O'Nan v. Comm'r of Internal Revenue (In re Estate of O'Nan), Docket No. 5803-64.

• Decision Date: 28 March 1967
• Docket Number: Docket No. 5803-64.
• Citation: 47 T.C. 648
• Parties: ESTATE OF MORRISON T. O'NAN, DECEASED, MORRISON A. O'NAN, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

47 T.C. 648

ESTATE OF MORRISON T. O'NAN, DECEASED, MORRISON A. O'NAN, EXECUTOR, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 5803-64.

Tax Court of the United States.

Filed March 28, 1967.

James E. Banahan, for the petitioner.

Sanford S. Neuman, for the respondent.

Real estate was transferred by decedent to his wife, decedent retaining a life interest, pursuant to a predivorce property settlement agreement which was set forth and approved by th4 court in its divorce decree entered almost immediately thereafter. The wife was entitled to an equitable share in the husband's property, under the laws of the State of Kentucky, where the divorce was obtained. Held, the transfer of such real estate to the wife was for an adequate and full consideration in money or money's worth within the meaning of sec. 2036, I.R.C. 1954, and the value thereof is not includable in decedent's gross estate.

HOYT, Judge:

This proceeding involves an estate tax deficiency of $46,048.12. The question in issue is whether there should be included in decedent's gross estate the value of certain real estate consisting of farmlands which decedent conveyed to his wife under a property settlement agreement made at the time of the wife's filing of a suit for divorce. If that question is decided affirmatively, there is a further question as to valuation of the properties.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly and incorporated herein by this reference.

The decedent, Morrison T. O'Nan, was born on March 26, 1891, and died November 26, 1961, a resident of Springfield, Ky. A Federal estate tax return was filed on behalf of his estate with the district director of internal revenue at Louisville, Ky., June 18, 1962. Decedent was survived by his former wife, Tillie Farrand O'Nan, hereinafter called Tillie, who was born April 14, 1891, and their four children whose names and dates of birth as follows: Ellena O'Nan, October 12, 1915, Sara E. O'Nan, December 24, 1918; Tillie O'Nan Eddleman, June 18, 1921; Morrison A. O'Nan, August 11, 1927.

Morrison A. O'Nan was named executor of decedent's estate by his will which was admitted to probate on December 4, 1961.

Decedent and Tillie were married December 29, 1914, and lived together as man and wife until September 1938, when they separated because of marital differences and difficulties.

Prior to this separation decedent and Tillie lived with their children on one of decedent's farms, known as the O'Nan farm and sometimes referred to as the home place, located about 3 miles east of Springfield. This farm consisted of 3 adjacent tracts containing a total of approximately 400 acres. Two of these tracts had been purchased by decedent in 1919 and the third had been acquired by him after his mother's death in 1936 as his share of her estate and by purchase from the other heirs of their interests therein. At the time of their separation Tillie and the four children moved to a residence in Springfield which decedent had purchased in Tillie's name on March 4, 1937, for $5,500.

On February 19, 1938, long after the O'Nan's marital troubles had begun, decedent had conveyed the home place to Tillie reserving to himself, however, the right to operate and manage the farm and receive the income therefrom for life. He also retained a reversionary interest therein in the event Tillie should predecease him. The deed specified that decedent was to pay the taxes and upkeep on the farm during his lifetime. At this time decedent was 46 years and 11 months old and this property had a fair market value of approximately $35,000.

In 1942 decedent advised Tillie that he wanted a divorce. After considering the matter and discussing it with her eldest daughter, Ellena, Tillie decided that she and the children would require at least $6,000 per year for their support. Ellena conveyed this information to decedent who then made a counter offer to Tillie of $4,000 per year and fee simple title to his two farms subject to his reserved life estate therein. Tillie was not satisfied with this suggested settlement and took no further action at that time. In the fall of 1943 decedent then renewed his demand for a divorce. Tillie and her daughter, Ellena, then went together to consult her lawyer about the divorce and the matter of a settlement. Tillie did not want to accept decedent's proposal. Following a period of further discussion and negotiation, during which time Tillie was represented by counsel, they agreed to obtain a divorce and entered into an agreement dated October 15, 1943, which provided in material part as follows:

This Contract and Agreement made and entered into this day by and between Morrison T. O'Nan of Springfield, Washington County, Kentucky, party of the first part; and Mrs. Tillie Farrand O'Nan, of Springfield, Washington County, Kentucky, party of the second part.

WITNESSETH: That whereas unfortunate differences have arisen between the parties of the first and second part, which makes it no longer possible for them to live together as man and wife; and desiring to settle their property rights have contracted among and between themselves, and do hereby agree as follows:

Mrs. Tillie Farrand O'Nan, is to institute a divorce suit in the Washington Circuit Court on the grounds of five years separation.

Mr. Morrison T. O'Nan agrees to pay her alimony in the sum of Four Thousand ($4,000.00) Dollars per year; and agrees to pay her between the period of November 1, 1943 and January 1, 1944, the sum of Six Hundred and Sixty-six and 67/100 ($666.67) Dollars, and on the 1st day of January and July thereafter, beginning January 1, 1944, he is to pay her the sum of Two Thousand ($2,000.00) Dollars.

It is further agreed that Morrison T. O'Nan will each year kill for her three or more hogs, weighing in the aggregate at lest (sic) Six Hundred (600) pounds. He also agrees that she may come to the farm and receive vegetables, and other food products, and also butter, eggs, chickens and milk therefrom. It is also agreed that in the event Mrs. Tillie Farrand O'Nan, should die before his death, he is to provide reasonable support for any unmarried children.

Mrs. Tillie Farrand O'Nan, owns the residence in Springfield, Kentucky, which she is to keep as her own. Mr. Morrison O'Nan has conveyed to her a farm, which he purchased from Elmer Fenwick, and the O'Nan home place, and reserves to himself the right to operate, the said farms, and receive the profits from same, during his natural life.

It is agreed that the provisions of this Contract may be incorporated in, and as part of the Judgment for Divorce.

On the same date, October 15, 1943, decedent executed a deed to Tillie of the Fenwick farm which he had acquired earlier that year at public auction for $9,709.78, consisting of 208 acres situated about 6 miles north of Springfield. The same deed also conveyed to her the reversionary interest which O'Nan had retained by the 1938 deed to Tillie of the O'Nan farm. However, the October 15, 1943, deed reserved unto the grantor ‘a life estate in and to all of the said land, with the conwequent (sic) right to supervise, and manage same, and to receive all the profits and income from same. And to pay all of the taxes thereon, during his lifetime.’

A lien was given by the deed on decedent's reserved life estate in the properties to secure the $4,000 per year alimony payments to Tillie and her rights to the meat, vegetables, and dairy products from the farms.

Also on October 15, 1943, in accordance with their agreement that Tillie would sue for divorce, she filed her petition therefor in the Washington Circuit Court (Washington County, Ky.). In the petition Tillie set forth as her grounds that decedent had left home in 1938 and that the parties had been separated for 5 years. She also alleged that the parties had settled their ‘property differences' per agreement attached to the petition as exhibit No. I, and that ‘It is agreed between them’ that said contract be incorporated as part of the judgment prayed for. Decedent was served with a summons in this divorce action the same date.

On October 21, 1943, by agreement of the decedent and Tillie, depositions were take- in the divorce proceeding which established Tillie's right to the divorce. Decedent did not contest the action. On this same date the deed dated October 15, 1943, was recorded. In the interim between October 15, 1943, and October 21, 1943, Tillie had not held the deed; it was not effective until October 21, 1943, at the earliest date. On October 26, 1943, the county attorney of Washington County, Ky., filed his answer in the divorce proceeding in accordance with the then Kentucky requirements and practice, in which he stated that he was unable to make defense to the pleadings and proof in the action.

The following day, October 27, 1943, the court entered its judgment and decree granting Tillie a divorce. The court's judgment provided, after quoting in full the property settlement agreement between decedent and Tillie dated October 15, 1943, as follows:

It is further adjudged by the Court, that Morrison T. O'Nan, pay the Plaintiff, Mrs. Tillie Farrand O'Nan on November 1, 1943 the sum of Six Hundred and Sixty-Six and 67/100 ($666.67) Dollars, alimony until January 1, 1944, and thereafter he will pay her the sum of Four Thousand ($4,000.00) Dollars, per year; Two Thousand ($2,000.00) Dollars, on the 1st day of January 1944, and on each and every January 1, thereafter; and Two Thousand ($2,000.00) Dollars, on the 1st day of July, 1944, and on each and every July 1, thereafter.

It is therefore adjudged by the Court that Morrison T. O'Nan, will each year kill and deliver to the said Mrs. Tillie Farrand O'Nan, three or more hogs, weighing in the aggregate at lest (sic) Six Hundred (600) Pounds. She has the right to receive vegetables and food products from the farm, which he is to operate. She will also have the...