Swink v. Fingado

• Citation: 1993 NMSC 13,115 N.M. 275,850 P.2d 978
• Decision Date: 02 March 1993
• Docket Number: No. 20364,20364
• Parties: Harley H. SWINK, Trustee, Plaintiff-Appellant, v. Valetta Ruth FINGADO, Defendant-Appellee.
• Court: Supreme Court of New Mexico

Page 978

850 P.2d 978

115 N.M. 275

Harley H. SWINK, Trustee, Plaintiff-Appellant, v. Valetta Ruth FINGADO, Defendant-Appellee.

No. 20364.

Supreme Court of New Mexico.

March 2, 1993.

[115 N.M. 276] Leslie C. King, III, James R. Jurgens, Santa Fe, for plaintiff-appellant.

Robert Waldman, J. Bart Wright, Albuquerque, for defendant-appellee.

OPINION

MONTGOMERY, Justice.

The United States Court of Appeals for the Tenth Circuit certified to this Court the following question of New Mexico law:¹

Do the 1984 amendments to Sec. 40-3-8 N.M.S.A.1978 (as enacted), apply retroactively so as to convert property acquired by husband and wife as joint tenants prior to the passage of the amendments, and thus originally held as separate property, into community property which would be included in the bankruptcy estate?

Swink v. Sunwest Bank (In re Fingado), 955 F.2d 31, 32 (10th Cir.1992).

The 1984 amendments referred to in the question were contained in an act passed by the legislature that year, 1984 N.M.Laws, Chapter 122, entitled "AN ACT RELATING TO PROPERTY; AMENDING CERTAIN SECTIONS OF THE NMSA 1978 TO CLARIFY KINDS OF COMMUNITY PROPERTY; DECLARING AN EMERGENCY." Section 1 of the act ("the 1984 Act") amended NMSA 1978, Subsection 40-3-8(A) (Repl.Pamp.1983), to delete from the definition of "separate property" the phrase "each spouse's undivided interest in property owned in whole or in part by the spouses as co-tenants in joint tenancy or as co-tenants in tenancy in common." Section 1 of the 1984 Act also amended Subsection 40-3-8(B) by adding the following sentence to the definition of "community property" in that subsection: "Property acquired by a husband and wife by an instrument in writing whether as tenants in common or as joint tenants or otherwise will be presumed to be held as community property unless such property is separate property within the meaning of Subsection A of this section." NMSA 1978, Sec. 40-3-8(B) (Repl.Pamp.1989).

Section 2 of the 1984 Act amended one of the sections of Article 2 of the Probate Code, dealing with the subject of intestate succession and wills. That section, NMSA 1978, Section 45-2-804 (Repl.Pamp.1989), is headed "Death of spouse; community property" and provides that upon the death of either spouse one-half of the community property belongs to the surviving spouse and the other half is subject to the testamentary disposition of the decedent. The 1984 amendment added this clause: "except that community property that is joint tenancy property under Subsection B of Section 40-3-8 NMSA 1978 shall not be subject to the testamentary disposition of the decedent." Subsection 45-2-804(A) (emphasis added).

The effect of the 1984 amendments, then, was to make clear that marital property which is not separate property under Subsection 40-3-8(A), even though acquired by the spouses through an instrument designating them as joint tenants, is presumed to be held as community property and that such property may be both community property and joint tenancy property, in which case it is not subject to the testamentary disposition of either spouse. In other words, under the 1984 amendments the right of survivorship--the principal attribute of joint tenancy property, Trimble v. St. Joseph's Hospital (In re Trimble's Estate), 57 N.M. 51, 54, 253 P.2d 805, 807 (1953)--continues to inhere in community property that is joint tenancy property. See Sec. 40-3-8(B); see also Sec. 40-3-8(D) (legal incidents of holding property as joint tenants, including the right of survivorship, are not altered by 1973 revision of community property statutes).

For the reasons explained and subject to the qualification noted in this opinion,² we answer the Tenth Circuit's question in the affirmative. We hold that property acquired before 1984 by a husband and wife through an instrument designating them as joint tenants is presumed to be held as community property, even though it may also be held as joint tenancy property.

I.

The properties in question were acquired by Mr. and Mrs. Fingado in 1964 and 1969. The parcel acquired in 1964 was located on Vermont Street in Albuquerque, New Mexico, and was purchased for rental purposes; the other parcel was located on Rio Grande Boulevard in Albuquerque and was purchased as the Fingados' residence. Both properties were conveyed to "H.S. Fingado and Valetta Ruth Fingado, his wife, as joint tenants."³ The record contains no evidence as to whether the funds used to make the purchases were community or separate in character.

In 1987, an involuntary petition in bankruptcy was filed against the Fingados under Chapter 7 of the United States Bankruptcy Code.⁴ The petition was later dismissed as to Mrs. Fingado. In October 1989, the Trustee in bankruptcy, Harley H. Swink, sold the property on Vermont Street but retained the proceeds pending an adjudication of the rights of the parties to those proceeds.

Two months later, the Trustee petitioned the bankruptcy court for authority to sell the property on Rio Grande Boulevard. Mrs. Fingado objected to this sale, claiming a one-half interest in the property. She also claimed one-half of the proceeds from the sale of the Vermont Street property. She asserted that both properties were joint tenancy properties and that, under Bankruptcy Code Subsections 363(h) and (j), her one-half interest as a joint tenant in the proceeds from the sales of the properties was her separate property and not property of the bankruptcy estate.

The Trustee, on the other hand, alleged that both properties were community property of the bankrupt debtor, Mr. Fingado, and his spouse and that the interests of both spouses were therefore property of the bankruptcy estate under Subsection 541(a)(2) of the Bankruptcy Code.⁵ Mrs. Fingado concedes that if she and her husband held the properties as community property, both her interest and his became the property of the bankruptcy estate under Subsection 541(a)(2) and the proceeds from the sales of the property are distributable, under Subsection 726(c) of the Bankruptcy Code, to holders of community claims against the Fingados. It is now undisputed that all creditors asserting claims against Mr. Fingado are creditors of the community.⁶

In asserting that the Vermont Street and Rio Grande Boulevard properties were community property, the Trustee relied on Subsection 40-3-8(B), as amended by the 1984 Act. Mrs. Fingado disputed the applicability of this statute; she argued that the 1984 amendment did not apply retroactively to change the status of the properties, which, at the time of their acquisition (she maintained), were separate, not community, property.

The United States Bankruptcy Court for the District of New Mexico applied Subsection 40-3-8(B), as amended; determined that Mrs. Fingado had failed to overcome the presumption in the subsection that the properties, although held in joint tenancy, were community property; and held that, as community property, they were part of the bankruptcy estate and not subject to any claim that Mrs. Fingado would otherwise have as a co-owner under Subsections 363(h) and (j) of the Bankruptcy Code. Swink v. Sunwest Bank (In re Fingado), 113 B.R. 37, 40-41 (Bankr.D.N.M.1990) (Opinion of McFeeley, B.J.). The bankruptcy court accordingly authorized the sale of the Rio Grande Boulevard property, which, pursuant to Bankruptcy Code Subsection 363(i), Mrs. Fingado purchased for $320,000 less her homestead exemption of $20,000, for a net purchase price of $300,000.

Mrs. Fingado appealed to the United States District Court for the District of New Mexico, which reversed the bankruptcy court's judgment and ordered payment to Mrs. Fingado of one-half of the net sales proceeds from both properties. The district court did not issue an opinion in connection with its judgment, but apparently took the view that the New Mexico Legislature had not intended that the 1984 amendments to Subsection 40-3-8(B) would operate retroactively. The court therefore held that the properties were each spouse's separate property when acquired and remained such at the time they were sold. The Trustee appealed to the Court of Appeals for the Tenth Circuit, which certified to us the question noted at the beginning of this opinion.

In their briefs to the Tenth Circuit (which have been submitted to us) and in their arguments here, the parties take essentially the same positions that they argued before the bankruptcy court and the federal district court. Mrs. Fingado relies principally on the thoroughly entrenched principle of New Mexico community property law that property acquired by a married couple takes its status as community or separate property at the time of its acquisition, e.g., English v. Sanchez, 110 N.M. 343, 345, 796 P.2d 236, 238 (1990), and on the similarly well-accepted propositions that a statute applies retroactively only when there is clear legislative intent that it should do so, e.g., Psomas v. Psomas, 99 N.M. 606, 609, 661 P.2d 884, 887 (1982), overruled on other grounds by Walentowski v. Walentowski, 100 N.M. 484, 672 P.2d 657 (1983), and that when a statute affects vested or substantive rights, it is presumed to operate prospectively only, see, e.g., Gray v. Armijo, 70 N.M. 245, 247-48, 372 P.2d 821, 823 (1962). The Trustee responds that this Court's task is the familiar one of construing a statute--i.e., determining legislative intent--so that we must answer the question: Did the 1984 legislature intend that the 1984 Act would operate retrospectively when it created a new presumption that, even when property is acquired and held in joint tenancy, the property is both community and joint tenancy property? The Trustee points to various indicia of legislative intent which, he asserts, demonstrate an intent to apply the 1984 amendments retroactively to property previously acquired by a husband and wife as joint tenants.

For the reasons that follow, we basically agree with the...