Helvering v. Fitch

• Decision Date: 29 January 1940
• Docket Number: No. 243,243
• Citation: 60 S.Ct. 427,309 U.S. 149,84 L.Ed. 665
• Parties: HELVERING, Commissioner of Internal Revenue, v. FITCH
• Court: U.S. Supreme Court

309 U.S. 149

60 S.Ct. 427

84 L.Ed. 665

HELVERING, Commissioner of Internal Revenue,

v FITCH.

No. 243.

Argued Jan. 5, 8, 1940.

Decided Jan. 29, 1940.

Mr. Arnold Raum, of Washington, D.C., for petitioner.

Messrs. Wm. D. Mitchell, of New York City, and Arnold F. Schaetzle, of Des Moines, Iowa, for respondent.

Mr. Justice DOUGLAS delivered the opinion of the Court.

Petitioner claimed that an amount of $7,128 distributed in 1933 under a so-called alimony trust to respondent's divorced wife should have been included in respondent's taxable income for that year. The Board of Tax Appeals agreed and found a deficiency. 37 B.T.A. 1330. The Circuit Court of Appeals reversed, and judge dissenting, 8 Cir., 103 F.2d 702. We granted certiorari, 308 U.S. 535, 60 S.Ct. 103, 84 L.Ed. —-, because of the asserted failure of that court correctly to apply the principle involved in Douglas v. Willcuts, 296 U.S. 1, 56 S.Ct. 59, 80 L.Ed. 3, 101 A.L.R. 391.

The so-called alimony trust in question was created a few years before the divorce, while respondent and his wife were separated, and in settlement of a suit brought by her for separate maintenance. Certain premises (a hair tonic factory and a long term lease thereon) were transferred to a trustee to hold title, collect rents and after deduction of expenses to pay the wife $600 a month during her life and the balance to respondent for his life.¹ On the death of either respondent or his wife the de- ceased's share of the income was to be paid to their children.² The trust was to continue at least fifteen years. On the death of both respondent and his wife the principal was to be paid over to their children. The trust was irrevocable. And while respondent covenanted to pay off certain encumbrances on the trust property, he did not underwrite in whole or in part the $600 monthly payments to his wife.

In 1925 she filed suit for a divorce in an Iowa court. A property settlement was agreed upon which included the trust agreement and, in addition, provided for a transfer to her by respondent of certain shares of stock and cash.³ The divorce decree confirmed the property and alimony settlement.⁴

The general rule is clear. 'Amounts paid to a divorced wife under a decree for alimony are not regarded as income of the wife but as paid in discharge of the general obligation to support, which is made specific by the decree'. Douglas v. Willcuts, supra, 296 U.S. at page 8, 56 S.Ct. at page 62, 80 L.Ed. 3, 101 A.L.R. 391. It is plain that there the alimony trust, which was approved by the divorce decree, was merely security for a continuing obli- gation of the taxpayer to support his dovorced wife. That was made evident not only by his agreement to make up any deficiencies in the $15,000 annual sum to be paid her under the trust. It was also confirmed by the power of the Minnesota divorce court subsequently to alter and revise its decree and the provisions made therein for the wife's benefit. Likewise consistent with the use of the alimony trust as a security device was the provision that on death of the divorced wife the corpus of the trust was to be transferred back to the taxpayer. Respondent insists that in the instant case there is no continuing obligation to which the income of the alimony trust is applied but rather that the property and alimony settlement approved by the Iowa court effected an absolute discharge of any duty or obligation on his part to support his divorced wife. It is true that there is no covenant or guarantee to make up any deficiency in the monthly payment to his divorced wife, as there was in the Douglas case. And unlike that alimony trust, the instant one, though granting the taxpayer a participation in the income, irrevocably alienates the corpus. Other indicia of the use of this alimony trust as a security device for any continuing obligation of respondent are alleged to be absent by reason of the lack of power in the Iowa court to modify the decree confirming the property and alimony settlement.

The Iowa statute provides: 'When a divorce is decreed, the court may make such order in relation to the children, property, parties, and the maintenance of the parties as shall be right. Subsequent changes may be made by it in these respects when circumstances render them expedient.'⁵

Admittedly the court under that statute has the power to modifyprovisions in the original decree for the con- tinued support and maintenance of the wife.⁶ And it likewise seems well settled by a long line of Iowa cases that where the original decree makes no provision for alimony, there is no power subsequently to modify the decree so as to provide it.⁷ And, respondent contends, where alimony is allowed in a lump sum or a property settlement is ratified by the decree, the court retains no power to modify.

Spain v. Spain, 177 Iowa, 249, 158 N.W. 529, L.R.A.1917D, 319, Ann.Cas.1918E, 1225 and McCoy v. McCoy, 191 Iowa, 973, 183 N.W. 377, on which respondent and the Circuit Court of Appeals place reliance are not in point since those divorce decrees, unlike the instant one, made no provision for alimony. In Spain v. Spain, supra, the Supreme Court of Iowa specifically reserved the question of the power to modify a divorce decree involving a property settlement. As to that it said (177 Iowa at pages 260, 261, 158 N.W. at page 533): 'As to an award in gross or a division of the property based upon an equitable approtionment of the property of either of the parties at the time the divorce is granted, we have no occasion to speak, for that matter is not in the case.'

Likewise Barish v. Barish, 190 Iowa 493, 180 N.W. 724, cited below and urged here in support of respondent's contention, is of little aid, for in spite of a strong concurring opinion that the court had no power to modify an allowance of 'gross' or 'permanent' alimony, the majority applied the statute and concluded (190 Iowa at page 501, 180 N.W. at page 727) 'Whatever the extent of the power of the court may be to make such increase, it is always slow to exercise such power, except in the presence of extraordinary circumstances, such as are not present here.' To be sure, there is the following strong statement in Kraft v. Kraft, 193 Iowa, 602, 607, 187 N.W. 449, 451: 'We are inclined to the view that where alimony is allowed in a lump sum as permanent alimony, or there is a division of the real property of the parties, as permanent alimony, the statute does not authorize a change therein, except for such reasons which would justify the setting aside or changing a decree in any other case; that the party awarded permanent alimony is not entitled to permanent alimony and support both * * *.' And in Carr v. Carr, 185 Iowa, 1205, at page 1211, 171 N.W. 785, at page 787, that court stated: 'Alimony is allowed in lieu of dower and the prior duty of support, and a review of the decree awarding or refusing same can be had only for such fraud or mistake as would authorize the setting aside or modification of any other decree.' In that case the divorce decree required the husband, inter alia, to convey certain real estate to a trustee for the exclusive benefit of the wife to be held in trust for five years, during which time the income was to be paid over to the wife and at the end thereof the trustee, on demand, was to convey the property to her. Meanwhile, the trustee had the power to sell the property at not less than $100 an acre. Shortly before the expiration of the five-year period, the divorced husband filed a cross-petition in the divorce suit asking for a modification of the trust in order to protect his former wife from her own extravagance and her inexperience in business affairs. Apparently the relief asked was not based on the Iowa statute giving the court power to make subsequent changes in the divorce decree 'when circumstances render them expedient.' For the court stated that the modification of the decree was sought on the grounds (1) that the donor of the trust was entitled to have it carried...