DocketNumber： Docket No. 9623
Citation Numbers： 1946 U.S. Tax Ct. LEXIS 84, 7 T.C. 700
Judges： Haeron
Filed Date： 9/10/1946
Status： Precedential
Modified Date： 11/20/2020
1946 U.S. Tax Ct. LEXIS 84">*84
Petitioner, a resident of Pennsylvania, received an absolute divorce from the bonds of matrimony in Pennsylvania in 1936. Just prior to the divorce, and incident thereto, the former husband entered into an agreement to pay her $ 300 per month for life, or until she should remarry.
7 T.C. 700">*700 Respondent determined a deficiency in income and victory tax for the year 1943 in the amount of $ 725.10. Respondent has included the sum of $ 3,600 in petitioner's income for each of the years 19421946 U.S. Tax Ct. LEXIS 84">*85 and 1943, under the provisions of
Petitioner filed her returns with the collector for the twenty-third district of Pennsylvania.
FINDINGS OF FACT.
Petitioner was married to Frank M. Hesse in August 1914 and they lived together as husband and wife until September 13, 1933, at which time Frank M. Hesse deserted his wife. There were two children born of this marriage, and the children continued to live with petitioner after September 13, 1933. Barbara Hesse was born on August 3, 1921, and Eleanor Hesse was born on November 6, 1927.
After petitioner's husband left his home on September 13, 1933, he made payments to her for her support. Extremely difficult relations developed. Petitioner made use of credit accounts, for which Frank Hesse was liable, to an extent which he considered excessive, with the result that he felt he would have to bring matters to a head to protect himself, and to this end he stopped making1946 U.S. Tax Ct. LEXIS 84">*86 payments to petitioner for her support. Petitioner countered by instituting a proceeding against Frank Hesse and causing him to be arrested in the spring of 1934. This trouble was terminated by the execution of an agreement on June 1, 1934. This agreement was a separation agreement under which Frank Hesse agreed to pay petitioner $ 400 a month for the support of herself and her two children and to provide for the education of the two children in a university after the completion of a high school education. The payment of $ 400 a month was to represent $ 300 for the support of petitioner and $ 50 a piece for the support of each child until she attained the age of 21 years. Frank Hesse agreed to establish a trust to provide a fund for the higher education of the children. He also agreed to continue his present life insurance for the benefit of petitioner for so long as she continued to be his wife or until she should remarry; and, in the event of petitioner's remarriage, the insurance would be continued for the benefit of the children. Petitioner agreed to release her husband from all claims for other or additional support for herself and the children. Both of the parties agreed1946 U.S. Tax Ct. LEXIS 84">*87 to live separate and apart during their natural lives. They also agreed to release each other and his or her estate from all claims in and to any property now belonging to the other.
Frank Hesse ceased to make payments under the 1934 agreement in the early part of 1935. Petitioner instituted desertion and nonsupport proceedings against him in the County Court of Allegheny County, Pennsylvania, in May 1935, for the purpose of obtaining support for herself and her two children. Thereafter, Hesse commenced 7 T.C. 700">*702 to make payments to petitioner again. On July 20, 1935, petitioner and Hesse entered into an agreement entitled "Confirmation Agreement," which referred to the agreement of June 1, 1934, and a trust agreement dated September 1, 1934, and which stated that the parties mutually contended that the agreements had been broken, and that they desired that the agreements should be and remain in full force and effect as though no controversies had arisen concerning the matters dealt with in the agreements. Accordingly, the parties agreed that the agreements of June 1 and September 1, 1934, were in full force and of the same effect as when executed, with the understanding that1946 U.S. Tax Ct. LEXIS 84">*88 any payment of money which was delinquent would be promptly paid; and that the parties agreed hereafter to comply with the provisions of the above agreements.
On February 14, 1936, Frank Hesse and petitioner entered into an agreement which provided that Hesse assigned to petitioner, her executors, and assigns, 55 per cent of his monthly salary and 55 per cent of any compensation which might become payable to him, the assignment being made to secure his performance under a contemporaneous agreement, dated February 14, 1936, the terms of which are set forth hereinafter.
On June 14, 1936, Hesse executed an agreement to provide for the education and support of his children and for the support of petitioner. On the same day Hesse executed a trust agreement. The parties appointed the Fidelity Trust Co. of Pittsburgh to act as trustee of the trust. Hesse agreed to deposit $ 1,700 with the trust company upon the execution of the trust agreement, to be held in trust to provide for the college education for each of his two children, and he agreed to pay to the trustee $ 50 per month, after the deposit of $ 1,700, for each child until each child became 21 years of age, whereupon such monthly1946 U.S. Tax Ct. LEXIS 84">*89 payments were to cease. The trust fund so accumulated is to be used solely to pay for the education expenses of the children. Hesse also agreed to make irrevocable his present life insurance for the benefit of petitioner until she should remarry, and, in the event of her remarriage, for the benefit of the children.
Under the trust agreement of February 14, 1936, Hesse agreed to pay petitioner $ 400 a month for the support of herself and the two children, provided that the monthly payment should be reduced $ 50 per month as each child attained the age of 21 years. The monthly payments were to continue as long as petitioner lived or until she remarried. In the event that petitioner should remarry before the children became 21 years of age, then Hesse was to continue to pay for each child the sum of $ 100 per month until each child became 21 years of age. Hesse also agreed to pay to petitioner, or to her executors in the event of her death, the sum of $ 10,000, to further insure 7 T.C. 700">*703 the support and maintenance of petitioner and her children, the $ 10,000 to be paid in installments beginning on December 31, 1936, and ending on December 31, 1941.
Three days after the execution1946 U.S. Tax Ct. LEXIS 84">*90 of the above agreements petitioner instituted an action for divorce from Hesse in the Court of Common Pleas, Allegheny County, on February 17, 1936. On June 26, 1936, a decree of absolute divorce from Hesse was granted to petitioner. Hesse did not contest the divorce proceedings. The absolute divorce was obtained on the grounds of desertion.
The agreements executed on February 14, 1936, were prepared by the attorney of Frank Hesse who represented him in the divorce proceedings and during the period of his marital difficulties. The agreements were prepared by the attorney upon the understanding that petitioner intended to commence an action for divorce on the grounds of desertion.
Frank Hesse agreed to pay counsel fees and the costs of petitioner's divorce proceeding, and to pay alimony
We understand that inasmuch as all of the said agreements and assignment are executed and delivered to you to become effective only after a final decree in divorce has been secured by your client, they shall be so held1946 U.S. Tax Ct. LEXIS 84">*91 by you in escrow, and in the event that your client does not secure a divorce, for any reason whatsoever, the same will be considered as null and void, and shall be returned to us for destruction, with the understanding that the prior agreement for which these agreements are to be substituted, shall, in such event, continue in full force and effect.
On February 18, 1936, the petitioner's attorney acknowledged receipt of the agreements and stated that the papers were being held in escrow pending the entry of a final decree of divorce.
The decree of divorce made no reference to any agreements of any kind which had been executed by petitioner and Hesse.
OPINION.
Petitioner contends that she is not required to include in her gross income $ 3,600 in each of the years 1942 and 1943, under
1946 U.S. Tax Ct. LEXIS 84">*92 The question presented calls for construction of
The payments in question here were in the nature of alimony, and they were in lieu of alimony. Petitioner desired at all times to receive support from her husband, and the record shows clearly that the respective agreements of petitioner and Frank Hesse (on her part to get an absolute divorce; and, on his part, to execute an agreement to provide for her support until she might remarry, with security of various kinds to assure payments to her) were made in connection with a contemplated divorce, and were made to take care of the lack of any provision under law which would require the payment of alimony to petitioner if she sued for and obtained an absolute divorce.
Petitioner is divorced, and was during 1942 and 1943. Thus
It is concluded from all of the evidence (1) that the payments in question were made under the agreement of February 14, 1936; and (2) that they were in discharge of a legal obligation which was incurred by the former husband under a written instrument incident to divorce. In our opinion, these payments come within the scope and 7 T.C. 700">*705 intendment of
1. (k) Alimony, Etc., Income. -- In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, periodic payments (whether or not made at regular intervals) received subsequent to such decree in discharge of, or attributable to property transferred (in trust or otherwise) in discharge of, a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce or separation shall be includible in the gross income of such wife, and such amounts received as are attributable to property so transferred shall not be includible in the gross income of such husband. This subsection shall not apply to that part of any such periodic payment which the terms of the decree or written instrument fix, in terms of an amount of money or a portion of the payment, as a sum which is payable for the support of minor children of such husband. * * *↩
2. Vernier, American Family Laws, vol. II, sec. 104: "Every American jurisdiction except South Carolina (which grants no divorces), Delaware, North Carolina and Texas has a statute allowing alimony to the wife in absolute divorce cases. * * * in Pennsylvania the only provision for permanent alimony after absolute divorce is in favor of an insane spouse who is defendant."↩
3. H. Rept. No. 2333, 77th Cong., 2d sess., p. 72; S. Rept. No. 1631, 77th Cong., 2d sess., p. 83.↩