). That legal presumption is subject to certain exceptions, including one which allows the custodial parent to waive the exemption in favor of the non-custodial parent by signing a written declaration to that effect on a specified federal form (Federal Tax Form 8332 (Rev. June 1996)), pledging that the custodial parent will not take the exemption. See 26 U.S.C. § 152(e)(2).

¶6 The 1984 tax law does not provide any direct role for state courts. For example, there is no specific authority for a state court to allocate dependency exemptions between parents and then to order the custodial parent to waive the exemption in favor of the other parent. Accordingly in the case before us, Wife as the custodial spouse argues that the allocation of dependency exemptions has been preempted by federal law in which Congress has first set forth the presumption, and then has allowed limited exceptions, none of which permit what the trial court did here or otherwise authorize intervention by state courts. Husband, on the other hand, maintains that mere silence in the federal law should not exclude state court intervention, especially in an area so traditionally a matter of state concern. Although New Mexico has not yet had occasion to resolve this problem, many other jurisdictions have, and we are fortunate to be guided by the wisdom of those opinions.

¶7 Husband maintains, without contradiction from Wife, that the majority of jurisdictions do permit their state courts to enter an order not unlike that issued by the trial court in this case: allocating dependency exemptions between custodial and non-custodial parents. Based on our review, we agree and note further that it appears to be a growing trend. See, e.g., In re Marriage of Clabault, 249 Ill.App.3d 641, 188 Ill.Dec. 799, 619 N.E.2d 163, 169 (Ill.App.Ct.1993); Boudreau v. Boudreau, 563 So.2d 1244, 1246 (La.Ct.App.1990); Fear v. Rogers, 207 Mich.App. 642, 526 N.W.2d 197, 198 n. 2 (Mich.Ct.App.1994); Hoffman v. Hoffman, 870 S.W.2d 480, 484 (Mo.Ct.App.1994); Hall v. Hall, 238 Neb. 686, 472 N.W.2d 217, 220 (Neb.1991); Goode v. Goode, 70 Ohio App.3d 125, 590 N.E.2d 439, 444 (Ohio Ct.App.1991); Lamb v. Lamb, 848 P.2d 582, 583 (Okla.Ct.App.1992); Hay v. Hay, 119 Or.App. 372, 850 P.2d 410, 411 (Or.Ct.App.1993); Sommerfield v. Sommerfield, 154 Wis.2d 840, 454 N.W.2d 55, 59 (Wis.Ct.App.1990). Today, the substantial majority of jurisdictions that have considered the matter hold that federal law does not preempt a state law or procedure that permits a state court to allocate dependency exemptions between parents based on support payments made by the non-custodial spouse.

¶8 We find these opinions persuasive and elect to side with the clear majority on this issue. We observe that courts have traditionally considered dependency exemptions as another form of financial resource to be allocated for the benefit of minor children. See Hart v. Hart, 774 S.W.2d 455, 457 (Ky.Ct.App.1989). Allocating a dependency exemption to one parent or the other may, as a practical matter, liberate additional funds with which that parent can contribute more to the support and maintenance of the children. For example, if the non-custodial parent enjoys a significantly higher income tax bracket than the custodial parent, then awarding the dependency exemption to the non-custodial parent may result in larger tax savings to the non-custodial parent than if the exemption were taken by the lower-income, custodial parent. A court can then route that tax savings into greater support for the children, because increased tax savings will mean increased financial resources that can be utilized for the children's benefit. In theory, as well as in practice, allocating dependency exemptions can serve a constructive purpose that in every way conforms to the core responsibility of New Mexico courts to provide for the minor children of divorce. See Nichols v. Tedder, 547 So.2d 766, 774 (Miss.1989) (denying state court power to allocate dependency exemption would only serve to reward the IRS and punish the non-custodial parent with the real loser being the dependent child).

¶9 We are not disposed to presume that Congress intended to tie the hands of our state judiciary, especially when the law on its face does not preclude the state from acting. See Fleck v. Fleck, 427 N.W.2d 355, 359 (N.D.1988) (state court allocation of dependency exemption does not interfere with congressional intent); Cross v. Cross, 178 W.Va. 563, 363 S.E.2d 449, 457 (W.Va.1987) (statute's silence does not indicate preemption but rather congressional indifference to how...

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