Gordon v. Gordon , 149 N.M. 783 ( 2011 )

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New Mexico Compilation
Commission, Santa Fe, NM
'00'04- 12:19:36 2011.05.20
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2011-NMCA-044
Filing Date: March 28, 2011
Docket No. 29,441
CHERYL LEE DURHAM GORDON,
Petitioner-Appellee,
v.
TIMOTHY E. GORDON,
Respondent-Appellee,
HPSC, INC. and DE LAGE LANDEN
FINANCIAL SERVICES, INC.,
Intervenors-Appellants,
NASSAU LENS COMPANY, INC. d/b/a
NOVA OPTICAL LABORATORY,
Intervenor,
ZIA TRUST, INC.,
Receiver-Appellee.
APPEAL FROM THE DISTRICT COURT OF SAN JUAN COUNTY
William C. Birdsall, District Judge
Atkinson & Kelsey, P.A.
Patrick L. McDaniel
Albuquerque, NM
for Appellee Cheryl Gordon
Susan I. Brown
Albuquerque, NM
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for Appellee Timothy Gordon
Kenneth C. Leach & Associates PC
Kenneth C. Leach
Albuquerque, NM
for Appellee Zia Trust, Inc.
Aldridge, Grammer, Jeffrey & Hammar, P.A.
David A. Grammer, III
Albuquerque, NM
for Appellants
OPINION
VIGIL, Judge.
{1} This case involves a marital settlement agreement (MSA) in a divorce case in which
Husband and Wife agreed to place assets under the control of a receiver to pay personal
taxes and community debts, which was approved by the district court and merged into the
decree. The assets consist of an annuity, money purchase plan, profit sharing plan, and
individual retirement accounts, which are normally exempt from legal process in favor of
creditors under NMSA 1978, Section 42-10-2 (1983) and NMSA 1978, Section 42-10-3
(1937). Creditors of Husband and Wife (Intervenors) subsequently intervened in the divorce
case seeking payment of their bills from the assets. The district court concluded that the
assets are protected from Intervenors’ claims, and Intervenors HPSC, Inc. and De Lage
Landen Financial Services, Inc. appeal. For the purposes of this opinion, “Intervenors”
refers only to the appealing parties.
{2} We discuss: (1) whether Husband and Wife could waive the protections of Sections
42-10-2 and 42-10-3; (2) the legal effect of merging the MSA into the final decree; and (3)
whether the district court erred in modifying the decree based on Sections 42-10-2 and 42-
10-3. After consideration of these issues, we reverse and remand for further proceedings.
BACKGROUND
{3} While represented by counsel, Husband and Wife entered into a MSA. In pertinent
part, the MSA provides:
The parties agree that a receiver should be appointed to deal with all
taxing entities and to pay taxes and all other community debts existing as of
July 24, 2007, either personal or business. The receiver’s priority shall be to
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pay all personal federal and state income taxes due. After the taxes are paid,
the receiver shall pay any other debts existing as of July 24, 2007.
. . . . The parties agree that the assets that will be in control of the
receiver are as follows:
1. Funds in the court registry;
2. Equipment and inventory and any other value
associated with the optometry business;
3. The Vanguard Money Purchase account;
4. The Vanguard Profit Sharing plan;
5. The Metlife Annuity;
6. Wife’s Fidelity IRA;
7. Husband’s Fidelity IRA;
{4} The judgment and partial decree of dissolution of marriage provides, “The Marital
Settlement Agreement between the parties is incorporated into this Decree, and the parties
are ordered to carry out the provisions of the Marital Settlement Agreement.” Intervenors
filed a motion to intervene in the divorce case on grounds that they are creditors of the
marital community estate. A hearing officer held a hearing on the motion and recommended
that the petition be granted. No objections to the hearing officer’s recommendation were
filed and the intervention was allowed.
{5} The receiver then filed a petition for approval to pay outstanding expenses and
liabilities. Therein, the receiver advised the district court that certain assets of Husband and
Wife consist of an annuity, money purchase plan, profit sharing plan, and individual
retirement accounts. These are items numbered 3 through 7 set forth above in the MSA, and
hereinafter we refer to them collectively as the “assets.” The receiver advised the district
court that the assets appeared to fall under the exemptions of Sections 42-10-2 and 42-10-3.
The receiver sought a judicial determination as to which assets, if any, were exempt from the
claims of creditors of Husband and Wife, or in the alternative, for an order setting forth the
order of priority of the payment of the debts from which the assets could be paid. Further,
the receiver sought guidance and instruction from the district court with reference to unpaid
state and federal income taxes of Husband and Wife and the debts owed Intervenors. The
receiver disclosed that based upon information received from a certified public accountant,
there could be substantial tax liabilities due and owing by Husband and Wife, which had not
yet been determined.
{6} The receiver’s petition was first considered by the hearing officer. She conducted
a hearing at which all interested parties, including Intervenors, participated. The hearing
officer determined that the only remaining property owned by Husband and Wife were the
assets. The amounts owed to the State of New Mexico and the Internal Revenue Service for
tax obligations remained unidentified, while the amounts owed Intervenors were specified.
However, the hearing officer concluded that the assets of Husband and Wife, “all fall under
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the definition of assets protected from attachment, garnishment or legal process in favor of
any creditor, execution or foreclosure by judgment creditor” as specified in Sections 42-10-2
and 42-10-3. Intervenors objected to the findings and recommendations of the hearing
officer. After considering the objections, the district court entered its order adopting the
findings and recommendations of the hearing officer. The effect is that the assets cannot be
used to pay debts owed by Husband and Wife to Intervenors. Intervenors appeal.
Whether Husband and Wife Could Waive the Exemptions
{7} Husband and Wife argue that because the assets are exempt under Sections 42-10-2
and 42-10-3, the district court did not err in concluding that the assets retain their exempt
status, and they are not subject to Intervenors’ claims. This reasoning assumes that Husband
and Wife did not and could not waive the protections of the statutes.
{8} Whether these statutes prohibit waiver of their protections presents a question of law,
which we review de novo. See Sonic Indus. v. State, 2006-NMSC-038, ¶ 7, 140 N.M. 212,
141 P.3d 1266 (“The interpretation of phrases within a statute is a question of law that is
reviewed de novo.”). “In interpreting a statute, a court not only looks to the plain meaning
of the language employed, but also to the object of the legislation.” Dona Ana Sav. & Loan
Ass’n v. Dofflemeyer, 115 N.M. 590, 592, 855 P.2d 1054, 1056 (1993).
{9} We cannot conclude that these statutes prohibit debtors from voluntarily electing to
use assets to pay creditors that would otherwise be exempt from an involuntary transfer.
Section 42-10-2 provides in pertinent part that “any interest in or proceeds from a pension
or retirement fund . . . is exempt from receivers or trustees in bankruptcy or other insolvency
proceedings, executors or administrators in probate, fines, attachment, execution or
foreclosure by a judgment creditor.” Similarly, Section 42-10-3 directs that the surrender
value and all “payments of every kind from any life, accident or health insurance policy . .
. shall in no case be liable to attachment, garnishment or legal process in favor of any
creditor . . . nor shall it be subject in any other manner to the debts of the person . . . unless
such policy, contract or deposit be taken out, made or assigned in writing for the benefit of
such creditor.” (Emphasis added.) The reference in the statutes to execution, garnishment,
and foreclosure proceedings illustrates that they provide an affirmative defense to debtors
in these proceedings, thereby protecting the assets from an involuntary transfer to creditors
for debts. See D’Avignon v. Graham, 113 N.M. 129, 132, 823 P.2d 929, 932 (Ct. App. 1991)
(stating that exemption is an affirmative defense). The statutes on their face do not prohibit
a debtor from waiving their protections. In fact, Section 42-10-3 itself provides that its
protection is waived when the policy is “taken out, made or assigned in writing for the
benefit of such creditor.”
{10} With the advice of counsel, Husband and Wife directed in the MSA “that the assets
that will be in control of the receiver” include the specific annuity, money purchase plan,
profit sharing plan, and individual retirement accounts that are the subject of this appeal.
Although property of a debtor may be exempt from an involuntary transfer, the debtor retains
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rights of ownership in that property. See Hernandez v. S. I. C. Fin. Co., 79 N.M. 673, 675,
448 P.2d 474, 476 (1968) (“[I]t has never been suggested that [exemption] statutes be
construed to deprive an individual of his rights of ownership in the exempt property.”). One
incident of ownership of property is the right to transfer it. See 31 Am. Jur. 2d Exemptions
§ 7 (1989) (“[E]xemption statutes are not intended to restrict the freedom of debtors to
dispose of exempt property as they wish[.]”). Husband and Wife voluntarily transferred
control of the assets to the receiver to pay their debts, and the exemption statutes do not
prohibit the voluntary transfer of the assets.
{11} Husband and Wife argue that their waiver was ineffective when they executed the
MSA, because there was nothing to waive at that time. They argue that under Rule 1-
065.1(A)(2) NMRA, a writ of execution for seizure of property shall be issued only if: (1)
the judgment creditor served the debtor with a notice of the right to claim exemptions, and
(2) the debtor has not filed a claim of exemption for the property to be seized or filed a
written waiver of the right to claim a statutory exemption from execution specifically
describing the property that may be seized. See Rule 1-065.2(G), (H) NMRA (providing the
same requirements for writs of garnishment). Rule 1-065.1(E) further states that if a “debtor
fails to file a claim of exemption within ten (10) days after service of the notice of the right
to claim exemptions, the judgment debtor shall be deemed to have waived the right to claim
an exemption.” See Rule 1-065.2(I) (providing the same standard for writs of garnishment).
We are then referred to Brannock v. Brannock, 104 N.M. 385, 385, 722 P.2d 636, 636
(1986), for the proposition that “To constitute a waiver, there must be an existing right, a
knowledge of its existence, and an actual intention to relinquish it[.]”
{12} Since no writ was served when the MSA was signed, we understand Husband and
Wife to argue that there was nothing to waive at that time. We reject this argument because
it is inapplicable to the circumstances of this case. No statutory writ was ever served, and
there is absolutely no evidence that Husband and Wife were unaware of their rights under
the exemption statutes when they executed the MSA with language indicating that receiver
should pay taxes and “any other debts.”
Effect of Merging the MSA Into the Decree
{13} Our Supreme Court has noted the long-recognized rule that marital settlement
agreements “are highly favored in the law.” Unser v. Unser, 86 N.M. 648, 651, 526 P.2d
790, 793 (1974). Furthermore, “a voluntary property settlement between divorcing spouses,
dividing their community property as they see fit, is sacrosanct and cannot be upset by the
court granting the divorce, absent fraud, duress, mistake, breach of fiduciary duty, or other
similar equitable ground for invalidating an agreement.” Ruggles v. Ruggles, 116 N.M. 52,
70, 860 P.2d 182, 200 (1993). The MSA between Husband and Wife was a voluntary
division of their property as they saw fit. In addition, the district court ordered that the MSA
be adopted and incorporated into the decree. This was done at the request of, and with the
consent of, Husband and Wife through their counsel. The effect is well settled: “[O]nce an
agreement between divorcing parties has been adopted and incorporated into the final
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divorce decree, the underlying agreement is deemed to have merged with the decree,
extinguishing any independent right one of the parties might assert in [the] contract.” Ottino
v. Ottino, 2001-NMCA-012, ¶ 19, 130 N.M. 168, 21 P.3d 37.
{14} Thus, when Husband and Wife asked the district court to approve, adopt, and merge
the MSA into the decree and the district court did so, the MSA was no longer simply a
contractual agreement between Husband and Wife. It became a judgment of the district
court. As such, the MSA became enforceable in the same manner, and subject to the same
limitations, as any other judgment of the district court.
Whether the District Court Erred in Modifying the Final Decree
{15} The MSA was merged into the final decree. We are therefore required to determine
whether the district court had jurisdiction to modify the decree based on Sections 42-10-2
and 42-10-3. See Higginbotham v. Higginbotham, 92 N.M. 412, 413, 589 P.2d 196, 197
(1979) (considering on its own motion, for the first time on appeal, whether the district court
had jurisdiction in the divorce case to enforce a new contract which was substituted for terms
of the decree); see also Smith v. City of Santa Fe, 2007-NMSC-055, ¶ 10, 142 N.M. 786, 171
P.3d 300 (“[I]t is incumbent upon the appellate court to raise jurisdiction questions sua
sponte when the Court notices them.”).
{16} A final decree remains under the control of the district court for thirty days after it
is filed and for such further time that may be necessary to enable the court to rule on motions
directed against the decree, which were filed within the thirty-day period. NMSA 1978, §
39-1-1 (1917). This statute provides no authority to the district court in this case. The
receiver’s petition seeking guidance from the district court under Sections 42-10-2 and 42-
10-3 was filed more than thirty days after the decree was filed.
{17} We are therefore left with Rule 1-060(B) NMRA as the only authority for the district
court to modify the decree. Once thirty days has lapsed from the entry of a divorce decree,
a court cannot change the original division of the marital property as an exercise of its
continuing jurisdiction. See Higginbotham, 92 N.M. at 413, 589 P.2d at 197 (citing Zarges
v. Zarges, 79 N.M. 494, 445 P.2d 97 (1968)). “After the expiration of the time within which
to appeal a [divorce decree], allocating responsibility for community debts, and declaring
the interests of the parties in the property acquired during marriage, the court in the original
proceeding loses jurisdiction to modify the decree except under the provisions of Rule
60(b)[.]” Mendoza v. Mendoza, 103 N.M. 327, 331, 706 P.2d 869, 873 (Ct. App. 1985).
{18} Neither Husband nor Wife filed a Rule 1-060(B) motion to set aside the provisions
of the divorce decree. However, to the extent that the receiver’s petition can be construed
as a Rule 1-060(B) motion on behalf of Husband and Wife, we consider whether the district
court modification of the decree was proper.
{19} The grounds for modifying a judgment under Rule 1-060(B) include:
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(1) mistake, inadvertence, surprise or excusable neglect;
(2) newly discovered evidence . . .;
(3) fraud . . ., misrepresentation or other misconduct of an
adverse party;
(4) the judgment is void;
(5) the judgment has been satisfied, released or
discharged, or a prior judgment upon which it is based has been reversed or
otherwise vacated, or it is no longer equitable that the judgment should have
prospective application; or
(6) any other reason justifying relief from the operation
of the judgment. . . .
{20} The record fails to set forth any basis for modifying the decree under Rule 1-060(B).
A district court determination to modify a judgment under Rule 1-060 is reviewed for an
abuse of discretion. Freedman v. Perea, 85 N.M. 745, 747, 517 P.2d 67, 69 (1973).
However, “when a court misapprehends the law, the court abuses its discretion.” Armijo v.
Wal-Mart Stores, Inc., 2007-NMCA-120, ¶ 19, 142 N.M. 557, 168 P.3d 129 (internal
quotation marks and citation omitted). Thus, to the extent that the district court concluded
that the decree could be modified under Sections 40-10-2 and 40-10-3, it abused its
discretion.
CONCLUSION
{21} We reverse the district court order that the assets are exempt under Sections 42-10-2
and 42-10-3 and remand to the district court for enforcement of the MSA as merged into the
final decree.
{22} IT IS SO ORDERED.
______________________________________
MICHAEL E. VIGIL, Judge
WE CONCUR:
______________________________________
JAMES J. WECHSLER, Judge
______________________________________
JONATHAN B. SUTIN, Judge
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Topic Index for Gordon v. Gordon, Docket No. 29,441
CP CIVIL PROCEDURE
CP-IT Intervention
CP-WA Waiver
DR DOMESTIC RELATIONS
DR-CU Community Debts
DR-DM Dissolution of Marriage
DR-DP Division of Property
DR-MS Marital Settlement Agreement
DR-MD Modification of Final Decree
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