DocketNumber: Docket No. 92821.
Citation Numbers: 1940 BTA LEXIS 1044, 42 B.T.A. 93
Judges: Him
Filed Date: 6/18/1940
Status: Precedential
Modified Date: 1/12/2023
*1044 Petitioner's wife secured in California absolute divorce previous to the taxable year. Decree provided that petitioner should pay alimony in fixed monthly amounts. Subsequent to decree of divorce petitioner and his former wife executed a written agreement whereby petitioner created an irrevocable trust in an agreed principal amount, the net income of which was payable currently to his former wife during her life, with remainder to their children. The trust instrument also provided that in certain contingencies payments from the trust principal should be made to the former wife. Petitioner retained no interest or power in respect of the trust or trust property. He did not guarantee income of the trust in any amount. The former wife in consideration of such trust provisions agreed that petitioner should be absolved from his obligation to pay alimony and from making any further contribution to her support. The former wife also consented that the divorce decree might be modified by eliminating the entire provision relating to alimony. Subsequent to the taxable year the decree was so modified.
*93 This proceeding is for the redetermination of a deficiency in income tax for the calendar year 1935 in the amount of $202.60. The deficiency resulted from the addition of $6,382.49 by respondent to petitioner's income as returned by him for the taxable year. Of this amount $57.66 represents a net statement of profit realized on the sale of capital assets, and $6,324.83 represents income under an irrevocable trust created by petitioner for the benefit of his former wife, which respondent determined is taxable to petitioner. Error is assigned only as to the inclusion in petitioner's income of the latter item.
The facts are all stipulated. We set out herein only such*1046 of the facts as we deem necessary to a proper understanding of the question at issue.
FINDINGS OF FACT.
In April 1926 Katherine D. Innes, then the wife of the petitioner, brought an action for divorce against him in the Superior Court of *94 the State of California in and for the County of San Francisco. It is stipulated that no service of summons was had upon petitioner, and that he did not appear or authorize any one to appear for him in the action. And attorney at law who was associated in the practice of law with Katherine D. Innes' counsel in the case made an appearance in the divorce action for petitioner. It is stipulated that he had no authority to make such appearance.
The Superior Court entered its interlocutory decree in the divorce action, and on April 28, 1927, entered its final judgment, granting a divorce to Katherine D. Innes and also awarding to her the sum of $300 per month for her support and for the support and education of her then minor children, commencing on the first day of May 1926 and thereafter on the first day of each and every month until the further order of the court.
Early in the year 1935, petitioner notified Katherine D. Innes' *1047 attorneys that he intended to take all necessary steps to vacate and set aside such judgment in so far as it pertained to any sums of money ordered to be paid by petitioner for the support of Katherine D. Innes and her children. As a result of negotiations following such notification, agreements between the parties to the divorce action were reached, pursuant to which Katherine D. Innes on May 8, 1935, executed and acknowledged before a notary public a document which was thereafter filed in the divorce action. The document, omitting the preamble, signature, and certificate of acknowledgment, is as follows:
NOW, THEREFORE, in consideration of the premises and the payment by defendant for the account of plaintiff of the sum of Twenty-five Thousand Dollars ($25,000.00) receipt whereof is hereby acknowledged, full satisfaction is hereby acknowledged of a certain judgment rendered and entered in said Superior Court in the said action on the 28th day of April, 1927, in favor of Katherine D. Innes, plaintiff, and against Murray Innes, defendant, for the sum of $300.00 per month as a suitable allowance for the support of plaintiff and the support and maintenance of the children of plaintiff*1048 and defendant beginning May 1, 1926, and thereafter on the first day of each and every month until further order of the court, for costs in the sum of $20.00 and $100.00 attorney's fees, which judgment was recorded in Book 261 of Judgments, at page 496. And the plaintiff hereby authorizes and directs the Clerk of said Court to enter satisfaction of record of said judgment in the said action.
Except as hereinbefore specifically provided, said judgment of final decree of divorce shall remain in full force and effect.
It is further agreed that defendant may move the above entitled court for an order modifying said final decree of divorce and plaintiff does hereby consent that said final decree of divorce may be modified by striking therefrom the provision that defendant shall pay to plaintiff the sum of $300.00 per month as a suitable allowance for her support and the support and maintenance of the children of the parties hereto until further order of the court.
*95 On the date and in consideration of the execution of the foregoing document, and to further evidence the agreements resulting from such negotiations relative to the provisions for alimony in the divorce decree, *1049 petitioner and Katherine D. Innes, as parties of the first and second parts, respectively, executed an agreement in writing of which the parts material in our consideration here are as follows:
WHEREAS, two of the three children mentioned and described in the action for divorce have attained the age of twenty-one years, to-wit: Murray Innes, Jr. and William Beveridge Innes, and the third child is over the age of twenty (20), and will soon be of full age, and the parties hereto being desirous of settling their disputes and ending and discontinuing any further proceedings as well as ending and determining all proceedings which arose out of the said divorce action after the Final Decree referred to;
NOW, THEREFORE, it is agreed by and between the parties hereto as follows:
1. The party of the first part hereby agrees to pay, and does pay at the request of the party of the second part to the order of Murray Innes, Jr., the sum of twenty-five thousand dollars ($25,000.00) to be held, used and applied under the terms, trusts, and conditions hereinafter mentioned for the benefit of the said party of the second part and the children of the parties hereto as hereinafter described.
*1050 2. The said Murray Innes, Jr., shall take and hold the said moneys for investment from time to time in such securities and property as he, in his discretion and judgment may deem proper and for the best interest of the parties hereto,
* * *
He is hereby authorized and empowered to pay out of the said sum of twenty-five thousand dollars ($25,000.00) forthwith in cash, a sum or sums of money not exceeding the total sum of five thousand dollars ($5,000.00) as requested by the said party of the second part. The moneys remaining after the payment to the party of the second part just referred to shall be invested by him from time to time as he sees fit in his discretion, and thereafter during the life of the party of the second part he shall pay or cause to be paid to her or for her benefit or use the income thereof monthly or in such installments as the said Murray Innes, Jr., may, in his discretion, determine; provided, however, that if the income from said trust fund shall not total two hundred dollars ($200.00) per month, and said party of the second part shall be in need of additional sums for her support and maintenance and that of her children, and shall request it, said Murray*1051 Innes, Jr., is authorized, in his discretion, to pay to the party of the second part sufficient sums out of principal which, together with the income, will total two hundred dollars ($200.00) per month; provided, further, that in case of emergency resulting from traumatic injury or sickness of the party of the second part or of any of her children, said Murray Innes, Jr., is authorized, but not required, to pay additional sums out of the principal thereof in order to pay the expenses thereof.
Upon the death of the party of the second part, all unexpended part of the said fund shall be divided into three (3) equal parts, one part shall go to Murray Innes, Jr., another part to WILLIAM BEVERIDGE INNES, and the other part to LETITIA INNES. In case of the death of any of the said three children, leaving issue, the principal for the benefit of such child shall go to such issue. If such deceased child leaves no issue, his share of the principal shall go to the surviving children.
* * *
*96 4. The party of the second part hereby releases the party of the first part of and from all claims and demands of every name and nature including any claim or cause or causes of action*1052 in favor of herself or any of her children against the party of the first part, and covenants and agrees to obtain and procure from each and all of the said three children a general release to the party of the first part; and she further covenants and agrees to cause the dismissal, discontinuance and release of any action or proceeding now pending involving any claim for alimony or support for herself or support, maintenance and education for any of the said three children accrued or to accrue in the future, if any. Said party of the second part also covenants and agrees to consent to the making and entry of any Order or Decree in any action now pending to carry out the provisions of this agreement, including the entry of any order of Decree modifying or striking out from the Final Decree of Divorce of any provision for alimony, support, maintenance and education contained in said Final Decree of Divorce, and to make, execute and deliver all other necessary or proper papers or consents to carry out each and all of the provisions of this agreement.
5. * * * With respect to the trust estate created by this agreement and by the payment of said sum of twenty-five thousand dollars*1053 ($25,000.00) to said Murray Innes, Jr., as Trustee, and with respect to the income therefrom hereinabove provided to be paid it is made a condition thereof that neither the same, nor any interest therein, nor any part thereof, shall be subject to attachment, garnishment, sale on execution, or any bankruptcy proceedings, or other disposition by process of law; and further that no beneficiary under said trust shall have any right to sell, convey, assign, transfer, pledge, mortgage or otherwise anticipate or alienate any interest in or to said trust estate prior to the payment of the same to her or him by the said Trustee. And it is expressly provided that the said Trustee shall not pay any part of the income of said trust estate to any vendee, assignee, transferee or pledgee of any of the said beneficiaries, or to any person except a beneficiary or to a bank for the credit of a beneficiary.
* * *
7. In consideration of the execution of this agreement and of the payment of said sum of twenty-five thousand dollars ($25,000.00) as hereinabove provided, the party of the second part hereby releases and quitclaims to the party of the first part all of her claims of every kind and nature*1054 whatsoever to any property, either real or personal and whether separate or community property, now owned by the party of the first part or hereafter acquired by him; and hereby releases and waives all of her marital rights as to any property now owned or hereafter acquired by said party of the first part. It is the intention of the parties hereto to settle all property rights or claims of the party of the second part against the party of the first part; * * *
8. Concurrently with the payment of said sum of twenty-five thousand dollars ($25,000.00) to said Murray Innes, Jr., as hereinabove provided, the party of the second part agrees to execute and deliver to the party of the first part a duly acknowledged satisfaction of the provisions of the decree of divorce hereinabove referred to requiring the payment of money.
* * *
Murray Innes, Jr., accepted the trust. Upon the execution of such trust agreement and the acceptance of the trust thereunder by Murray Innes, Jr., Katherine D. Innes filed in the Superior Court which granted the decree of divorce the document hereinabove first set forth.
*97 On November 12, 1937, the following order modifying the final decree*1055 of divorce was made and entered by such Superior Court:
* * *
IT IS ORDERED that said decree of divorce be and the same is hereby modified by striking therefrom the following paragraph:
"It is further ordered, adjudged and decreed that defendant pay to plaintiff as a suitable allowance for her support, and the support, maintenance and education of said children, the sum of Three Hundred Dollars ($300.00) per month, beginning with the first day of May, 1926, and thereafter on the first day of each and every month until the further order of this Court."
The releases and quitclaims by Katherine D. Innes to petitioner of all of her claims of every kind and nature whatsoever to any property, either real or personal, whether separate or community property owned by him, and to her marital rights to any property referred to in paragraph 7 of the agreement of May 8, 1935, did not constitute a substantial consideration to the petitioner for entering into the agreement of May 8, 1935.
The terms of that agreement were carried out and thereafter the petitioner did not pay any money or deliver any other property to Katherine D. Innes. The income of the trust for the taxable year was*1056 $6,324.83 and was distributed according to the terms of the trust. No part of the amount was included by petitioner in his income tax return. Respondent added to petitioner's income for the taxable year the full amount of the trust income on the theory that it was devoted to the discharge of petitioner's legal obligations for the support of his former wife as decreed by the Superior Court of the State of California. Petitioner assigns such addition to his income as error.
OPINION.
HILL: The question presented is whether under the facts the income of the trust was devoted to the discharge of a legal obligation of petitioner and therefore taxable to him.
Consideration of petitioner's contentions involves the questions: (1) The validity of that part of the decree of divorce providing for payment of alimony; (2) assuming such validity, whether the obligation thus created was fully extinguished by executed agreements
Under the law of California, as elsewhere, the*1057 obligation of a husband to support his wife ceases when the marital relation is terminated by absolute divorce, unless otherwise provided in the decree of divorce or by agreement of the spouses.
*98 On the basis of the stipulated facts that there was no service of summons on petitioner in the divorce action and no appearance by him or authorized appearance for him therein, petitioner contends that that part of the decree of divorce which provided for the payment of alimony was absolutely void for lack of jurisdiction and subject to collateral attack in this proceeding. He maintains that in all other respects the decree is valid. In other words, petitioner's contention is that the decree in question terminated the marriage relation but did not create an obligation of petitioner to contribute to the support of his former wife and that hence there existed no such obligation from and after the date of such decree. The respondent, on the other hand, says that if such decree was valid in part it was valid as to all of its terms and provisions and that the obligation imposed thereby on petitioner was being discharged by creation of the trust and the payment of the income thereof*1058 to petitioner's former wife. Respondent contends in the alternative that if such decree was void as to the provisions for the payment of alimony it was void
The Superior Court of California is a court of general jurisdiction. Jurisdictional infirmity of a judgment of a court of general jurisdiction can not be exposed in a collateral proceeding by evidence exclusively outside of the judgment roll. If the judgment or the judgment roll did not disclose such infirmity, the judgment is binding until vacated in a proceeding for that purpose. "Where a court of general jurisdiction is required to exercise its powers upon facts proved before it, the proof is presumed to have been made, and such facts can not be collaterally attacked."
No part of the judgment roll in the divorce action is in evidence herein, but, in view of the stipulated fact that an attorney appeared for petitioner*1059 in the divorce action, although without authority so to do, it is fair to assume in the absence of a showing to the contrary that the divorce decree or the judgment record contained recitals or entries of facts necessary for jurisdiction of the person of petitioner in that action, or at least that the judgment roll therein did not disclose absence of such jurisdictional facts. "The general doctrine as established by the cases is that the attorney appearing in any action or suit is presumed to have full authority to do so until the contrary is proved."
We have found nothing to indicate that the rule in California is different from that above stated.
Defendant, who was not served and did not appear in divorce suit, may bring prohibition to obtain relief from order for payment of counsel fees and alimony, pending outcome, without making objection in court issuing order, since no preliminary objection is necessary where want of jurisdiction is apparent on the face of proceeding.
Under the state of the record and the facts in the instant proceeding we hold that petitioner can not in this proceeding impeach the validity in whole or in part of the judgment of the Superior Court of California in the divorce action and that for the purposes of this proceeding the judgment in question is in all respects valid and that the provision therein for the payment of alimony was an enforceable legal obligation of petitioner.
We have next for determination the question of whether the petitioner is taxable on the income during 1935 of the trust established in that year which was paid over to his wife for her support and maintenance. *1062 It results from our holding above that during the taxable year the divorce decree providing for the payment of $300 per month was valid and outstanding, representing a continuing obligation of the petitioner to pay out that amount. The effect on *100 that obligation of the agreement entered into by petitioner and his divorced wife in that year must be determined first under the applicable state law.
The following is provided in the California Civil Code:
SEC. 139.
The courts of California construing this statute have held that they are not bound in their allowance of alimony or any modification thereof by an agreement entered into by the parties fixing their obligations in this respect. In
The case of
Agreements between the spouses relative to alimony or fixing by and between themselves the amount which the Court may allow are subject to the power of the Court, under sec. 139 of the Civil Code, to modify or wholly reject, as provided in said section [omitting citations]. *101 See also
From the holdings of these cases we draw the conclusion that the petitioner in the instant case could not be the agreement entered into with his wife in 1935 discharge in any final way his obligation to pay alimony, and this is so even though the wife agreed to consent to the entry of an order striking from the decree the provisions relative thereto. It yet remained within the power of the court to reject the agreement of the parties if it considered the arrangement unfair and to make any alterations in the decree which the changed conditions of the parties required. This power of the court in the instant case remained in force during 1935 and at least down to the entry of the order in 1937. Cf.
It appearing that under the law of California the Superior Court has the power to enforce the existing provisions of its decree in respect to alimony,
In
In
We, therefore, hold that petitioner is taxable on the 1935 income of the trust in question.