Goninen v. Commissioner
| Decision Date | 22 December 1983 |
| Docket Number | Docket No. 10632-81. |
| Citation | 47 TCM (CCH) 737,1983 TC Memo 769 |
| Parties | Alvin Henry Goninen, Jr., and June E. Goninen v. Commissioner. |
| Court | U.S. Tax Court |
Karen A. Case, for the petitioners. James M. Klein and Linda A. Jackson, for the respondent.
Memorandum Findings of Fact and Opinion
The Commissioner determined deficiencies in the petitioners' Federal income taxes of $1,522.00 for 1977 and $1,318.00 for 1978. The sole issue for decision is whether, under section 215 of the Internal Revenue Code of 19541 (), the petitioners are entitled to deduct certain payments made by petitioner Alvin Goninen to his former wife, Bonnie Jean Goninen, pursuant to a divorce decree.
Some of the facts have been stipulated, and those facts are so found.
The petitioners, Alvin Henry Goninen, Jr., and June E. Goninen, husband and wife, resided in Mineral Point, Wis., at the time they filed their petition in this case. They filed their joint Federal income tax returns for 1977 and 1978 with the Internal Revenue Service.
From 1944 to 1975, Alvin was married to Bonnie Jean Goninen.2 Four children were born of such marriage. During the course of their marriage, Bonnie Jean was primarily a farm wife; she raised the children, worked in the fields during hay season, milked cows, and cooked for the family and the farm help. Bonnie Jean brought no property into the marriage, but during the course of the marriage, she inherited $1,000 from a great aunt. During the marriage, the Goninens acquired several parcels of real estate. Alvin held title to such parcels. However, over the years, Bonnie Jean signed notes and mortgages with respect to such properties on which she was personally liable. The proceeds of such notes were used to purchase other property and for general farm purposes.
Sometime around 1971, the Goninens' son, Michael, expressed an interest in taking over the family farming operations, and Alvin and Bonnie Jean decided to move to town. In January 1971, the Goninens purchased a residence in Mineral Point, Wis., and in December 1971, they moved there. Record title to such property was held in Alvin's name. Sometime after they moved to town, Bonnie Jean took a job at the State Historical Society, where she worked 6 months a year as a tour guide.
On January 2, 1972, Alvin and Bonnie Jean executed a farm lease with their son, Michael, with respect to their home farm. The lease contained a provision giving Michael an option to purchase the farm for $96,000 and the farm machinery for $30,245. Pursuant to the lease agreement, Michael could exercise the option to purchase the farm by notifying the Goninens of his intent to do so on or before January 2, 1976. The lease also provided that any sale would be by contract payable in installments over a 15-year period.
By 1975, the marriage between Alvin and Bonnie Jean had deteriorated, and she considered that the relationship was adversely affecting their 10-year-old child. Bonnie Jean hired James Harris, an attorney, and in March 1975, she instituted divorce proceedings against Alvin. Alvin retained Roger Mueller as his attorney. Mr. Mueller initiated the negotiations with Mr. Harris. To facilitate a settlement, Mr. Mueller prepared a schedule of assets and liabilities which showed that the Goninen's net worth was $285,730. By letter dated September 10, 1975, Mr. Mueller pointed out to Alvin that "Since your marriage is of long duration it is my opinion that a court would award her property division of close to 50 percent." Therefore, he proposed a division of property giving 47 percent to Bonnie Jean and 53 percent to Alvin.
In the course of the negotiations, various proposals were made in an attempt to effectuate an equal division of the property. Under the first proposal, Bonnie Jean was to receive a one-half interest in one of the farms. However, Mr. Mueller discovered that an outright transfer of such interest to her might result in Alvin having to pay a substantial capital gain tax. In addition, Alvin let it be known that he was not willing to relinquish his interests in certain farms. Moreover, the Goninens intended to sell the home farm to their son pursuant to the option granted to him. With these considerations in mind, Mr. Mueller proposed that the home farm be sold to Michael on an installment basis. In accordance with Alvin's wishes, Mr. Mueller also arranged with Mr. Harris for Alvin to retain interests in the real property. Eventually, the parties executed a stipulation providing for the division of their properties. As a part of such division, Bonnie Jean agreed to accept $84,000 in cash: $60,000 of such amount was to be paid in 15 annual installments of $4,000, and $24,000 was to be paid by way of 12 annual installments of $2,000. The $4,000 annual installments were secured by the home farm, which was to be sold to Michael under an installment contract. The $2,000 annual installment payments were secured by the Graber property, which was to be sold under a 12-year installment contract. The stipulation between the parties provided that the annual payment of $4,000 to Bonnie Jean was contingent on Alvin receiving the $4,000 annual payment from the sale of the home farm. Bonnie Jean would have liked to have received the $84,000 cash settlement outright. However, due to Alvin's claim that he lacked the cash to make such a payment, his insistence on retaining interests in the farms, and the parties' desire to have their son purchase the home farm, she agreed to accept the cash payments over time.
During the course of the negotiations, "heated discussions" occurred over the question of alimony. Mr. Harris was originally led to believe that Alvin would not stipulate to a provision for the payment of alimony. Yet, in a letter to Mr. Mueller, Mr. Harris wrote:
I would also request that a nominal amount of alimony be agreed to because of Mrs. Goninen's age and employability. At some future date she may have cause to request maintenance for herself. The amount of $5.00 per month alimony would be acceptable.
Mr. Mueller wrote to Mr. Harris and stated that he considered the payments to be made by Alvin to be "a form of alimony." The parties eventually included a provision in the stipulation whereby Bonnie Jean was to "receive the sum of $5 per year * * *, said amount to constitute an alimony payment." At the time of the divorce, Alvin earned approximately $500 to $550 per month, and Bonnie Jean earned approximately $300 per month during the months that she worked.
On December 22, 1975, Alvin and Bonnie Jean were divorced. The stipulation of the parties, with minor exceptions, was incorporated into the divorce decree. The court awarded custody of the minor child to Bonnie Jean and allowed her to claim the child as a dependent for Federal income tax purposes. Alvin was ordered to pay $100 per month as child support. The decree provided, in part:
At another point, the decree provided:
That the annual payment of $4,000 for 15 years and $2,000 for 12 years shall be binding upon * * * Alvin, his heirs and assigns, that * * * Bonnie Jean, for herself, her heirs and assigns shall release the lien provided as security for payment upon receipt of the final of said annual installments. Emphasis added.
The decree contained a separate provision for an alimony payment, which provided:
* * * Bonnie Jean shall receive the sum of $5 per year payable on or before January 10th of each year, first payment due on or before January 10, 1976, said amount to constitute an alimony payment or additional alimony payment * * * Emphasis added.
Mr. Mueller prepared the decree of divorce and added the words "or additional alimony payment" to the decree.
The following schedule reflects the division of the marital property pursuant to the divorce decree, the record owner of such property before the division, and other payments which were made to effect the division of the property:
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