DocketNumber: Docket Nos. 12742-92, 13022-92
Citation Numbers: 69 T.C.M. 2466, 1995 Tax Ct. Memo LEXIS 184, 1995 T.C. Memo. 183
Judges: COLVIN
Filed Date: 4/20/1995
Status: Non-Precedential
Modified Date: 11/20/2020
*184 Decisions will be entered under Rule 155 in docket No. 12742-92 and for respondent in docket No. 13022-92.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN,
Linda Hoover | |||
Year | Deficiency | ||
1988 | $ 8,439 | ||
Richard E. Hoover | |||
Year | Deficiency | Sec. 6653(a)(1)(A) | Sec. 6653(a)(1)(B) |
1987 | $ 1,177.49 | $ 58.87 | 1 |
1988 | 10,079.68 | - 0 - | - 0 - |
1989 | 10,122.48 | - 0 - | - 0 - |
Petitioners were divorced in 1988. Mr. Hoover concedes that respondent's determination of his deficiency and additions to tax for 1987 is correct. Mrs. Hoover concedes that $ 10,000 she received from Mr. Hoover in 1988 before their divorce became final was alimony. After concessions, the sole issue for decision is whether $ 36,000 Mr. Hoover paid to Mrs. Hoover in 1988 and $ 36,200 he paid in 1989 was alimony or a property settlement. *185 We hold that the payments were part of a property settlement and were not alimony.
Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years in issue. Rule references are to the Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
1.
Petitioners resided in North Canton, Ohio, when they filed their petitions. Petitioners were married to each other from 1973 to 1988. They had no children.
2.
On September 22, 1987, Mr. Hoover owned about 40 percent of the stock in Stark Ceramics, Inc. On September 30, 1988, the book value of his Stark Ceramics stock was $ 2,142,430.20. Mr. Hoover acquired his shares of Stark Ceramics stock during his marriage to Mrs. Hoover.
On September 22, 1987, the fair market value of petitioners' residence at 3602 Heatherwood Circle N.W., and the adjacent lot was $ 185,000. The value of the furniture in their residence on that date was $ 10,000.
Mr. Hoover had an IRA valued at $ 8,000 and an interest in an ESOP valued at $ 85,000 when he and Mrs. Hoover divorced in 1988. Mrs. Hoover had an IRA valued*186 at $ 2,000 at the time of the divorce.
3.
Mrs. Hoover filed for divorce from Mr. Hoover in 1987. The Court of Common Pleas, Stark County, Ohio, Family Court Division, granted the divorce by memorandum filed August 25, 1988. The memorandum awarded to Mrs. Hoover: their residence and the adjacent lot; the household furniture; her IRA; and "alimony as division of equity in the amount of $ 410,000.00." The court ordered Mr. Hoover to pay Mrs. Hoover $ 30,000 within 30 days of the final decree. The court also ordered that the "balance of said alimony in the amount of $ 380,000.00 shall accrue interest at the rate of six percent (6%) computed annually." The court ordered Mr. Hoover to pay "no less than $ 3,000.00 a month until said amount is paid in full." The order also provided that Mr. Hoover could accelerate payment.
A preliminary draft of the Judgment Entry (Decree of Divorce) provided that "all payments of alimony shall cease upon [Mrs. Hoover's] death, [or] remarriage." However, the parties later agreed to remove that language.
The Judgment Entry dated October 19, 1988, awarded to Mrs. Hoover the residence at 3602 Heatherwood Circle N.W., and the *187 adjacent lot; the household furniture; her IRA; and "alimony as division of equity in the sum of Five Hundred Twenty One Thousand, Six Hundred Forty Dollars ($ 521,640.00)."
The decree of divorce awarded to Mr. Hoover his shares in Stark Ceramics; his pension fund, IRA, insurance policies, and interest in the ESOP plan; an oil well; cash on hand; and the marital interest in the Val Royal Apartments. The divorce decree also required Mr. Hoover to pay $ 521,640 to Mrs. Hoover as follows: The sum of Thirty Thousand Dollars ($ 30,000.00) within thirty (30) days of the filing of this decree, and the balance of said alimony in the amount of Four Hundred Ninety One Thousand, Six Hundred Forty Dollars ($ 491,640.00). The defendant shall pay to plaintiff no less than Three Thousand Dollars ($ 3,000.00) per month until said amount is paid in full. The defendant shall have the right to accelerate payment. It is further ordered that the plaintiff will be granted a lien on the defendant's shares in Stark Ceramics as security for said alimony division, and the defendant shall provide the plaintiff with a letter of credit issued by a commercial bank guaranteeing the payment of alimony provided*188 herein, or in the alternative the defendant shall pledge sufficient stockholdings in Stark Ceramics, Inc. with National City Bank as Escrow Agent. Said stock pledge shall remain in full force and effect until all of the alimony has been paid in full. * * *
The divorce decree also required Mr. Hoover to provide medical insurance through Stark Ceramics for Mrs. Hoover until she died or remarried.
When petitioners divorced in 1988, pursuant to the divorce decree, Mr. Hoover placed enough shares of Stark Ceramics, Inc., stock in an escrow account at National City Bank of Akron, Ohio, to secure the payment of $ 521,640 due to Mrs. Hoover under the October 19, 1988, divorce decree.
There is no written agreement between petitioners that states whether or not the monthly payments of at least $ 3,000 awarded under the divorce decree will terminate upon Mrs. Hoover's death.
4.
Mr. Hoover paid $ 46,000 to Mrs. Hoover in 1988 and $ 36,200 in 1989. He deducted those amounts as alimony on his 1988 and 1989 returns. Mrs. Hoover attached a statement to her 1988 return showing that she received $ 36,000 "Post Decree Alimony" and $ 10,000 "Pre-Decree*189 Alimony." She did not include these amounts in her income. Mrs. Hoover concedes that $ 10,000 of the 1988 payment to her was alimony because Mr. Hoover paid it under a temporary order before the final divorce decree.
On January 3, 1992, Mrs. Hoover sought to accelerate the remaining payments due to her under the divorce decree ($ 377,640) because there were liquid assets from which Mr. Hoover could currently pay her. The Stark County, Ohio, Court of Common Pleas, Domestic Relations Division, denied her request on September 1, 1992, because "a trial court in a divorce proceeding does not have continuing jurisdiction to modify an award in the nature of a property settlement.
OPINION
1.
The sole issue for decision is whether payments from Mr. Hoover to Mrs. Hoover in 1988 and 1989 were alimony or a property settlement. A former spouse must include in gross income amounts received as alimony or separate maintenance payments.
If the payments in this case are alimony as defined in
*192 2.
The parties agree that the requirements of
The divorce decree awarded Mrs. Hoover "alimony as division of equity". Mrs. Hoover *193 argues that the use of this term shows that the parties intended to make a property settlement rather than to provide for sustenance alimony. Mr. Hoover contends that under Ohio law the term "alimony as division of equity" is a term of art meaning sustenance alimony. Neither party cites authority for their contention.
Before 1991, 4 under Ohio law the term "alimony" was used to refer both to a division of property and support payments.
Under Ohio law, payments made pursuant to a property settlement in a divorce decree do not terminate when the payee spouse dies.
In
Mr. Hoover argues that he agreed to change the terms between the initial State court memorandum and the final divorce decree (to increase the amount of payments and add medical coverage for Mrs. Hoover) in consideration for Mrs. Hoover's agreement to structure the payments as alimony.
We disagree. Mr. Hoover testified that, when the parties agreed to delete the language from the draft Judgment Entry providing that payments terminate at Mrs. Hoover's death or remarriage, his tax preparer told him that
*197 Upon consideration of the language of the divorce decree, the factors discussed above, and
1. These cases were consolidated for trial, briefing, and opinion.↩
1. Fifty percent of the interest due on $ 171.32.↩
2.
3. (b) Alimony or Separate Maintenance Payments Defined. -- For purposes of this section -- (1) In general. -- The term "alimony or separate maintenance payment" means any payment in cash if -- (A) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument, (B) the divorce or separation instrument does not designate such payment as a payment which is not includible in gross income under this section and not allowable as a deduction under (C) in the case of an individual legally separated from his spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and (D) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse.↩
4. Beginning in 1991, the term "alimony" is no longer used in Ohio. Instead, the term "spousal support", which cannot include a division of property, is now used for sustenance alimony.
5. See
6.