These two proceedings, consolidated for hearing and decision, are appeals from deficiencies of $626.93 and $732.76, determined by respondent for the calendar years 1923 and 1924, respectively, and resulting from his inclusion in petitioner's income of sums representing income of a trust fund and paid her in those years. The issue is the same in each proceeding, petitioner contending that these amounts do not represent taxable income. The amount received by petitioner from the trust in each of the taxable years is not in dispute.
FINDINGS OF FACT.
Petitioner, on February 4, 1922, was the wife of Lorillard Spencer, and had one child born of that marriage, a boy then about 16 years of age. At this time there was pending in the Superior Court of the State of Rhode Island, a proceeding by petitioner for divorce, and on that date petitioner entered into the following formal written agreement with her husband:
MARY R. SPENCER, Petitioner. IN SUPERIOR COURT OF STATE OF RHODE ISLAND
vs. LAND AND PROVIDENCE PLANTATIONS IN
LORILLARD SPENCER, Respondent. AND FOR THE COUNTY OF NEWPORT
THIS AGREEMENT made February 4th, 1922, between Lorillard Spencer, of the City, County and State of New York, party of the first part, and Mary R. Spencer, of the City and County of Newport, State of Rhode Island, party of the second part.
WHEREAS the said parties were lawfully inter-married in the City and County of Newport, State of Rhode Island, on September 19, 1905; and
WHEREAS Lorillard Spencer, Jr., a boy of about sixteen years of age, is the only issue of said marriage; and
WHEREAS the party of the first part is the grandson of Lorillard Spencer who died on January 30, 1888, leaving a Last Will and Testament, dated January 6, 1886, and duly proved in the office of the Surrogate of the City and County of New York, on May 1, 1888, a copy of which will is hereto annexed; and
WHEREAS the said party of the first part is now entitled to a part of the income of a certain trust fund under Paragraph Ninth of said will and if he outlives his mother, Caroline S. Spencer, will be entitled to the principal of said trust fund; and
WHEREAS an action for an absolute divorce brought by the party of the second part against the party of the first part on the ground of non-support or neglect to provide is now pending in the Superior Court, County of Newport, State of Rhode Island and Providence Plantations, entitled Mary R. Spencer, petitioner, versus Lorillard Spencer, respondent; and
WHEREAS the parties hereto desire to agree between themselves as to the allowances that shall be made to the party of the second part pending the said action, and further to agree in the event that an absolute divorce is granted in said action upon a definite provision for the separate support of the party of the second part during her life, for the support and custody of Lorillard Spencer, Jr., infant son of the parties hereto, and the payment to be made in full settlement for all counsel fees, etc.,
Now, THEREFORE, the parties hereto, in consideration of the premises and of all lawful covenants hereinafter contained and of the sum of One Dollar ($1.00) by each of the parties hereto to the other paid, the receipt whereof is hereby acknowledged, mutually covenant and agree each with the other, as follows:
FIRST: That the said party of the first part agrees to transfer and convey to the NEW YORK LIFE INSURANCE AND TRUST COMPANY certain securities in trust for the benefit of the party of the second part and Lorillard Spencer, Jr., in the way and manner which is provided for in said deed, a copy of which is hereto annexed, to be executed by said party of the first part contemporaneously with the execution of these presents and to be delivered to the New York Life Insurance and Trust Company to be held in escrow, subject to the following conditions:
In the event of a final decree for an absolute divorce being entered in this cause, now pending, in favor of the petitioner, within nine months after the date of this instrument, then said deed of trust and securities shall be, within ten days after the entry of any such decree, delivered to the New York Life Insurance and Trust Company, with the intent that it shall become of full force and effect from the date of the entry of said final decree, but, if there shall not be a final decree for an absolute divorce entered in favor of the petitioner within said nine months, then said deed of trust and securities shall be delivered by said New York Life Insurance and Trust Company to the party of the first part.
SECOND: That the party of the first part, in addition to the provisions of paragraph "First", agrees to suitably support, maintain and educate the said Lorillard Spencer, Jr., and to pay all reasonable expenses except board, lodging and traveling expenses when he is with his mother until he is twenty-one years old or if he should enter College until he leaves or graduates therefrom and in no case beyond the time when he is twenty-five years of age.
THIRD: That until the said Lorillard Spencer, Jr., arrives at the age of twenty-one years, the party of the first part shall have the society and custody of the said Lorillard Spencer, Jr., during August of each year and also during the last half of his Christmas and Easter vacations, and that the party of the second part shall have such society or custody at all other times; that neither of the said parties shall take the said Lorillard Spencer, Jr., out of the United States of America without the consent in writing of the other; that each of the parties hereto shall have equal control over the education of the said Lorillard Spencer, Jr., and that if the said parties cannot agree upon the manner and place of such education, then each party hereto after five days' notice given by either party, to the other, shall choose one person to represent him or her in deciding the question or questions and if these two cannot agree, then, that they (the persons so chosen) shall within five days thereafter choose a third person whose decision shall be final.
FOURTH: That the party of the first part agrees immediately after the final decree for an absolute divorce is entered to pay to the party of the second part the sum of Twenty five thousand dollars ($25,000) in full settlement of all liability for counsel and witness fees, costs of the action, and for the care, support, maintenance and education of said Lorillard Spencer, Jr., to and including January 1, 1922, which said sum the said party of the second part hereby agrees to accept and take in full satisfaction of her claim for counsel and witness fees, costs of said action and for the care, custody and education of Lorillard Spencer, Jr., as aforesaid; and that the party of the first part further agrees to pay to the party of the second part One thousand one hundred sixty-six and 66/100 dollars ($1,166.66) per month after the decision for petitioner is obtained beginning January 1, 1922, until final decree is entered in the pending action for divorce, or until nine months have elapsed after the date of this agreement, whichever event shall first occur; and that the aforesaid sums are intended in place of any allowance which might be made by the court and to cover every possible liability of the said party of the first part to the said party of the second part except as provided for in this agreement.
FIFTH: That the said party of the first part agrees to transfer and convey to the New York Life Insurance and Trust Company an equal one-third interest in the principal of said trust estate created by the will of his grandfather, Lorillard Spencer, in the way and manner, which is provided for in said deed, a copy of which is hereto annexed, to be executed by said party of the first part contemporaneously with the execution of these presents and to be delivered to the New York Life Insurance and Trust Company to be held in escrow, subject to the following conditions:
In the event of a final decree for an absolute divorce being entered in said cause, now pending, in favor of the petitioner, within nine months after the date of this instrument, then said deed of trust shall be, within ten days after the entry of any such decree, delivered to the New York Life Insurance and Trust Company, with the intent that it shall become of full force and effect from the date of the entry of said final decree, but, if there shall not be a final decree for an absolute divorce entered in favor of the petitioner, within said nine months, then said deed of trust shall be delivered by said New York Life Insurance and Trust Company to the party of the first part.
SIXTH: That the party of the second part will not incur any debt, obligation or liability in the name of the party of the first part for necessities or for any articles, furniture or property of any description purchased by the party of the second part or for any other matter or thing for the use of herself and shall make any and all obligations, indebtedness and contracts including those relating to the purchase of necessities or other articles or property of any description for the use of herself or others in her individual name and upon her own individual responsibility.
SEVENTH: That the party of the second part has released and hereby releases all her claims against the party of the first part for maintenance and support except as provided in this agreement and all her dower and right of dower in any real estate of which the party of the first part is now seized or which he may hereafter acquire and all rights, present...
