Court Opinion

ID: 4634357
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:15:50.555029+00
Date Added: 2024-06-11T07:58:12.344441
License: Public Domain

Dorothy Briggs Smith, Petitioner, v. Commissioner of Internal Revenue, RespondentSmith v. CommissionerDocket No. 26612United States Tax Court16 T.C. 639; 1951 U.S. Tax Ct. LEXIS 244; March 28, 1951, Promulgated *244 Decision will be entered for the respondent.  During the pendency of divorce proceedings in 1937, an agreement was entered into for the payment of $ 1,000 per month to petitioner by her husband for the support of petitioner and their two children.  The agreement provided that a final decision as to the support to which petitioner would be entitled in her own right would be made at a later date.  The divorce was thereafter granted to the wife, and the 1937 agreement was made part of the final divorce decree. In 1944, after the husband had made a motion in the divorce court for a reduction of the support payments, the parties executed an agreement which terminated the provisions of the 1937 agreement and provided for the payment by her husband of $ 5,000 per year to petitioner for her support.  In 1946, the divorce court recognized this agreement and, in consideration of its execution and in disposition of the motion brought by the husband, terminated the provisions of the divorce decree which had provided for support payments by the husband.Held: The payment of $ 5,000 by the husband in 1948 under the terms of the 1944 agreement was received by petitioner in discharge of a*245  legal obligation which, because of the marital relationship, was incurred by the husband under a written instrument incident to the final decree of divorce. Walter F. Gibbons, Esq., for the petitioner.Joseph Landis, Esq., for the respondent.Robert F. Pickard, Esq., amicus curiae.  Harron, Judge.  HARRON *639  The Commissioner has determined a deficiency of $ 1,182.52 in petitioner's income tax liability for 1948.The issue in this proceeding is whether the payment of $ 5,000 made to petitioner by her divorced husband is includible in her income under section 22 (k).Petitioner, who was a resident of Providence, filed her return with the collector for the district of Rhode Island.*640  FINDINGS OF FACT.The facts which have been stipulated are so found.Prior to October 14, 1937, petitioner instituted divorce proceedings against her husband, Norman B. Smith, in the Superior Court of the County of Washington, Rhode Island.  On October 14, 1937, petitioner entered into an agreement with Norman B. Smith, which provided for her support, custody of the children, and the settlement of property rights between the parties.  This agreement was a written instrument entered*246  into by the parties incident to the securing of a divorce. Insofar as material, it provided as follows:Until the death of the wife or until she shall remarry or until the death of either of said children or until said Stephen B. Smith shall attain the age of twenty-one (21) years and be not in college or until he shall complete his undergraduate course, if at the time of attaining the age of twenty-one (21) years he is in college, whichever event shall first occur, the husband shall pay the wife the sum of one thousand ($ 1000) on the first business day of each and every month succeeding the date hereof.  Upon the first happening of any of said events, the husband and the wife shall enter into negotiations and make a bona fide effort to reach an agreement as to the amount of future monthly payments to be made by the husband to the wife, if any, and in case they cannot reach an agreement within a reasonable time, the wife shall be at liberty to apply to a court of proper jurisdiction to fix the amount of said monthly payments, if any.  In case the wife makes application to such court to fix the amount of said monthly payments as aforesaid, the fact that theretofore under this agreement*247  the husband has agreed to pay one thousand dollars ($ 1000) per month shall not be used to his prejudice, the husband contending that he has voluntarily assumed the obligation to pay said sum of one thousand dollars ($ 1000) per month because of his desire to see that the children are generously provided for during the period of their education and that such monthly payments represent an unreasonably large part of his income, and the fact that the wife has hereby agreed to accept said sum of one thousand dollars ($ 1000) per month shall not be used to her prejudice, the contention of the wife being that such monthly payments are reasonable under all the circumstances.  Except as herein provided, neither party shall apply to any court for the modification of the provisions of this paragraph with respect to such monthly payments.On October 15, 1937, the trial of the divorce proceeding was held, and on April 18, 1938, the Superior Court granted to petitioner a final decree of divorce from Norman B. Smith.  The decree incorporated the terms of the agreement of October 14, 1937, which was made part of the decree of the court.In January 1944, petitioner filed with the Superior Court*248  a petition for a citation directing Norman B. Smith to show cause why he should not be adjudged in contempt of court for failure to comply with the final decree. The petitioner alleged that Norman B. Smith had failed to make alimony payments totaling $ 6,000.  On February 7, 1944, Norman B. Smith filed in the Superior Court a motion to modify the final decree insofar as it related to alimony and allowances for the support of petitioner and the children in her custody.*641  On September 1, 1944, petitioner and Norman B. Smith entered into an agreement which recited that both parties desired to execute a final agreement providing for future payments and a final property settlement "in lieu of all marital obligations * * * including all obligations to make the payments required under said agreement of October 14, 1937." The agreement provided, inter alia, as follows:THAT WHEREAS, by final decree entered on April 18, 1938 in the Superior Court for the County of Washington in said State of Rhode Island in that divorce cause entitled Dorothy F. Smith vs. Norman B. Smith, bearing No. 1391 on the divorce docket of said court, the bond of matrimony theretofore existing between the*249  parties hereto was dissolved and the custody of the minor children of said parties, Frances B. Smith and Stephen B. Smith, was awarded to the party of the first part and certain alimony payments and allowances were awarded to the party of the first part, all in accordance with the terms of a certain agreement between the parties hereto dated October 14, 1937, which agreement was made a part of said decree; and* * * *WHEREAS, the party of the first part denies the inability of the party of the second part to perform the financial obligations imposed upon him by said agreement, but is willing to accept a reduction in the amount of the payments due her thereunder, provided ample security is provided assuring her that said reduced payments will be made when due, and provided further that the party of the second part makes suitable provision for the future financial welfare of the minor children named in said decree; andWHEREAS, both parties hereto desire to compromise their differences and terminate said litigation by effecting a final agreement providing for future payments to be made by the party of the second part and effecting a final property settlement as herein set forth, all*250  in lieu of all marital obligations of the party of the second part to the party of the first part, including all obligations to make the payments required under said agreement of October 14, 1937.NOW THEREFORE, in consideration of the premises and of the mutual agreements hereinafter contained, the parties hereto agree with each other as follows:1. Said agreement of October 14, 1937 between the parties hereto is hereby cancelled and terminated, provided, however, that this cancellation and termination shall not in any manner change the rights of either party with respect to the custody, care and control of said children as outlined in Article FIRST of said agreement, nor shall it in any manner affect any releases included in said agreement from either of said parties to the other, all of which shall remain in full force and effect.2. During the life of the party of the second part and until the party of the first and shall die or remarry, the party of the second part will pay to the party of the first part the sum of Five Thousand Dollars ($ 5,000.00) per year for each full year during which he may be required to make such payments, said sum to be paid in equal quarterly installments*251  of Twelve Hundred Fifty Dollars ($ 1,250.00) each on or before the 15th days of March, June, September and December in each year, and in the same proportion for any lesser period, the first payment to be made on or before September 15, 1944.  The party of the second part shall not be required to make any further payments following the death or remarriage of the party of the first part.  The party of the first part shall have no right to receive any further payments following the death of the party of the second part if she shall survive him.*642  3. The party of the second part will also pay to the party of the first part for the support of his minor son, Stephen B. Smith, until he arrives at the age of twenty-one (21) years on July 17, 1947 or dies before reaching that age, the sum of Two Thousand Dollars ($ 2,000.00) per year for each full year during which the party of the second part may be required to pay the same, said sum to be paid in equal installments of Five Hundred Dollars ($ 500.00) each on the 15th days of March, June, September and December in each year, and in the same proportion for any lesser period, the first payment to be made on or before September 15, 1944. *252  * * * *10. The obligations performable by the party of the second part under the provisions of this agreement shall be in complete discharge of all marital and other legal obligations of his with respect to the party of the first part, and concurrently with the execution of this agreement the parties shall consent that said final decree in said divorce cause shall be so modified as to exclude therefrom any and all provisions requiring the party of the second part to pay alimony and allowances for the support of said children, and to include therein such provisions with respect to the custody of said children as shall confer on each of the parties the same rights with respect to the custody of said children as were conferred upon them under said agreement of October 14, 1937; and concurrently with the execution of this agreement and such modification of said decree, the party of the first part shall file a stipulation in said divorce proceedings waiving all further right to alimony.On January 14, 1946, petitioner filed with the Superior Court a waiver of alimony in which she waived any and all further right to alimony in consideration of the execution by Norman B. Smith of the agreement*253  of September 1, 1944.  On the same day, the Superior Court modified its decree of April 18, 1938.  The modified decree disposed of the motion to reduce the support payments which had been brought by Norman B. Smith and provided that, since in consideration of the execution by Norman B. Smith of the agreement of September 1, 1944, the petitioner had waived any and all further right to alimony, it was ordered:That all provisions of the final decree in the above entitled cause entered on April 18, A. D. 1938 relating to * * * alimony and allowances for the support of said minor children are hereby cancelled and terminated.The agreement of September 1, 1944, was one which the parties thereto had expressly provided should be entered into under the terms of the agreement of October 14, 1937, and it was supplemental to the 1937 agreement.  During 1948 petitioner received the sum of $ 5,000 provided for by paragraph 2 of the 1944 agreement.  This payment was received by petitioner in discharge of a legal obligation which, because of the marital relationship, was incurred by Norman B. Smith under a written instrument incident to the final decree of divorce.OPINION.The issue in this proceeding*254  is whether the payment of $ 5,000 made to petitioner during 1948 by her divorced husband *643  was made under a written agreement incident to the divorce. If the agreement was incident to the divorce, as respondent contends, the payment is properly includible in petitioner's gross income under section 22 (k) of the Internal Revenue Code.After petitioner had filed suit for divorce from Norman B. Smith but before a final decree had been entered, petitioner and Norman B. Smith entered into an agreement on October 14, 1937, which provided, inter alia, for the settlement of property rights between the parties, custody of their children, and the payment of $ 1,000 per month to petitioner for her support and for the support of the children.The Superior Court made this agreement part of the final decree of divorce which was entered on April 18, 1938.  Subsequently, on February 7, 1944, Norman B. Smith filed a motion with the Superior Court in which he requested that the decree be modified by reducing the amount of the alimony and allowances required to be paid by him to a sum consistent with his ability to pay.  Before any decision was made on this motion, petitioner and Norman*255  B. Smith entered into an agreement which provided for a final settlement of the property rights between the parties, an allowance for the support of their minor child, and the payment of $ 5,000 per year to petitioner in lieu of all marital obligations of Norman B. Smith including the obligation to make the payments required under the 1937 agreement.  Thereafter, the Superior Court recognized the existence of this agreement; and, disposing of the motion of Norman B. Smith, the court modified its decree of April 18, 1938, and ordered that the provisions for the payment of alimony to petitioner be terminated because petitioner had waived her further right to alimony in consideration of the execution by Norman B. Smith of the agreement of September 1, 1944.We are concerned with the payment of $ 5,000 received by petitioner under the provisions of the 1944 agreement.  Petitioner admits that the 1937 agreement, which was incorporated in the final decree of the Superior Court, was a written instrument incident to the divorce. She contends, however, that the payment in question was made pursuant to a new agreement which was not incident to the divorce and that the payment was not in discharge*256  of a legal obligation which, because of the marital relationship, had been imposed upon or incurred by Norman B. Smith under the divorce decree or under a written instrument incident to such divorce. See section 22 (k).  We do not agree.The payment in question was made under the provisions of the 1944 agreement.  But that agreement cannot be considered in vacuo.  The circumstances surrounding its execution must be examined, and the reasons for its adoption scrutinized.  From such a study we have concluded that the 1944 agreement was a revision of the 1937 agreement, which admittedly was incident to the divorce, and that it was incident to the final decree of divorce.*644  The 1937 agreement was not a final settlement of the marital obligations and property rights between the parties.  That agreement provided that $ 12,000 per year should be paid to petitioner for her support and for the support of the children.  It left open the final decision as to the support to which petitioner would be entitled until such time as the younger child no longer was a dependent.  In lieu of the $ 12,000 which the 1937 agreement provided should be paid to petitioner for her support and for*257  the support of the children, the 1944 agreement provided that petitioner should be paid $ 5,000 a year for her support and that a separate allowance should be paid by Norman B. Smith for the support of the younger child who was still a minor.  The revision of the original agreement resulted from the motion brought by Norman B. Smith to reduce the payments required of him because of his changed circumstances and was recognized by the Superior Court as disposing of the issue raised by the motion.  The legal obligation imposed on Norman B. Smith by the 1937 agreement which was incident to the divorce to make support payments to petitioner was not terminated by the 1944 agreement.  The 1937 agreement provided that the support payment to which petitioner was entitled in her own right was not to be settled until a later date, and the 1944 agreement had as one of its purposes the final settlement of that issue.  Another purpose of the 1944 agreement was to settle the motion which had been brought by Norman B. Smith to reduce the payments required of him by the final divorce decree of the Superior Court.  This decree had left open the decision as to the support payments to which petitioner*258  would be entitled in her own right until a later date, and it had provided that the court would act on this issue only if the parties could not agree between themselves.  The 1944 agreement was a settlement by the parties of the issue expressly left open by the divorce decree. As such, the revision of the payments required by the decree through the agreement of the parties is incident to the decree of divorce. Mahana v. United States, 88 Fed. Supp. 285, certiorari denied, 339 U.S. 978">339 U.S. 978; cf. Helen Scott Fairbanks, 15 T.C. 62">15 T. C. 62.The cases relied upon by petitioner are all distinguishable on their facts.  In Frederick S. Dauwalter, 9 T. C. 580, there was a voluntary promise by the husband, unsupported by any consideration, to increase rather than decrease support payments to his divorced wife.  There were no further proceedings in the divorce court, and there was no recognition by that court of the later promise by the husband such as is present in this proceeding.  In Miriam C. Walsh, 11 T. C. 1093, affd., 183 Fed. (2d) 803,*259  the original agreement was not mentioned in the divorce decree and, unlike the 1937 agreement in this proceeding, was not enforceable under the court decree which did not provide for support payments to the wife.  In addition, in that case provision for final settlement of the support payments to which the wife was to be *645  entitled was not left open by either the original agreement or the divorce decree for future settlement, and the subsequent agreement did not result from a motion brought in the divorce court by the husband to reduce the support payments required of him.  And in Benjamin B. Cox, 10 T. C. 955, affd., 176 Fed. (2d) 226, there was never a legal obligation for support imposed by or incurred under a divorce decree, and there was no written instrument imposing such an obligation prior to the divorce. That case involved an obligation voluntarily assumed after it had been fully cut off.  This proceeding, instead, is concerned with an agreement which modifies a continuing obligation which was imposed by a decree of divorce as well as being pursuant to a written instrument incident to such divorce.It is held*260  that the 1944 agreement, through its connection with the 1937 agreement and the decree of divorce, was incident to the final decree of divorce, and the payment made pursuant to its provisions is includible in petitioner's income under section 22 (k).Decision will be entered for the respondent.