Court Opinion

ID: 9419223
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:47:43.576853+00
Date Added: 2024-06-11T17:22:16.355612
License: Public Domain

Mr. Justice Feankfcjbteb,
dissenting:
The social fact that a husband is normally under a responsibility to provide for his wife even after they are divorced, is the basis for the rule that monies received by a wife under a divorce settlement are presumed to be in discharge of a continuing obligation of the husband. I therefore agree with the decision of the Court to the extent that it reinforces this rule as a rule of policy, and not one of caprice varying with the sex of the taxpayer against whom the Commissioner chooses to proceed. I agree that if the Commissioner proceeds against the wife, “she sustains her burden of rebutting his presumptively correct determination merely by showing doubts and uncertainties as to whether the payments were made pursuant to her former husband’s continuing obligation to support her,” and that if, on the other hand, the Commissioner determines that the payments are taxable to the husband, the latter sustains his burden only “by submitting clear and convincing proof that the payments were not made pursuant to any such continuing obligation.” But I do not agree that the petitioner has failed to make the showing which is required under the rule professed by the Court.
Local law may provide that the transfer of property under a divorce settlement finally and definitively terminates a husband’s obligation to support his wife, and that, once such a settlement is made, the wife loses her right to apply to a court for an order requiring the husband to support her. If the local law gives the settlement such effect, it is immaterial what the nature of the *556transferred property is. For, in such a case, the income derived from the property cannot be regarded as conferring any benefit upon the husband, and it is therefore taxable to the wife. On the other hand, local law may provide that, even though a husband has made a complete, irrevocable transfer of property, he has nevertheless not obtained a full discharge of his marital obligations to his wife, and that, where circumstances in the future may warrant, a court can order the husband to make further contributions to her support. In such a case, the husband is still under a “continuing obligation however contingent,” Helvering v. Fitch, 309 U. S. 149, 156; Helvering v. Leonard, 310 U. S. 80, 84, and, since the income received by the wife from the property contributes to her support and thus serves to discharge the obligation which under local law the husband still owes her, the income should be taxable to him. “The dominant purpose of the revenue laws is the taxation of income to those who earn or otherwise create the right to receive it and enjoy the benefit of it when paid.” Helvering v. Horst, 311 U. S. 112, 119; and see Harrison v. Schaffner, 312 U. S. 579.
The fact that the wife may, years after the settlement, have to go to court for an order requiring the husband to make additional payments for her support'is of no legal consequence if the husband may be required to make such payments. A legal obligation may continue, even though its burden is contingent upon future judicial action. A wife’s receipt of income from property settled upon her may make it unnecessary to her ever to apply for a court order. But it does not follow that, unless and until she goes to court for such an order, her husband is under no legal obligation to support her. If the income from the property should dwindle to the point where the wife can no longer maintain herself, *557and the law has continued its hold upon the husband so that he may be required to make further contributions to her support, then plainly the husband is still under a “continuing obligation however contingent.” The determinative fact is that the law has continued its hold upon the husband, not that it has reserved the power to modify the particular settlement.
It is utterly immaterial whether the property transferred was an irrevocable trust, as in the Fitch and Leonard cases, or an annuity contract, as we have here. For the annuity is taxable income, Irwin v. Gavit, 268 U. S. 161, and the procurement, by the husband’s purchase, of its payment to his wife renders the annuity taxable income to him if it is in discharge of his obligation, quite as much as if he had procured the payment by creating a trust of his property. Harrison v. Schaffner, supra.
In every case, the decisive inquiry is whether the husband’s obligation subsists after the divorce settlement, or whether, as a result of the settlement, he is quits of his wife, once and for all, for better or for worse. If he is under a continuing obligation, the property transferred, whether it be an irrevocable trust or an annuity contract, is a security device only in the sense that it operates to secure the fulfillment of the obligation. If the fact that the husband has divested himself of control over the transferred property were determinative, certainly the Fitch and Leonard cases, at least, would have been decided the other way. For in each of these cases the husband conveyed an absolutely irrevocable trust, over which he had no greater control than the husband has over the annuity in the case before us. These cases show that if a husband is under a continuing obligation to support his wife, income from the property is taxable to him, not because he has retained any interest in or control over the property, but because the income dis*558charges pro tanto a legal obligation which he owes and thus confers a taxable benefit upon him. The ultimate criterion of taxability, therefore, is not whether a state court has reserved power to control the property transferred by a husband under a divorce settlement, but whether “the court lacks the power to add to his personal obligations.” Helvering v. Leonard, 310 U. S. 80, 87.
In law, as in life, lines have to be drawn. But the fact that a line has to be drawn somewhere does not justify its being drawn anywhere. The line must follow some direction of policy, whether rooted in logic or experience. Lines should not be drawn simply for the sake of drawing lines.
The decisions of this Court dealing with the question before us have turned upon whether local law was uncertain as to the existence of a continuing obligation on the part of the husband to support the wife. The opinion of the Court now introduces another element, namely, whether the local law is uncertain as to the power of the state courts to remake the particular settlement. This, it seems to me, has no valid relation to the basic principle of tax liability that “he who receives benefits should be taxed.” Whether a husband is benefited from the payment of monies to his divorced wife depends upon his obligation to her which the payment of the monies served to discharge, not upon the nature of the wife’s interest in the property he has transferred to her. To introduce such an unwarranted refinement is to clog the administration of the revenue laws.
But, in any event, all of the judges of the Circuit Court of Appeals were agreed that “the law of Texas is uncertain as to whether the taxpayer’s husband discharged himself of his marital liability by the settlement at bar.” 120 F. 2d 228, 230. This general uncertainty as to Texas law is *559controverted now, not by controlling Texas authority but by extended argumentation and speculation. The Court suggests that, had the Commissioner gone against the husband, he would have sustained the burden as heretofore defined, namely, of showing, “by submitting clear and convincing proof,” that under local law he was under no continuing obligation. Support for the proposition is drawn not from any Texas authority, whether statute or decision, but from a decision of the Board of Tax Appeals, Mitchell v. Commissioner, 38 B. T. A. 1336. But, in that case there was a division of property between husband and wife, which included property belonging to the wife under an earlier arrangement entirely unrelated to the husband’s marital obligations. The Board held that the income from such property could not, therefore, be taxed to the husband. As its opinion shows, the decision did not turn on the Texas law of divorce: “We think that the trust income which was paid to her [the wife] was her separate income. It was not paid in satisfaction of any legal obligation of J. A. Mitchell [the husband] and it is not taxable to him.” 38 B. T. A. at 1342.
The Court’s exegesis of Texas law shows it to be no less uncertain than was the Iowa law in the Fitch case, or the New York law in the Leonard case. The effect of the Court’s ruling that the wife, in order to escape tax liability, must clearly establish that the state court has reserved the power to modify the terms of the particular property settlement is to reject the rule of policy enunciated earlier in its opinion. For there is no clear Texas authority, and under the rule of the Fitch and Leonard cases, which the Court does not purport to modify, the husband would be unable to show, “not by mere inference and conjecture but by ‘clear and convincing proof’ ” (Helvering v. Leonard, supra, at 86; see Helvering v. Fitch, supra, at 156), that the payments made to his wife did not discharge a con*560tinuing obligation which he7 owed her. Therefore, liability under the tax law is made actually to depend upon whether the Commissioner elects to go against the husband or the wife. Having closed the front door to' determination of tax liability by caprice, the Court allows caprice to enter through the back door of “presumption.”
We brought this case here in order to clarify an important question arising under the federal revenue laws, not to re-examine the correctness of the lower court’s finding regarding the uncertainty of Texas law as applied to this case. The general uncertainty of Texas law with respect to control over divorce settlements is conceded — and that is the decisive factor for our purpose. The absence of specific Texas authority dealing with such an annuity settlement as we have here does not lessen or remove that uncertainty, or justify us in making assumptions regarding the Texas law affecting such a settlement. Where prophecy as to a state court’s ruling on its local law is not imperatively required of us, experience counsels abstention from prophecy. No ruling of ours can make Texas law.
I believe therefore that the judgment below should be reversed because of the ruling on federal law as to which we all agree, and that Texas law should be left where the Circuit Court of Appeals found it.
The Chief Justice joins in this dissent.