Griffith v. Comm'r of Internal Revenue, Docket No. 66316.

• Decision Date: 13 March 1961
• Docket Number: Docket No. 66316.
• Citation: 35 T.C. 882
• Parties: FLORENCE H. GRIFFITH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

35 T.C. 882

FLORENCE H. GRIFFITH, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 66316.

Tax Court of the United States.

Filed March 13, 1961.

1. Petitioner and her former husband were divorced pursuant to a decree of absolute divorce which specified, in addition to provisions for fixed alimony and support payments, that the husband was to pay premiums on a life insurance policy carried on his life in which petitioner was to be named beneficiary and would have, upon demand, the right to the cash surrender value. It was further provided that the exercise of this latter right by petitioner would terminate the provision of the agreement requiring insurance. The policy was to be maintained by the former husband gratuitously transferred complete ownership of the policy to petitioner and designated

her the beneficiary, both to be effective only during petitioner's lifetime. During the years in issue, 1952 and 1953, the husband paid the premiums on the policy and the cash surrender value of the policy was increased. Held, that the insurance premiums paid by the former husband are not includible in her taxable income under section 22(k) of the 1939 Code. Held, further, that the annual increment in the cash surrender value was not constructively received by petitioner and is not includible in her taxable income for the years in issue, as it was not unqualifiedly subject to her demand and no taxable event occurred in relation thereto.

2. Petitioner who was unmarried in 1953 lived in and paid $150 monthly for the rent of an apartment leased by her married daughter and paid $100 per month on the cost of food. This apartment was the principal place of abode of petitioner, her daughter, her unmarried granddaughter, and her son-in-law when he was not away (performing his duties as an enlisted man) in the United States Navy. Held, that petitioner, during 1953, maintained as her home a household within the meaning of section 12(c)(3) of the Code of 1939. Held, further, that petitioner furnished more than one-half of the total cost of maintaining said household and is entitled to compute her tax as head of a household for the taxable year 1953. Edward M. Pinter, Esq., for the petitioner.

Warren S. Shine, Esq., for the respondent.

FISHER, Judge:

The respondent determined deficiencies in income taxes against the petition for the taxable years 1952 and 1953 in the amounts of $1,667.41 and.$1,757.12, respectively. The questions presented are: (1) Whether premiums paid on a life insurance policy by petitioner's former husband were includible in petitioner's gross income as periodic payments under a decree of divorce or written instrument incident thereto for the years 1952 and 1953; (2) if the amounts of the premiums are not includible in petitioner's gross income in full, whether they are includible to the extent of the annual increments in cash surrender value of the insurance policy; and (3) whether petitioner qualified as head of a household for the taxable year 1953.

FINDINGS OF FACT.

Some of the facts were stipulated and are found accordingly.

Petitioner is an individual now residing at 17691 East Ranier Drive, Santa Ana, California. Her income tax returns for the years 1952 and 1953 were filed with the district director of internal revenue, Upper Manhattan District of New York.

Petitioner and Francis Willard Griffith (hereinafter referred to as petitioner's husband or Griffith) were married on September 21, 1926. There were two children of this marriage, Diane Florence Griffith, born in 1928, and Francis Willard Griffith II, born in 1932.

In December 1945 petitioner and her husband became estranged and thereafter lived apart. From that time they were not on friendly terms and have not, from the date of their separation, communicated directly with each other.

Petitioner and her husband retained separate law firms to represent them in contemplated divorce proceedings and in the negotiation of a property settlement and support agreement. Preliminary negotiations with respect to the divorce and settlement agreement began in January 1946. Francis Griffith was present on at least two occasions when the two groups of attorneys held conferences and conferred frequently with his won attorneys. Petitioner did not attend any conferences between the two groups of attorneys although on two occasions she was in an outer room while conferences between the two groups of attorneys were taking place in an adjoining room, and her attorneys on each occasion left the conference several times to confer with her while the conference was in process. She also conferred frequently with her own attorneys during the months in which negotiations were taking place. During the preliminary negotiations there were discussions between the parties' respective attorneys as to the amount of cash alimony which Griffith was to pay to petitioner.

Sometime in February 1946, petitioner's attorneys requested, as a part of the settlement agreement, that Griffith obtain a $100,000 insurance policy on his life and maintain it for the benefit of petitioner with a right in her to the cash surrender value thereof. Griffith made an alternate proposal of $5,000 a year additional cash alimony for 5 years and $500 a year additional for the following 15 years. This counteroffer was refused and petitioner's attorneys insisted on the life insurance policy which Griffith then agreed to provide.

In March 1946, Griffith applied to the Home Life Insurance Company (hereinafter referred to as the company) for a $100,000 policy on his life because at that time it appeared that such a policy would form part of the agreement and he wanted to know as soon as possible whether he was insurable for such amount. In accordance with the application, Home Life Insurance Company's policy No. 537796, insuring Griffith's life in the fact amount of $100,000 was issued on April 30, 1946. Before any final agreement was reached between the parties, Griffith exhibited this policy to petitioner's attorneys who were made aware of its terms and premiums. Petitioner's attorneys made no objection thereto.

The property settlement and support agreement was thereafter executed by the parties on July 12, 1946. Paragraph 1 thereof provides for annual cash alimony payments that Griffith was obligated to make to petitioner during his lifetime or until the remarriage or death of petitioner. Griffith has made the payments required to be made to petitioner under paragraph 1 of the agreement during the years here involved, and petitioner has reported these amounts on her income tax returns.

Paragraph 5 of the agreement provides:

V. In addition, Mr. Griffith agrees to procure and deliver to Mrs. Griffith policies of insurance with a reputable life insurance company or companies in the face amount of $100,000.00 on his life payable to Mrs. Griffith as beneficiary. The policy shall run for a twenty year duration during which time Mr. Griffith shall pay the premiums so as to maintain it in full force and effect without lapse. In the event a default shall occur in the payment of any of the premiums upon such policy or policies and the said insurance shall lapse and Mr. Griffith shall die without such insurance in effect during the time he is required by this agreement to keep it in effect, Mrs. Griffith shall be entitled to receive out of the husband's estate the sum of $100,000.00 free from all inheritance tax.

Upon demand Mrs. Griffith at any time during the twenty year period aforesaid may obtain the cash surrender value of the insurance policy or policies above mentioned and Mr. Griffith hereby agrees to execute any and all instruments necessary to effect this end. Should Mrs. Griffith avail herself of this option, the insurance provision above set forth shall terminate and it will not be necessary for Mr. Griffith to provide the said insurance.

Paragraph 10 of the agreement provides:

X. This agreement shall become effective upon the entry of the final decree in favor of Mr. Griffith in the divorce proceeding pending in the Court of Chancery of New Jersey as aforesaid, and with the approval of said Court this agreement shall be merged or attached or annexed to the decree nisi and the final decree of divorce as aforesaid, and shall be regarded as incident to the said decrees.

On July 17, 1946, the Court of Chancery of the State of New Jersey, a court of record, entered a decree nisi dissolving the marriage of petitioner and Griffith, to which decree was annexed the property settlement and support agreement described in the preceding paragraphs. The decree nisi specifically provided that this agreement should be regarded as incident to the decree nisi to the final divorce decree on October 18, 1946, making absolute and final the decree nisi and all its provisions.

Griffith, at the time the agreement was negotiated, understood that as of the effective date of the final divorce decree he was required under paragraph 5 of the agreement to immediately transfer to petitioner the right to the cash surrender value of the policy of life insurance and to make her irrevocable beneficiary thereof for a period of 20 years, executing any and all documents necessary to accomplish this purpose. Under date of July 23, 1946, Griffith wrote a letter to the Home Life Insurance Company which read in part as follows:

I have your letter of July 22, and also the 12 life insurance policies which were sent with it. Under the terms of the agreement made with Mrs. Florence H. Griffith, I am to maintain your Policy No. 537796 for her benefit during her life or until her remarriage. This agreement takes effect October 18, 1946, and she is to have the right to surrender the policy for its cash value' at any time during the period during which I am obligated to maintain it in force.

The insurance company explained to Griffith that the transfer of the right to the cash surrender value to petitioner could be...