Opinion
Docket No. 15517.
1948-05-26
BENJAMIN B. COX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
John A. McCann, Esq., for the petitioner. Stanley W. Herzfeld, Esq., for the respondent.
Petitioner procured a divorce by default in Florida while stationed there in military service, and shortly thereafter, in 1943, remarried. The decree made no provision for alimony or property settlement. More than seven months later, in 1944, he agreed in writing to make payments for support of his former wife and minor children. Payments made were denied deduction under sections 22(k) and 23(u), I.R.C. Held, the agreement in 1944 was not incident to the divorce, within the intendment of section 22(k), and the deductions were properly disallowed. John A. McCann, Esq., for the petitioner. Stanley W. Herzfeld, Esq., for the respondent.
This case involves income tax for the calendar year 1944, Deficiency was determined in the amount of $200.47, all of which is in dispute. The only issue presented is whether the petitioner may, under section 23(u), and in connection with section 22(k), both of the Internal Revenue Code, deduct from gross income the sum of $2,225.15 paid to his former wife during the taxable year. The issue involves questions as to whether petitioner's divorce was valid, and whether a written instrument executed by him and his former wife after his divorce was incident to the divorce, within the intendment of section 22(k).
FINDINGS OF FACT.
The petitioner resides in Pittsburgh, Pennsylvania, and filed his Federal income tax return for the calendar year 1944 with the collector for the second collection district of New York at New York, New York.
The petitioner and his wife were living in New Jersey when, on December 26, 1941, he left home and never returned. He lived until May 1943 in New York. From about January 13, 1943, he was employed by the War Department. About May 2, 1943, he went to Florida, knowing when he went that he was going to enter the Army. After some civilian service with the Army, he was commissioned in the Army on May 11, 1943. A geologist, he was put in charge of research at the Desert and Tropic Research Center at Eglin and Orlando, Florida. He intended to stay in Florida, having no other position, and having sinus difficulty as to which his physician had told him Florida would be beneficial.
Except for a short period late in 1943 and early in 1944, when temporarily in New York, he was stationed in Florida until the end of his Army service. He voted in New York between December 1941 and January 1943; thereafter he did not vote there.
About July 1943 both he and his wife employed attorneys, she in New Jersey, he in Florida. Through the attorneys there was correspondence and discussion of divorce and financial arrangements. During that period he was paying his wife about $400 a month, retaining for himself from $60 to $100 a month and his Government allowance. He had his own house in Florida. She had in her home in New Jersey three children of the marriage, two of whom were minors. On October 25, 1943, he secured a divorce in Okaloosa County, Florida. His intent at that time was to stay in Florida, and he was living in that county when the divorce was granted. On November 15, 1943, giving his place of residence as Pensacola, Florida, and his New York address as 5 W. 63rd Street, New York, New York, he and Elizabeth Laura Jordan, of 56 West 36th Street, New York, New York, applied for a marriage license in New York. License was granted November 15, 1943, and on November 21, 1943, the applicants were married in New York. The divorce decree recites that the court has jurisdiction on the subject matter and of the parties. It was granted without personal service on his wife and without appearance on her behalf. He left Florida about December 1944, being discharged from the Army December 25, 1944. He joined the Gulf Oil Corporation at Pittsburgh, Pennsylvania, January 1, 1945, pursuant to negotiations begun in August 1943. He thought when he took the position with Gulf that he would be employed in Florida, where the company was starting a new operation, because the company was doing the kind of work in which he had specialized.
Petitioner and Nancy Campbell Cox executed an instrument in writing, dated June 29, 1944, in material part providing as follows: That the parties had been married on April 4, 1920, but were living apart; that they desired to reach a satisfactory agreement as to property, custody of minor children and support and maintenance of Nancy Campbell Cox; that they would live separate; that he gives her all his interest in household furniture and effects except his personal effects, now in the premises formerly jointly maintained; that he will convey his interest and title in such premises to her, she to indemnify him against liability under the mortgage on the property; that she shall have all interest in certain named life insurance policies on his life, she to pay premiums; that she shall have custody of their minor children, with right of reasonable visitation in him; that he will continue to pay her one-half of his gross income, unless she remarries, after which a new agreement would provide support, maintenance, and education for the minor children; that he would each month furnish her with a sworn statement from himself and employer as to his total income; that she will not contract debts for which he will be liable and indemnifies him against any such debts, all debts incurred by her after December 26, 1941, to be her sole obligation; that she waives right to dower (he releasing all rights in her property) and she agreeing that as long as he performs the agreement she will not contest or bring any action in any court to set aside, nullify or question ‘the purported decree of divorce heretofore allegedly secured in the State of Florida‘ by him; that nothing in the agreement shall be construed as appearance by her ‘in the alleged suit in Florida in which said decree was allegedly obtained or as a waiver of any of her rights in reference to said alleged decree except as herein provided.‘
In his Federal income tax return for 1944 the petitioner reported income of $1,458.33 from U.S. Army Air Force and $5,983.92 from Socony-Vacuum Oil Co., by which Federal income tax of $856.80 was withheld. He deducted $2,225.15 as ‘alimony payments to Nancy Campbell Cox, divorced wife.‘ By letter of protest, January 30, 1945, to the Commissioner of Internal Revenue, he stated that he would file his income tax return for 1944 at the Custom House in New York City ‘as my permanent home address during 1944 was in New York City.‘ The letter also states that the divorce of October 25, 1943, was not valid in New York State, and that he was uncertain as to his marital state and in order to have the wife recognize the divorce he made an alimony agreement of June 29, 1944.
The $5,983.92 was terminal pay received from Socony-Vacuum, under agreement to pay the difference between Army salary and civilian salary for the period of the war and six months thereafter. He received such pay until about January 1945.
OPINION.
DISNEY, Judge:
The single problem here is whether the petitioner's agreement on June 29, 1944, more than seven months after his divorce from his wife, was ‘incident‘ to such divorce, within the intendment of section 22(k) of the Internal Revenue Code.
If so, the amounts paid by him to his wife in the taxable year were taxable to her, and deductible by him under section 23(u) of the code.
SEC. 22. GROSS INCOME.(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. * * *
In a broad sense, the contract here can be seen as incidental to the divorce earlier secured by the petitioner, in that the written contract refers to the divorce and provides that the former wife agreed that so long as the contract was performed by the petitioner, she would not contest or attack the divorce which he had secured. Yet in a different sense it is easily seen that the agreement is not incident to the divorce, which had preceded it by more than seven months. Petitioner had waited for no such agreement, but had proceeded to divorce his wife without arriving at a settlement of property rights or marital obligations, and the decree made no provision in that respect.
It seems obvious that the statute is intended, in the ordinary situation at least, to provide that the husband's marital obligation to support his wife may be continued either by divorce decree or a contract taking its place in that regard; and that in the ordinary sense therefore ‘incident to‘ the divorce would involve an agreement prior thereto or coincident therewith. Can a husband, freed by divorce decree from such obligation, nevertheless later reassume such obligation and shift the taxation of income thereon to the former wife receiving it? Recently, in the case of Robert Wood Johnson, 10 T.C. 647, we held that payments made under a written agreement executed prior to divorce but making no reference to it, the divorce however being agreed to orally by the wife and obtained by her, were under a contract incident to divorce. Here the petitioner can rely on no oral agreement prior to divorce, for he argues only that, prior to the divorce, there had been correspondence between his attorney and one representing his wife, resulting in no written agreement. Our question here is whether the divorce had as an incident the agreement of June 29, 1944.
In Estate of Josephine S. Barnard, 9 T.C. 61, we considered whether the gift tax, under section 1002 of the code, applied to $50,000 paid by a wife to a husband after a divorce and pursuant to an oral agreement prior to divorce and dependent thereon, but contemporaneous with a written settlement agreement. The petitioner contended that the $50,000 payment ‘was part and parcel of the entire separation agreement,‘ but we pointed out that the written separation agreement made no reference to it and the divorce decree referred only to the written agreement as settling property rights, and we concluded the $50,000 payment was something over and above what the divorce court declared to be fair consideration, and therefore that consideration for the payment was not shown. The case is of course one of gift tax, but it does indicate the distinction between the essentials of a divorce settlement and something additional thereto, and offers logical reason for distinguishing here between a contract more than seven months after the divorce and one incidental thereto in the sense that it is contemporaneous and worked out with the divorce and considered by the divorce court.
In Frederick S. Dauwalter, 9 T.C. 580, sections 22(k) and 23(u) of the Internal Revenue Code were involved. Husband and wife in August 1935 entered into a written settlement, providing for monthly payments to the wife. They were divorced in September 1935. The decree provided no settlement or alimony and approved no settlement or agreement. At the time of the divorce the parties had an understanding that if the wife's future necessities required additional payments and if his finances would permit, he would entertain a request for additional payments. In 1939 the former wife, by letter so requested, and by letter he acceded and pursuant thereto made the additional payments, which were disallowed by the Commissioner as deductions from his income. He contended, as here, that the agreement in 1939 was incident to the divorce, made pursuant to oral promise at the time of the original written agreement, and to settle a request and claim which, had it not been voluntarily agreed to, would reasonably have resulted in application to the divorce court for relief, which the court could have granted and could have modified the alimony allowance. We said that (as here) the decree provided no alimony, and could not later do so, and that the additional payments were not in discharge of a legal obligation arising out of marital relationship or under a written instrument incident to divorce under section 22(k), but were gratuitous; that ‘incident‘ in section 22(k) refers to the decree of divorce; and that deduction was not allowable. Though there we said the divorce court could not grant additional alimony, and the petitioner here urges that the agreement in June 1944 was to prevent attack upon validity of the divorce decree, which of course upon proper grounds could be set aside, nevertheless, in our view the cited case is authority applicable here. It indicates that an oral agreement at the time of divorce will not make the later written agreement prior to divorce, as on brief he agrees; therefore, the later writing must stand alone. It indicates too that the written agreement must be incident to the divorce decree itself. Such connection is not seen by us here. It must depend upon the fact that the later written agreement provided against attack upon the divorce. We think the connection is not sufficient in any real sense to satisfy the statute. The divorce decree had as no incident the later agreement. It was procured without agreement, contrary apparently to the wife's wishes. At least any agreement at that time was contrary to her wishes, since none was obtained with her, the petitioner testifying, with respect to discussion before the decree of divorce and financial arrangements, ‘She's a hard woman to deal with.‘
On its face the decree terminated the petitioner's liability for her support, no provision in that respect being made. If validly thus divorced, the petitioner was thereafter free to retain his income. If he was not divorced, the payments later made were under his marital obligation, entitling him to no deduction. We, therefore, find it unnecessary to decide whether the divorce was valid or not, for in either event the result here is the same in our view. The legal obligation under which the money was paid is not, within the language of the committee reports in both House and Senate, quoted in the Dauwalter case, one which ‘arises out of the family or marital relationship in recognition of the general obligation to support * * * .‘ See Charles L. Brown, 7 T.C. 715. The petitioner recognized no obligation to support, for he was divorced without continuation of that duty by the decree. The written obligation at most arose because he wished to sustain his divorced status. We hold that it is not incident to the divorce. The deduction was properly disallowed.
Reviewed by the Court.
Decision will be entered for the respondent.
MURDOCK, J., dissenting: The petitioner had been sending money to his wife for her support and the support of his three minor children up to the time of his questionable Florida divorce. He had also been discussing divorce and financial arrangements with her through attorneys, but no written agreement settling such questions as property rights, alimony, and the custody of the children had been entered into. The Florida divorce did not settle those matters or relieve him of the legal obligation to support his wife and children, which was imposed upon him because of his marital and family relationship to them. The agreement here in question was entered into about seven months after the Florida divorce. The petitioner did not thereby resume any obligation of which he had been previously relieved. The majority opinion is unjustifiably narrow in holding that the written instrument was not incident to the divorce. One of the definitions of ‘incident‘ is belonging subsidiarily, or characteristically depending upon, or connected with another thing as its principal. The time element is not determinative of the meaning of the words ‘incident to‘ where, as here, the agreement was directly related to the divorce. The petitioner obtained the Florida divorce, had apparently obtained it to marry another woman, and had married another woman, all without making any permanent provision for the support and maintenance of his first wife and their children. Obviously, his efforts to divorce his first wife were not complete until he had made an agreement for the support and maintenance of his first wife and the three children. The periodic payments required by that instrument were ‘in discharge of, a legal obligation which, because of the marital or family relationship is imposed upon‘ the petitioner under that instrument. These facts bring this case within the words and intended purpose of this statute and entitle the petitioner to the deduction claimed.
JOHNSON, J., agrees with this dissent.
KERN, J., dissenting: Petitioner went to Florida on May 2, 1943. At that time he had a wife and three children living in New Jersey. At some undisclosed time between May 2 and October 25, he filed a divorce action in a Florida court. Whether it was filed 90 days after he entered Florida is not shown. There was no personal service of process upon his wife and she entered no appearance in the action. We may assume that service was made by publication pursuant to the chancery rules of the Florida courts, which require as a prerequisite to such service that the plaintiff execute an affidavit giving the last known place of residence of the defendant. We have no evidence as to any affidavit executed by petitioner. The divorce decree of October 25, 1943, which made no reference to any alimony or support, indicates that no testimony was given before the judge entering that decree. Shortly thereafter petitioner married another woman in New York.
In June 1944 petitioner and his first wife entered into the written contract described in the majority opinion. That contract indicates unmistakably that, at the time it was executed, both parties thereto considered that petitioner had a legal obligation to his first wife because of the marital relationship. It also indicates that the first wife did not recognize, or acknowledge, the validity of the divorce decree by preventing any attack being made thereon.
Under the circumstances shown, I am unable to agree that the written contract of June 1944 was not in discharge of a legal obligation because of the marital relationship. Nor am I able to agree that this contract, which was executed by petitioner for the purpose, inter alia, of preventing an attack upon the validity of the Florida divorce decree, was not incident to such decree.