1953 U.S. Tax Ct. LEXIS 13">*13
Petitioner and her former husband entered into a separation agreement providing for monthly payments to petitioner, but the agreement was not prompted by plans for an eventual divorce of the parties. Therefore, although the petitioner's husband, 2 years later, secured a divorce and remarried, the separation agreement was not incident to the divorce.
21 T.C. 371">*371 In this consolidated proceeding, deficiencies in petitioner's income taxes for the years 1947, 1948, and 1949 in the amounts of $ 275, $ 276, and $ 276, respectively, have been determined by the respondent.
The deficiencies were determined because respondent concluded that payments made to the petitioner, or for her benefit, by her former husband under an agreement of separation were taxable to petitioner under
FINDINGS OF FACT.
The petitioner, Mrs. Frances Hamer Johnson, resides in High Point, North Carolina. For each of the years 1947, 1948, and 1949, her individual income tax returns were filed with the collector of internal revenue for the district of North Carolina.
21 T.C. 371">*372 The petitioner and Bedford Forrest Johnson were married on or about August 20, 1919. As a result of marital difficulties, the petitioner and her husband entered into a deed of separation on December 8, 1941. By this agreement, the husband agreed to pay the petitioner $ 150 monthly until June 1942, when the payments were to be increased to $ 200 monthly and continue until the death of one of the parties or the remarriage of the petitioner. In addition, the husband agreed to keep in force a policy of insurance on his life which named the petitioner as beneficiary until her death or remarriage. Under this agreement, the petitioner received $ 2,400 from Bedford Forrest Johnson in each of the years 1947, 1948, and 1949, and in each of these years he paid premiums in the amounts of $ 106, $ 106, and $ 106.20, respectively, to keep the insurance policy in effect.
Petitioner's returns for 1948 and 1949 were1953 U.S. Tax Ct. LEXIS 13">*15 information returns only, reporting receipt of no taxable income. Her original return for 1947 reported $ 2,400 received from her former husband but, upon claim for refund, the tax paid for that year was refunded and petitioner filed an amended return for 1947 showing no taxable income in that year.
On December 20, 1943, Bedford Forrest Johnson filed suit for divorce from petitioner reciting that he and petitioner had separated by mutual agreement on December 9, 1941, and had been living separate and apart continuously for more than 2 years. On April 4, 1944, the Municipal Court of the City of High Point, North Carolina, granted Bedford Forrest Johnson an absolute divorce from the petitioner. Bedford Johnson remarried shortly after the divorce was granted.
At the time the separation agreement was signed, the petitioner did not contemplate divorcing her husband. Marital difficulties attributable to her husband's addiction to alcohol were responsible for the separation.
The separation agreement was not incorporated in the decree of divorce. The court was apprised of the separation agreement, and it served to establish the parties' 2-year separation required under North Carolina1953 U.S. Tax Ct. LEXIS 13">*16 law as grounds for divorce. None of the witnesses at the signing of the separation agreement was aware of any intention on the part of either of the parties to obtain a divorce and none had heard of any suggestion of divorce from either petitioner or her former husband. In discussions had by the attorney who drafted the separation agreement with petitioner and her former husband, neither of the spouses mentioned or suggested the probability of an eventual divorce.
The separation agreement was not incident to the divorce of petitioner from her former husband.
21 T.C. 371">*373 OPINION.
There is no dispute between the parties on the basic facts involved in this proceeding. The parties disagree only on the ultimate conclusion to be drawn from the facts. The only question we have to decide is whether the written agreement of separation, dated December 8, 1941, was "incident to" the divorce of petitioner and her husband within the meaning of
The respondent argues that the separation agreement here involved was incident to the eventual divorce decree because: (1) It provided for the cessation of payments on the contingency of the petitioner's remarriage; and (2) the swift consummation of the divorce proceeding, and remarriage of the husband, after the end of the 2-year separation period which commenced with the signing of the agreement.
Against these arguments is the petitioner's testimony that divorce was not contemplated, at least not by her, at the time the agreement was signed. She had been married 22 years and hoped for an eventual reconciliation following the separation brought on by her husband's drinking. The witnesses at the signing of the agreement, among whom were petitioner's sister, testified that the matter of divorce or possible divorce was not mentioned or suggested by either spouse. The attorney who drafted the separation agreement testified that in his discussions with petitioner and her husband in connection with the drafting and execution1953 U.S. Tax Ct. LEXIS 13">*18 of the agreement no mention of divorce was made or suggested by either of them. The petitioner contends that the purpose of the separation agreement was to protect her and provide for her during the period in which her husband hoped to give up his heavy drinking and rehabilitate himself.
The chief difficulty in cases of this kind is to determine from the facts whether the necessary connection or relationship exists between the agreement and the divorce. The connection is obvious when there is an express understanding or promise that one spouse is to sue promptly for a divorce after signing the settlement agreement, and the action is brought and followed through quickly.
In this case we find no obvious connection between the separation agreement of December 1941, and the divorce of the parties in April 1944. Certain circumstantial deductions can be drawn from the terms of the agreement and from the fact that the husband instituted the divorce proceeding a short time after the expiration of the 2-year period of separation marked at the beginning by the signing of the agreement, and also from the fact that he remarried apparently a short time after the divorce was granted in April 1944. But these facts do not persuade us that the husband had definitely made up his mind to seek a divorce at the time the agreement was signed and we cannot find any facts or surrounding circumstances which indicate to us that either of the parties intended to sever the marriage relationship completely when they separated originally in December 1941.
We have evidence that the separation agreement was before the divorce court, informally at least. However, the decree of divorce made no mention of the terms of the agreement for the support and1953 U.S. Tax Ct. LEXIS 13">*20 maintenance of the petitioner nor was alimony specified in the decree. Therefore, the monthly payments which her former spouse made cannot be taxed to petitioner under that provision of
Since we have concluded that there was no plan on the part of either spouse to break the marriage ties when the separation agreement was signed, we hold that the separation agreement was not incident to the divorce of petitioner from her former husband and that the monthly payments which she received under the separation agreement are not includible in her gross income.
