District of Columbia v. Frances C. Lewis (Formerly Frances Carter Frick), Estate of Harold C. Frick, Deceased , 288 F.2d 137 ( 1961 )

BASTIAN, Circuit Judge.

On December 22, 1934, Harold C. Frick and his first wife, Vida, entered into a “Property Settlement and Separation Contract.” That agreement recited that there had been a final and irreconcilable separation of the parties and that it was their desire to settle and agree upon all property rights between them by virtue of their marital relationship. The agreement then set out in painstaking detail the exact terms of the decisions of the parties.

Paragraph 1 of the agreement provided that all property, real and personal, with certain exceptions thereinafter enumerated, owned by the husband prior to his marriage and all property acquired by him during the marriage and then owned by him should be the absolute property of the husband, free and clear of any claim, dower interest, statutory interest or other interest of any kind or character whatsoever of the wife by reason of the marriage relationship, and there was the usual provision requiring relinquishment of those rights. Paragraph 2 contained the same provisions for the property of the wife owned by her at the time of the marriage and all property acquired by her in her own right since the marriage, with the same provisions as to relinquishment of the rights of the husband.

Paragraph 3 provided that all furniture, household goods and effects, and the like, with the exception of personal effects belonging to the husband and certain books, should be the absolute property of the wife; and it was agreed that the furniture, household goods and effects were free of any encumbrance.

Paragraph 4 provided that an automobile the property of the husband should be conveyed to the wife, free and clear of encumbrance.

Paragraph 5 provided that certain real estate, presumably the former home of the parties, title of which stood in the names of both parties, should be the property of the wife subject to an encumbrance of $16,500.00, and that certain real estate in Colorado standing in the name of the wife should be her absolute property, free and clear of any rights of the husband. There were in paragraph 5 a number of requirements as to pro-rating taxes and insurance policies, and an agreement by the husband to pay certain expenses up to January 1, 1935.

Paragraphs 6 to 10 provided detailed arrangements for the support of the wife and daughter. It was agreed that the husband would pay $400.00 per month for the support and maintenance of the wife and daughter, and there was an escalator clause by which the support arrangement could be upped or lowered, depending upon the husband’s income. No provision was made for their two sons because they were then in the husband's employ.

It is paragraph 7 which gives rise to this controversy. Item 3 of that paragraph provides as follows:

“(3) If first party [husband] should at any time hereafter depart this life, in lieu of all payments hereunder due from the date of his death and necessarily to be paid from this estate, a lump sum shall be paid to second party [wife] as follows:

“(a) If he should die within six years from this date the sum of Forty-five Thousand Dollars ($45,000.00)

“(b) If he should die between the years 1940 and 1946, the sum of Forty Thousand Dollars ($40,000.-00).

“(c) If he should die between the years 1946 and 1952, the sum of Thirty-five Thousand Dollars ($35,-000.00).

“(d) If he should die between the years 1952 and 1958 the sum of Twenty-five Thousand Dollars ($25,-000.00).

“Upon the proof of this contract and the lodging of second party’s claim against first party’s estate, the amount due, as herein contemplated, shall be allowed by the court administering his estate and promptly paid.”

There are other provisions in the agreement which are not pertinent to this action.

On the same day the agreement was signed, a decree of absolute divorce was entered in the Circuit Court of Jackson County, Missouri, dissolving the bonds of matrimony between the parties, giving the care, custody and control of the sons to the husband, and providing that the husband pay to the wife, during her natural life or until she should marry, the sum of $400.00 per month for the support and maintenance of herself and the daughter of the parties. The husband was further directed to pay the sum of $1,000.00 attorney’s fees, the amount provided in the separation agreement. Somewhat later, Harold Frick moved to the District of Columbia and married Frances Carter.

Sometime after the divorce between the husband and his first wife, a suit having to do with the monthly support payments was filed by Vida against her husband in the United States District Court for the District of Columbia; and, on March 2, 1942, due to a stipulation between the parties and the court being advised that all matters of difference between the parties had been adjusted and settled, the action was dismissed.

The husband remained married and domiciled in the District of Columbia until his death in July, 1956, a short time prior to which he had made a will wherein, after provision for the payment of debts, funeral expenses and the like, his entire estate was bequeathed to Frances, who was appointed executrix. There was no provision in the will for the payment of $25,000.00 to Vida.

Vida thereupon filed claim upon the decedent’s estate for the sum of $25,-' 000.00, which she claimed to be owing to her under the provision of the separation agreement providing that she should receive that amount if the decedent died between the years 1952 and 1958. The claim being rejected, suit for $25,000.00 was filed by Vida in the United States District Court for the District of Columbia against the estate of Harold C. Frick. The claim was adjusted by payment of $23,500.00 to Vida out of the funds of the estate, whereupon the suit was entered “Settled, Satisfied and Dismissed with Prejudice.” An inheritance tax was assessed against Vida by the assessing authority of the District of Columbia and, the tax not being paid, payment from the estate was secured by distraint. The executrix filed claim for refund with the District of Columbia Finance Office. The claim was denied and the executrix then sued for refund in the District of Columbia Tax Court. That court granted the relief sought, and this petition by the District of Columbia for review of the decision followed.

Petitioner’s claim is based on § 47-1601(a) of the District of Columbia Code, which reads in pertinent part as follows:

“Taxes shall be imposed in relation to estates of decedents, the shares of beneficiaries of such estates, and gifts as hereinafter provided :

“(a) All * * * personal property * * * transferred by deed, grant, bargain, gift, or sale (except in cases of a bona fide purchase for full consideration in money or money’s worth) * * [Emphasis supplied.]

There is no question but that the payment here in question was “transferred by deed, grant, bargain, gift, or sale.”

The issue of the case then is whether ■ a transfer from a husband to his wife, if in lieu of his support obligation, is made for “full consideration in money or money’s worth” within the meaning of § 47-1601 (a) of the District of Columbia Code.

The meaning of this phrase in the District of Columbia Code has never been decided. However, the identical phrase has appeared for many years in the Internal Revenue Code, and we look for guidance to decisions interpreting the phrase there.

“[R]elinquishment of dower or curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights, * * * shall not be considered to any extent a consideration ‘in money or money’s worth.’ ” Int. Rev.Code of 1954, § 2043(b), 26 U.S.C.A. § 2043(b); Int.Rev.Code of 1939, § 812(b), 26 U.S.C.A. § 812(b); see Merrill v. Fahs, 1945, 324 U.S. 308, 65 S.Ct. 655, 89 L.Ed. 963, interpreting § 303(a) (1) of the Revenue Act of 1926 and § 503 of the Revenue Act of 1932. The problem of the instant case, then, lies in determining whether a wife’s right to support is one of the “other marital rights” referred to in the sections quoted above.

In Meyer’s Estate v. Commissioner of Internal Revenue, 2 Cir., 1940, 110 F.2d 367, 368, it was held that the wife’s right of support was one of the “other marital rights.” Learned Hand, J., dissenting, pointed out that a wife’s right to support is not analogous to dower because it is not a right in the property of the husband. It was Judge Hand’s view that the words “other marital rights” were merely intended to provide for future substitutes for the estates of dower and curtesy. That dissent was never adopted by the Second Circuit. See Judge Hand’s majority opinion in Commissioner of Internal Revenue v. Maresi, 2 Cir., 1946, 156 F.2d 929.

However, the Internal Revenue Service itself has since declined to follow the Meyer’s Estate and Maresi cases. E.T. 19, Cum.Bull. 1946-2, 166, states that a transfer in lieu of support is a substitute for a transaction which of itself would not be subject to a transfer tax, whereas a transfer in lieu of dower is made in lieu of a transaction which would be subject to such a tax. The reasoning of the Internal Revenue Service is that the federal transfer tax should reach every transfer made in lieu of one which would be taxed, and vice versa. We think this is the better view and, therefore, agree with the reasoning of the Internal Revenue Service that “support” is not one of the “other marital rights.” We are thus unwilling to follow Meyer’s Estate and Maresi.

We have been referred to Commissioner of Internal Revenue v. Wemyss, 1945, 324 U.S. 303, 65 S.Ct. 652, 89 L.Ed. 958, and Merrill v. Fahs, supra. These cases are not in point. The Wemyss case held [324 U.S. 303, 65 S.Ct. 653] that an antenuptial property settlement in consideration of the forthcoming marriage was not made for “money or money’s worth,” i. e., that marriage itself is not consideration in money or money’s worth. Merrill held that an antenuptial settlement made in consideration of relinquishment of dower was not made for consideration in money or money’s worth. Neither of these cases decided whether relinquishment of support was money or money’s worth or whether support was one of the “other marital rights.”

Harris v. Commissioner of Internal Revenue, 1950, 340 U.S. 106, 71 S.Ct. 181, 185, 95 L.Ed. 111, indicates that a voluntary contractual division of marital property rights upon divorce would be subject to the federal gift tax. The Supreme Court was not faced with the question of the taxability of transfers in lieu of a husband’s legal obligation to support his wife, which is the issue here involved.

We therefore hold that a transfer in lieu of a husband’s obligation to support his wife during their joint lives, or until her remarriage, is made for full and adequate consideration in money or money’s worth. If the lump sum payment here was in lieu of the support obligation, then it is not subject to a transfer tax.

By analogy to Dobson v. Commissioner of Internal Revenue, 1943, 320 U.S. 489, 64 S.Ct. 239, 88 L.Ed. 248, and the United States Tax Court, the case will be remanded to the District of Columbia Tax Court to decide the factual question of whether this transfer was in lieu of the support obligation and to determine, subject to further review, the proper standard to be used in making the. finding.

The decision of the District of Columbia Tax Court is therefore reversed, and the case is remanded for the further finding called for in this opinion and for such disposition as the Tax Court then deems proper.

So ordered.