Brady v. Comm'r of Internal Revenue, Docket No. 14176.

• Citation: 10 T.C. 1192
• Decision Date: 28 June 1948
• Docket Number: Docket No. 14176.
• Parties: GEORGE T. BRADY AND RUTH L. BRADY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: United States Tax Court

10 T.C. 1192

GEORGE T. BRADY AND RUTH L. BRADY, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 14176.

Tax Court of the United States.

Promulgated June 28, 1948.

Held, the obligation under a certain agreement was incident to divorce as provided in section 22(k), I.R.C., and the payments made thereunder during 1942 and 1943 are deductible by petitioner under the provisions of section 23(u), I.R.C. Wilbur Langdon Powers, Esq., for the petitioners.

Leo C. Duersten, Esq., for the respondent.

The respondent determined a deficiency of $2,081.27 in the petitioner's income and Victory taxes for the year 1943.

The single issue is whether or not payments made by petitioner George T. Brady to his divorced wife pursuant to an agreement with her dated October 30, 1937, are deductible under the provisions of section 23(u) of the Internal Revenue Code. The question may be further resolved by stating it thus: Was the agreement of October 30, 1937, providing for periodic payments to the petitioner's wife, executed incident to divorce?

FINDINGS OF FACT.

Certain facts were stipulated. The portions thereof material to the issue are as follows:

The petitioners, individuals residing in Waltham, Massachusetts, filed their 1942 and 1943 individual income tax returns on the cash basis with the collector of internal revenue for the District of Massachusetts. (Hereinafter George T. Brady will be called the petitioner.)

On May 15, 1928, petitioner and Hazel Bell Brady were married at Newton, Massachusetts. An action for divorce was commenced by Hazel Bell Brady against petitioner on November 24, 1936, in the Supreme Court, County of New York, State of New York. On January 18, 1937, an order was entered by that court directing the petitioner to pay to Hazel Bell Brady the sum of $200 per month for the maintenance and support of herself and of the minor son of the plaintiff and defendant. On June 16, 1937, the action for divorce in the Supreme Court, County of New York, State of New York, was dismissed by the court for failure to prosecute.

On October 30, 1937, the petitioner and Hazel Bell Brady entered into an agreement providing, in part, as follows:

WHEREAS, in consequence of disputes and unhappy differences, the parties have separated, and are now and since prior to November, 1936, have been living separate and apart, and since their separation have agreed to live separate and apart during their natural lives, and

WHEREAS, heretofore, when both parties were residents of the State of New York, the Wife instituted action in the Supreme Court, New York County, State of New York, against the Husband for an absolute divorce, and such proceeding is still pending, and

WHEREAS, as part of such proceedings an Order was entered requiring the Husband to pay to the Wife each month for her support and the support, maintenance and education of the child the sum of Two hundred Dollars ($200.00) per month and it is the desire of the parties to settle by the present Agreement certain arrears in payments thereunder and to provide by agreement as to future payments in lieu of the payments called for by such Order, and

WHEREAS, the parties are desirous of settling their property rights and the question of the custody of said child, and the Husband is desirous of making provision for the maintenance and support of the Wife and for the maintenance, support, and education of the said child, the welfare of the child being the primary concern of the parties;

NOW, THEREFORE, in consideration of the premises and the mutual promises and undertakings herein contained, and for other good and valuable considerations, the parties agree:

1.— The parties may and shall at all times hereafter live and continue to live separate and apart. Each shall be free from interference, authority and control, direct or indirect, by the other, as fully as if he or she were sole and unmarried. Each may reside at such place or places as he or she may select. Each may, for his or her separate use and benefit, conduct, carry on, and engage in any business, profession or employment which to him or her may seem advisable.

6.— The Wife shall support and maintain herself, and shall in all respects care for, educate, maintain and support the child properly and in such manner as to afford the said child the best care, education and maintenance and support consistent with the payments made by the Husband in accordance with the terms of this Agreement. In consideration thereof, the Husband shall make the following payments to the Wife:

(a) The Sum of One Hundred and seventy-five Dollars ($175.00) per month to and including the month of July, 1938; thereafter during such part of the lifetime of the Wife as the child remains with the Wife a monthly payment bearing the same proportion of One hundred and seventy-five Dollars ($175.00) as the then prevailing retail cost of living index in the area where the Wife then resides bears to the same index figure prevailing as of July 1, 1937; and during any period when the child shall not be living with the Wife a monthly payment equal to thirty percent (30%) of the Husband's then income after deduction of the insurance premiums actually paid by the Husband with respect of the policies referred to in Schedule A hereto attached, always provided, however, that when monthly payments payable to the Wife for the support and maintenance of the Wife and child when added to the monthly cost of insurance premiums shall exceed sixty percent. (60%) of the Husband's current income the monthly payment shall be decreased to such figure as, when said insurance premiums are added thereto, shall equal sixty percent. (60%) of the Husband's current income. In the event of reduction of payments below the monthly payments above specified for the support and maintenance of the Wife and the child by reason of application of the percentage limitation, the obligation of the Husband to pay on a percentage basis shall continue until all deficiencies shall have been made good.

(b) In the event the (sic) subsequent to the date of this Agreement the parties hereto are divorced and in the further event of remarriage of the Wife, the obligation of the Husband to make payments to the Wife shall cease and in lieu thereof the Husband shall be obligated to pay over to the Wife for the support and maintenance of the child thirty-five percent. (35%) of the current income of the Husband with respect to each period of time that the child shall remain with the Wife during the child's minority.

13.— The provisions of this Agreement shall not be construed to prevent either party from suing for an absolute or limited divorce in any competent jurisdiction upon such grounds as he or she shall elect or as he or she may be advised; but no decree so obtained by either party shall in any way affect this Agreement or any of the terms, covenants or conditions thereof, this Agreement being absolute, unconditional, and irrevocable and both parties intending to be legally bound thereby.

Other provisions related to the custody of the child, the disposition of property and default under the agreement.

On May 18, 1938, Hazel Bell Brady commenced a libel for divorce against the petitioner in the Probate Court of Essex County, Commonwealth of Massachusetts. The libel contains the following prayer:

WHEREFORE your libellant prays that a divorce from the bond of matrimony between your libellant and the said libellee be decreed; that the care and custody of said minor child be given to your libellant; that an allowance be decreed to your libellant for the support of herself and said minor child, in order to secure a suitable support and maintenance to your libellant and to such child as may be committed to her care and custody. Your libellant further says that in November 1936 she brought an action of divorce against the said George Todd Brady in the Supreme Court for the State of New York and County of New York, which was dismissed on June 16, 1937 for failure to prosecute. A certified copy of the divorce complaint and summons and court records covering the divorce action in New York is attached hereto and made part of this libel. No petitions for Annulment, Separate Support, Desertion, or Custody have ever been filed in any other libel.

On July 28, 1938, a decree from the bond of matrimony nisi was decreed by the Probate Court of Essex County, Commonwealth of Massachusetts. The decree of divorce became absolute on January 30, 1939. In his notice of deficiency the respondent disallowed the amounts of $1,650 and $1,906.25 claimed as deductions on the petitioner's 1942 and 1943 income tax returns. The amounts herein referred to were paid by the petitioner to Hazel Bell Brady.

The record discloses the following additional facts:

At the time that the agreement of October 30, 1937, was drafted and executed, counsel for Hazel B. Brady assumed and believed that her New York action for divorce was still pending, although in fact it had been dismissed on June 16, 1937.

On October 26, 1937, Leland Powers, an attorney, of counsel for Hazel Bell Brady, wrote the petitioner as follows:

In August Grier Bartol, Esq. forwarded me separation agreements which I have gone over with Mrs. Brady. I understand these agreements are in form satisfactory to you, and I enclose them herewith, signed by her. You should sign them on page 10, have your signature witnessed, and then acknowledge before a Notary Public. You...