As part of my divorce mediation practice in New Mexico, I see a lot of "marital settlement agreements" (MSAs) and understand the pitfalls they can entail. For example, under NMSA Sec. 42-10-2 and 42-10-3 certain assets such as annuities, money purchase plans, profit sharing pans, and individual retirement accounts are ordinarily exempt or protected from creditors' claims, through attachment, garnishment or other legal process--however, that protection can be waived if the parties are not careful. A recent N.M. case addresses this head one.
In Gordon v. Gordon, 2011-NMCA-044, a divorcing couple stipulated by Marital Settlement Agreement (MSA) that such marital assets would be used first to pay unidentified tax obligations, and then to pay any all other community debts (personal or business) existing as of a particular date, which were specific and known.
Thereafter, the couples' creditors intervened in the divorce action, seeking payment of their specified bills from those assets. The couple opposed their payment pursuant to the statutory exemptions and the appointed receiver asked for guidance from the court as to whether the assets were exempt and, if not, the priority of payment of debts from those assets.
Thereafter, the couples' creditors intervened in the divorce action, seeking payment of their specified bills from those assets. The couple opposed their payment pursuant to the statutory exemptions and the appointed receiver asked for guidance from the court as to whether the assets were exempt and, if not, the priority of payment of debts from those assets.
The hearing examiner and the District Court had concluded the assets were exempt from the creditors' claims notwithstanding the MSA, and concluded the assets could not be used to pay debts owed by the couple. An intervening financial service creditor appealed.
The Court of Appeals reversed and remanded, concluding that the couple had waived the statutory exemptions by entering into the MSA, which was then merged into the final decree and ceased to be a mere private agreement between the couple. Critically, the court concluded that "[o]ne incident of ownership of property is the right to transfer it," and here the court "could not conclude that these statues prohibit debtors from voluntarily electing to use assets to pay creditors that would otherwise be exempt from an involuntary transfer."
Thus, as stated under the MSA and final order, the ordinarily protected assets could be used to pay any creditors.
The Court of Appeals reversed and remanded, concluding that the couple had waived the statutory exemptions by entering into the MSA, which was then merged into the final decree and ceased to be a mere private agreement between the couple. Critically, the court concluded that "[o]ne incident of ownership of property is the right to transfer it," and here the court "could not conclude that these statues prohibit debtors from voluntarily electing to use assets to pay creditors that would otherwise be exempt from an involuntary transfer."
Thus, as stated under the MSA and final order, the ordinarily protected assets could be used to pay any creditors.
If you are considering mediation or arbitration services for your divorce, property settlement or child custody issues, please contact Pilar Vaile, P.C. at (505) 247-0802, or info@pilarvailepc.com.
