## Facts

- Husband and wife divorced; the main dispute concerned husband’s interest in Crest Tile Company.
- Before marriage, husband purchased an equal partnership interest in the tile business for $5,000, partly financed by loans.
- The trial court found the purchase loans were repaid before marriage and that husband’s investment at marriage was $13,768.52.
- The trial court found no community capital was invested in the business except a car later contributed to the business, valued at $1,359.40, in which the community had “minimal” interest, if any.
- At trial, the business was valued at $52,470.75; the trial court allocated $48,344.20 as husband’s separate interest and $4,126.55 as the community’s interest in undistributed profits.
- The trial court found husband’s withdrawals from the business during marriage equaled the value of his services and personal efforts in operating it.
- Wife appealed, arguing the community’s interest in the business was undervalued and that the allocation was unfair given the marriage and business growth.

## Issues

1. Whether a business interest acquired before marriage remained separate property when its value increased during marriage.
2. Whether, and to what extent, the community acquired an interest in the business due to the spouse’s labor during marriage and any community contributions.
3. Whether treating the community’s interest as limited to undistributed profits was consistent with New Mexico community-property statutes and precedent.

## Decision

- The Supreme Court of New Mexico affirmed.
- The court upheld the finding that the business interest was husband’s separate property because it was acquired before marriage and community capital contributions were negligible.
- The court upheld limiting the community’s interest to $4,126.55 in undistributed profits where husband’s withdrawals reasonably compensated his marital labor.

## Legal Principles

- Property owned before marriage, including its rents, issues, and profits, remains the owning spouse’s separate property.
- Property acquired during marriage is community property, including income properly attributable to a spouse’s labor and personal efforts during marriage.
- Increases in value of separate property are characterized by causation: increases attributable to the inherent qualities of separate capital remain separate, while increases attributable to uncompensated community labor may create a community interest.
- If a spouse operating a separate-property business receives withdrawals or salary reasonably equivalent to the value of marital services, the community’s claim is generally satisfied by that compensation plus any identifiable undistributed profits.

## Conclusion

The court affirmed the allocation of husband’s premarital business interest as predominantly separate property because the community contributed little capital and husband’s marital labor was reasonably compensated through withdrawals, leaving only undistributed profits as community property.


Gillespie v. Gillespie, 84 N.M. 618, 506 P.2d 775 (N.M. 1973)