DocketNumber： Docket No. 96558.
Citation Numbers： 41 B.T.A. 1233, 1940 BTA LEXIS 1080
Judges： Sternhagen
Filed Date： 5/24/1940
Status： Precedential
Modified Date： 10/19/2024
1940 BTA LEXIS 1080">*1080 A husband created an irrevocable trust for his wife's benefit without color of alimony, and, after beginning a divorce action against her two years later in Illinois, transferred additional securities to the trust in consideration of her release of all claims growing out of the marital relation. A divorce decree was granted, denying the wife alimony. Since the trust agreement was a final settlement and the court has no jurisdiction to modify the decree, the husband has no continuing marital obligation to discharge, and the trust income is not taxable to him.
41 B.T.A. 1233">*1233 The Commissioner determined deficiencies in income tax of $2,516.77 for 1935 and $3,640.86 for 1936, including in the income of petitioner the distributive income of a trust which was paid to his wife.
41 B.T.A. 1233">*1234 FINDINGS OF FACT.
Petitioner is a resident of Chicago, Illinois. On December 5, 1908, he was married to Gertrude Knittel, and they had one child, Ruth Stanley, who was born December 3, 1910. They lived together and he paid the household bills. The wife had no independent fortune. 1940 BTA LEXIS 1080">*1081 Shortly before August 30, 1924, petitioner was discharged from a hospital where he had been treated for uremic poisoning. At that time he was involved in the stock market.
On August 30, 1924, the petitioner transferred in trust to the First Trust & Savings Bank in Chicago 1,800 shares of William Wrigley, Jr., Co., having a value of approximately $75,000. The trustee was directed to divide the trust estate into two parts, three-fourths to be designated as trust "A" and one-fourth as trust "B." The trust instrument also provided that:
(a) The Trustee shall pay the entire net income from Trust "A" to Gertrude Stanley, wife of the Grantor, so long as she shall live, or until she shall remarry; upon her remarriage should it occur, the Trustee shall pay the sum of $15,000.00 to said Gertrude Stanley, out of the principal of said Trust "A" and the remainder of said principal shall upon such remarriage or all thereof should she not remarry shall upon her death, be transferred and conveyed to Ruth Stanley, daughter of the Grantor, provided, however, that if said Trust "B" is then in existence, the said Trust "A" shall be paid into and become a part of and be distributed in the same1940 BTA LEXIS 1080">*1082 manner as said Trust "B". * * *
(b) The Trustee shall pay all the net income from Trust "B" to said Ruth Stanley until said trust is distributed as hereinafter provided. The Trustee shall transfer and convey the principal of this trust to said Ruth Stanley upon the happening of the following events, whichever shall first occur; (1) when she shall attain the age of twenty-five years; (2) or upon her marriage, in the event that she shall become married after attaining the age of twenty-one years; (3) or upon her attaining the age of twenty-one year, in the event that she shall become married prior to attaining said age. * * *
THIS AGREEMENT is intended to be and is hereby declared to be Irrevocable.
On September 25, 1924, petitioner's wife went to California, and after that they did not live together or see each other. On November 17, 1926, petitioner filed a bill of complaint in chancery in the Superior Court of Cook County, Illinois, charging his wife with cruelty and praying for a divorce. Her counsel demanded the addition of 500 shares of Wrigley stock to the trust of August 30, 1924.
On November 23, 1926, the wife executed an instrument which recited that she and1940 BTA LEXIS 1080">*1083 petitioner had for more than two years continuously lived apart, that petitioner had filed the bill for divorce, that if the charges in the bill were sustained she would not be entitled to alimony, that petitioner had set up the trust on August 30, 1924, and that:
WHEREAS, the undersigned and her said husband William Henry Stanley desire to effect a complete settlement of all claims and property rights between them 41 B.T.A. 1233">*1235 and in order to effect such settlement of all such claims and property rights, said William Henry Stanley is willing to pay to the undersigned the sum of Three Thousand Dollars ($3,000.) in cash and to transfer and assign to the said First Trust and Savings Bank, as Trustee, five hundred (500) additional shares of the capital stock of said Wm. Wrigley, Jr. Company to be held and administered by said trustee under the terms and provisions of a certain trust agreement, a copy of which is hereto attached as Document "B";
NOW, THEREFORE, in consideration of the premises and of the sum of three thousand dollars duly paid by said William Henry Stanley to the undersigned, the receipt of which is hereby acknowledged, and in consideration of the contemporaneous execution1940 BTA LEXIS 1080">*1084 of the agreement hereto attached as Document "B", and the transfer and assignment to said First Trust and Savings Bank by said William Henry Stanley of the certificates of stock therein referred to, the undersigned has agreed to release and discharge and hereby does release and discharge said William Henry Stanley and his heirs, executors, administrators and legal representatives, jointly and severally, of and from any and all rights, claims, demands and causes of action of every kind, nature and description and particularly of and from any and all rights, claims, demands and causes of action arising by way of inheritance or descent, dower, widow's award and homestead which she now has or may have in or to or against any of the real estate or personal property of said William Henry Stanley now or hereafter owned by him, and the undersigned has agreed to release and discharge, and hereby does release and discharge all other rights and claims of whatsoever kind or character which she now has or may have against said William Henry Stanley, or his property or estate, growing out of the marriage relation existing between the undersigned and said William Henry Stanley, including any and1940 BTA LEXIS 1080">*1085 all rights or claims for support or alimony, either temporary or permanent, in the said proceeding for divorce already instituted by said William Henry Stanley, or in any other proceeding for divorce, or separation, whether instituted by the undersigned, or by said William Henry Stanley, excluding, however, from the operation of this release and discharge the rights conferred on the undersigned or their said daughter, Ruth Stanley, under or by reason of the terms and provisions of the agreements hereto attached as Documents "A" and "B".
On December 3, 1926, the court, finding that petitioner had made full provision for the support, education, and maintenance of his daughter, entered a decree dissolving the bonds of matrimony and ordering that the defendant "shall have no alimony." The petitioner transferred to the trustee 500 additional shares of Wrigley having a value of approximately $26,000. The instrument of transfer recited that the petitioner:
desires to effect a complete settlement and obtain a complete release and discharge of all claims and demands which said Gertrude Stanley has or may have against him and his property and estate,
and that the transfer was:
in consideration1940 BTA LEXIS 1080">*1086 of the premises and of One Dollar duly paid by said second party to said first party, the receipt of which is hereby acknowledged, and in further consideration of the release and discharge by the said Gertrude Stanley of any and all of her claims and demands of every kind, nature, and description against said first party and his property and estate, (as defined in and provided by the terms of a written release under seal executed and delivered by said Gertrude Stanley) * * *.
This 41 B.T.A. 1233">*1236 agreement is intended to be and is hereby declared to be irrevocable.
The petitioner has not received and payments from the trustees. In 1929 there was a 5 percent stock dividend on the 2,300 shares held in the trust, thereby increasing the number of shares to 2,415. On February 18, 1932, the trustees distributed to the daughter the one-fourth share of the trust corpus to which she became entitled on reaching the age of twenty-one years on December 3, 1931. Her share consisted of 604 shares of the Wrigley stock and $430.36 in cash. The trust had $5,592.81 net income in 1935 and $6,161.67 in 1936. The last payment by the trustees to Gertrude Stanley was made on January 8, 1940.
1940 BTA LEXIS 1080">*1087 OPINION.
STERNHAGEN: The Commissioner determined that the trust was in lieu of alimony and for that reason he included the trust income in petitioner's gross income. The petitioner assails this, contending that the trust was not in lieu of alimony, and that he had no obligation to pay alimony or, under Illinois law, to support his divorced wife.
The trust was made before the divorce proceeding was begun and, as appears from the record, was not an incident of divorce or separation, even though the wife soon thereafter left the petitioner's home and did not return. When made, therefore, the trust had no color of alimony. So much of the Commissioner's rationale is mistaken. However, the trust might have become an alimony trust if it had later served the petitioner as a discharge of any obligation by reason of a divorce decree against him requiring him to pay alimony. But there was no such decree against him and no alimony award. He was the plaintiff in the divorce proceeding and the decree expressly provided that the defendant should have no alimony.
In Illinois the wife under such circumstances is apparently not entitled to alimony as a matter of right. 1940 BTA LEXIS 1080">*1088 ; . Furthermore, even if the petitioner had been the defendant in the divorce proceeding, the trust agreement was a final settlement and the court had no jurisdiction to modify the decree as to alimony. ; ; ; ; ; .
The trust agreement was irrevocable, the petitioner had before 1935 completely discharged all liability which he had to his former wife, and he had no remaining or continuing obligation, the law of Illinois during the taxable years had been clearly announced to that effect, and the petitioner was, therefore, free from tax on the trust income. .