Opinion
Docket No. 8167.
1946-08-16
ELINOR STEWART SOKOL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Robert H. Montgomery, Esq., J. Marvin Haynes, Esq., W. C. Magathan, Esq., James O. Wynn, Esq., and Henry B. Burr, Esq., for the petitioner. Ellyne E. Strickland, Esq., for the respondent.
A separation agreement in New York provided for monthly payments by the wife to her husband for life, but was silent as to the husband's obligation to support his wife. After the subsequent divorce decree, in which the terms of this agreement were approved, the wife set up an irrevocable trust to make the agreed payments to her former husband. Held, that, under section 51 of the Domestic Relations Law of New York, which provides in part ‘a husband and wife cannot * * * to relieve the husband from his liability to support his wife, ‘ this separation agreement was not void, and that the payments by the trustee to the former husband relieved the wife of a legal obligation and should be included in the wife's taxable income. Robert H. Montgomery, Esq., J. Marvin Haynes, Esq., W. C. Magathan, Esq., James O. Wynn, Esq., and Henry B. Burr, Esq., for the petitioner. Ellyne E. Strickland, Esq., for the respondent.
This is a proceeding for the redetermination of a deficiency in income tax for the year 1941 in the amount of $1,595.49, part of which deficiency is in controversy herein.
The question presented is as to whether petitioner is taxable upon the income of a certain trust which she established for the benefit of her former husband.
FINDINGS OF FACT.
Petitioner is an individual and a resident of the city and State of New York. Her income tax return for 1941 was filed with the collector of internal revenue for the second district of New York.
On June 27, 1923, petitioner was married to Edward L. Ayers.
On or about February 21, 1930, petitioner and Edward L. Ayers separated.
Under date of October 31, 1932, Edward L. Ayers and the petitioner herein entered into a separation agreement in New York City, the pertinent parts thereof reading as follows:
SEVENTH: The Wife agrees to pay to the Husband for his maintenance the sum of three thousand dollars ($3,000) per annum, payable in monthly installments of two hundred fifty dollars ($250.) each, payable in advance on the first day of each month, beginning December 1, 1932; said payments to continue during the lifetime of the Husband. In order to induce the Wife to make said payments the husband hereby represents that he is without means of support or livelihood, and that without said allowance he would be in destitute circumstances.
TENTH: In the event that either of the parties hereto shall at any time hereafter obtain a final decree of separation or divorce against the other, the sums hereinbefore provided to be paid to the Husband by the Wife shall continue in lieu of all alimony, temporary or permanent, and in lieu of any and all allowances that might otherwise be decreed by any court to be payable by the Wife to the Husband for his support or maintenance; the provisions of this agreement to take the place of temporary and permanent alimony provisions, and of provisions for the custody of the children, in any such action and decree. In any such action the parties shall advise the court that the matter of alimony, temporary and permanent, to the Husband, and all questions of custody of the children, have been agreed upon by instrument in writing.
Within a few days after executing said agreement petitioner went to Nevada and instituted a divorce proceeding. Her husband, Edward L. Ayers, filed an answer thereto and entered his appearance.
On December 23, 1932, petitioner received a decree of divorce, the pertinent part of which reads as follows:
It is FURTHER ORDERED, ADJUDGED AND DECREED that the agreement made and entered into between the plaintiff and defendant on October thirty-first, 1932, be, and the same is hereby by this Court ratified and approved and the provisions thereof are hereby adopted by this Court.
Shortly thereafter petitioner married one Hugo Folke Nilsson and, as Elinor Stewart Nilsson on August 16, 1933, she created a trust by the terms of which the trustee was directed to collect the interest and income from the securities and property constituting the trust corpus and from the net income thereof to pay over to the said Edward L. Ayers the sum of $3,000 per annum, payable in monthly instalments of $250 each for and during the life of the said Edward L. Ayers, the purpose of said trust being set forth in the agreement as follows:
WHEREAS the party of the first part has heretofore entered into an agreement with her former husband, Edward L. Ayers, bearing date the 31st day of October, 1932, by which agreement the party of the first part agreed to pay to the said Edward L. Ayers the sum of Three Thousand Dollars ($3,000.) per annum in monthly instalments during his lifetime, and
WHEREAS the party of the first part is desirous of providing for the continuance of such payments and to create a trust for her own benefit.
On January 4, 1940, petitioner married Samuel B. Sokol and in 1941 filed her income tax return as Elinor Stewart Sokol. The deficiency involved in this case arose by reason of the fact that the Commissioner added to the declared income of the taxpayer the sum of $1,844.85, being the taxable income of the trust above mentioned.
At the time of the creation of said trust petitioner paid a gift tax on the property which she transmitted to the trust to constitute its corpus.
OPINION.
HARLAN, Judge:
The respondent contends that during the taxable year involved herein alimony payments, or payments made under an enforceable agreement in lieu of alimony, were taxable to the payor, Douglas v. Willcuts, 296 U.S. 1; Helvering v. Brooks, 82 Fed.(2d) 173; that, under the separation agreement and the trust created to carry out the same, petitioner herein was legally obligated to pay Edward L. Ayers, the beneficiary of the trust, $250 per month; and that the payments made by the trustee were in satisfaction of this legal obligation and, therefore, the petitioner, as the trustor who was relieved of legal responsibility to the beneficiary of the trust to the extent of the payments made to said beneficiary, is liable for the tax thereon.
The petitioner claims that the separation agreement violated section 51 of the Domestic Relations Law of the State of New York, which provides as follows:
A married woman has all the rights in respect of property, real or personal, and the acquisition, use, enjoyment and disposition thereof, and to make contracts in respect thereto with any person, including her husband, and to carry on any business, trade or occupation, and to exercise all powers and enjoy all rights in respect thereto and in respect to her contracts, and be liable on such contracts as if she were unmarried; but a husband and wife cannot contract to alter or dissolve the marriage or to relieve the husband from his liability to support his wife. * * *
and that by reason of the provisions of this statute the separation agreement, which provided for the payment by the wife to the husband of $250 per month, relieved the husband of his statutory liability to support his wife and therefore the contract was void. The cases cited by petitioner's brief pertain to antenuptial agreements and separation agreements wherein an affirmative provision is contained excusing the husband from further support of his wife or providing inadequate support of the wife.
We are unable to discern the applicability of these cases to the case at bar because in this case the separation agreement meticulously avoids any provision either excusing the husband from future support of his wife or limiting the amount of such support which the court in any subsequent divorce proceeding might see fit to impose. The contract does provide that the husband not only releases any and every claim that he may have against his wife, her property while living, or her estate when dead, but the husband also agrees that he will not ask for any more alimony in any subsequent divorce proceeding and that if any more alimony is granted by the court, the provisions of the separation agreement shall control. Let us assume that the day following the execution of the agreement petitioner had suffered a complete financial debacle and had lost her ability not only to pay the $250 per month promised, but to support herself. It seems to us evident that Edward L. Ayers' attorney would scan this agreement in vain to find any provision relieving him from his liability to support the petitioner. We must therefore reject the contentions of the petitioner based upon the fact that the separation agreement is void.
The respondent's brief, however, does not seem to contend that the separation agreement is unenforceable as such. His contention is that, even admitting the original nonenforceability of the separation agreement, nevertheless the separation agreement was approved and adopted by the court having jurisdiction of the parties in the divorce proceeding in Nevada and that such approval was made after both petitioner and her then husband had entered their personal appearances and after a hearing was held in which neither party contested the validity of the separation agreement, and that, therefore, petitioner is not estopped from questioning the validity of the separation agreement or the trust which was created by the petitioner to carry out the provisions thereof.
Respondent cites and relies on the cases of Hoyt v. Hoyt, 38 N.Y.S.(2d) 312; Graham v. Hunter, 42 N.Y.S.(2d) 717; and Fales v. Fales, 290 N.Y.S. 655. Each of these cases involves a separation agreement in which the party who sought to avoid the agreement contended that it was made upon the unexpressed consideration that a divorce would be obtained, which, of course, was an illegal consideration. In each case, however, the court held that, since the separation agreement was not illegal on its face, or manifestly against public policy, and since the parties to the agreement remained silent as to the illegality of the separation agreement when that agreement was before the divorce court for approval or rejection, therefore, the complaining party was estopped from asserting the illegality of the agreement. These cases are at once distinguishable from the case at bar, because in the case at bar, if the contract is void, it is void on its face. Therefore, there was nothing that the parties to the contract could fail to do which would make the contract valid in New York on any principle of estoppel. We can not, therefore, accept the defense set up by the respondent.
The basis of our holding is that this separation agreement is not void and on the record as presented to this Court its provisions relating to payments by the petitioner to her former husband are enforceable. The consideration for the promise to make these payments was a release by the former husband to petitioner of all claims against petitioner's property and of all future claims for alimony, dower, distributive share, etc. We do not interpret the law of New York to be that the mere failure to provide in a separation agreement for the future support of the wife makes the entire agreement, providing for mutual release of property rights, etc., ipso facto, void.
It is true that the case of Golden v. Golden, 17 N.Y.S.(2d) 76, contains this sentence: ‘The separation agreement was void because it failed to provide for the support of the wife.‘ That case, however, is unofficially reported and it contains no statement of facts. We are therefore inclined to believe that the use of the term ‘failed to provide for the support of the wife‘ probably referred to a clause in the contract which affirmatively excused the husband from support of the wife.
It will be noted that the court in Reischfield v. Reischfield, 166 N.Y.S. 898, used this sentence in its decision: ‘Where, however, a separation agreement does not provide for the support of a wife it * * * is void.‘
In the Reischfield case the court was specifically referring to a contract which affirmatively excused the husband from the support of his wife and not to a contract such as the one in the case at bar, which was merely silent on the subject.
It is further of interest to note that the case of Schiff v. Schiff, (March 11, 1946), 60 N.Y.S.(2d) 318, contains the following statement:
The third defense alleges that the separation agreement is void because it totally releases plaintiff from his liability to support his wife. The special term correctly held this defense to be insufficient. While the provision in the agreement exempting the husband from his obligation to support his wife contravenes section 51 of the Domestic Relations Law, that provision does not vitiate the entire agreement and the other provisions of the agreement may be valid and enforceable.
In the opinion in the Schiff case the court refers to the case of Golden v. Golden, supra, as though the contract in that case specifically exempted the husband from his duties to support his wife, just as did the contract in the Schiff case.
In Dworkin v. Dworkin, 286 N.Y.S. 982, the court held that while a provision in a contract specifically relieving the husband from his duty to support his wife was void as to that provision, nevertheless the provisions in the contract mutually releasing the claims to each other's property were valid. Since it is the law of New York, as shown by the very recent case of Schiff v. Schiff, that the inclusion of a release to the husband of obligation for future support of his wife which are not against public policy, the conclusion would seem to be inescapable that the contract at bar, which made no provision whatsoever concerning the wife's future support, would be valid in all of its otherwise legally enforceable aspects.
We therefore hold that the separation agreement herein was valid and that it imposed a legal obligation upon the petitioner to make the payments to her former husband provided for therein. Therefore the trust agreement entered into to carry out the terms of the separation agreement is based upon a valid consideration and the payments made therein relieve the petitioner of a legal obligation. We can not refrain from expressing our regret at being called upon to give legal approval to a contract by which a man sufficiently well equipped physically to be an officer in the Coast Guard and sufficiently endowed mentally to engage in the real estate business in New York City continues to accept support for life from another man's wife, but we can not permit our feelings in this regard to affect what appears to us to be a proper legal interpretation.
Judgment will be entered for the respondent.