Wright v. Wright, 77-686

• Decision Date: 06 November 1979
• Docket Number: No. 77-686,77-686
• Citation: 92 Wis.2d 246,284 N.W.2d 894
• Parties: William C. WRIGHT, Plaintiff-Appellant, v. Jean WRIGHT, Defendant-Respondent-Petitioner.
• Court: Wisconsin Supreme Court

Page 894

284 N.W.2d 894

92 Wis.2d 246

William C. WRIGHT, Plaintiff-Appellant, v. Jean WRIGHT, Defendant-Respondent-Petitioner.

No. 77-686.

Supreme Court of Wisconsin.

Argued Sept. 11, 1979.

Decided Nov. 6, 1979.

Robert E. Cook and Gerald J. Kahn, Milwaukee, argued, for plaintiff-appellant; Cook & Franke, S. C., attorneys, and Godfrey & Kahn, S. C., Milwaukee, of counsel.

Bruce C. O'Neill, Milwaukee, argued, for defendant-respondent-petitioner; Fox, Carpenter, O'Neill & Shannon, S. C., Milwaukee, on brief.

DAY, Justice.

This case comes to the Court by petition to review a decision of the Court of Appeals reversing that portion of a divorce judgment amended by the Circuit Court. The Court of Appeals held that the Circuit Court had no authority to amend a ten year old divorce judgment to provide for payment by the former husband to the former wife of $102,840 representing the amount of federal income taxes due from her on $228,000 paid to her by him in monthly installments over a ten and one-half year period in accordance with the terms of the divorce judgment. The Court of Appeals rejected the wife's argument that such additional payment was either alimony under sec. 247.32, Stats. (1967) or an enforcement of the original judgment under sec. 247.01, Stats. (1977) on the theory the $228,000 was to be undiminished by income taxes.

William C. Wright and Jean Wright were married in 1948. In 1967 he commenced a divorce action and she filed a counterclaim. On October 4, 1967, the matter came on for a hearing before Honorable L. J. Foley, Jr., Circuit Judge. The parties stipulated that his complaint be withdrawn and that she be granted a divorce on her counterclaim as a default. Testimony was taken and the divorce was granted to her. The parties also entered into an oral stipulation in open court providing for the division of real and personal property, maintenance of insurance and investments, custody of children, payment of attorney fees and other matters. The combined assets of the parties at the time of the hearing had a value of $1,065,122 of which $269,018 was the separate property of Jean Wright and was awarded to her pursuant to the stipulation.

The stipulation was made part of the record through a process of asking questions of the parties to determine whether they understood and agreed to its provisions.

Questions were first directed to Jean Wright by her counsel. Among the questions were those relating to alimony and property division as follows:

"QUESTION: That alimony be denied, you understand that?

"ANSWER: (by Jean Wright) Yes. . . .

"QUESTION: That the defendant (sic) will pay you $228,000.00 within the next ten and a half years or ten years six months on the following terms: no less than $2,000.00 per month for the next six months after the entry of judgment and the sum of $1,800.00 per month for the balance of the term of the payment of that $228,000.00, do you understand that?

"ANSWER: (by Jean Wright) Yes, sir."

The stipulation provided that payment of the $228,000 would be secured by an escrow account funded with stock. If Mr. Wright died, the unpaid balance of the $228,000 would either be paid from his estate or from the escrow account. The payment of $228,000 was in addition to other property awarded to her.

William Wright's attorney then questioned him and asked:

"QUESTION: You feel you fully understand the provisions thereof?

"ANSWER: (by Mr. Wright) Yes. . . .

"QUESTION: Full and complete division of estate in lieu of any claim of alimony upon you by Mrs. Wright?

"ANSWER: (by Mr. Wright) Yes."

No objection was made to the answers given by either party regarding their understanding of the stipulation. No statement was made in the stipulation respecting the payment of taxes.

The court on the record granted a divorce to Jean Wright and dismissed the complaint of William Wright, granted custody of the children in accordance with the stipulation and stated "In all other respects the stipulation of the parties is acceptable. The court will make it a part of the record, the findings of fact, conclusions of law and judgment, holding that matter open as it relates to guardian ad litem fee."

The parties next appeared before the court on December 8, 1967 in a dispute over the wording of the findings of fact, conclusions of law and judgment, particularly with respect to the $228,000 payment to Jean Wright. Both counsel argued as to which of the parties would be responsible for the income taxes on the monthly payments. ¹

Counsel for William Wright proposed that the paragraph relating to the $228,000 read that "alimony be and hereby is denied and in lieu of said alimony and in full satisfaction of any claim therefor, and as a complete division of estate and to complete the division of the property of the parties, the plaintiff shall pay to the defendant the sum of $228,000.00 in 101/2 years of entry of judgment, said sum to be paid at the rate of $2,000.00 each month for a period of six months and $1,800.00 each month thereafter for a period of 10 years."

The trial judge rejected the husband's proposed findings of fact and conclusions of law and instead adopted those submitted by counsel for the wife which provided in part:

"Twenty-second. That alimony be and hereby is denied.

" . . .

"Twenty-fourth. That as and for a complete division of estate and to complete the division of property of the parties, the plaintiff be and he hereby shall pay to defendant the sum of $228,000.00 within ten and one-half (101/2) years of the date of this judgment; and payable on the following terms: No less than $2,000.00 per month be paid by plaintiff to the defendant for the first six months; that thereafter the plaintiff shall pay to the defendant no less than the sum of $1,800.00 per month for the balance of the term of payment of $228,000.00 specified herein."

Findings of fact and conclusions of law were signed by the court on January 29, 1968. The judgment was signed and filed on February 2, 1968.

Each party took the position that the other should bear the federal income tax consequences of the monthly payments to Jean Wright. William Wright deducted the payments on his income tax return and Jean Wright failed to include the payments made to her as income. She took the position that the payments were a division of property rather than support under federal income tax law. The Internal Revenue Service assessed deficiencies against both parties.

The matter was litigated in the Tax Court ² which ruled that the payments made to her grew out of his marital obligation of support and treated the payments as income to her for federal income tax purposes. The matter was then appealed to the Seventh Circuit Court of Appeals ³ which determined that the payments were periodic payments under § 71 of the Internal Revenue Code ⁴ and includable as income to Jean Wright in the year received and deductible by William Wright under § 215 of the Internal Revenue Code. ⁵ The ten and one-half year payment period was a factor in the decision of the federal courts. ⁶

The resulting increase in taxes to Jean Wright was computed to be $102,840.

Jean Wright returned to the state court to try and recoup payment from her former husband for the tax assessment. The family court commissioner who reviewed her petition to modify the divorce judgment held that he lacked power to do so by virtue of sec. 247.32, Stats., ⁷ and dismissed her petition. This occurred during 1977, approximately ten years after the divorce was granted.

Jean Wright then sought a De novo review of the family court commissioner's determination. She requested the judgment be modified to provide for alimony in an amount sufficient to pay the additional taxes or that her former husband be ordered to pay on a theory that the judgment meant to give her $228,000 free of any tax obligation and that the court was merely enforcing that judgment provision. ⁸

The circuit court relying primarily on its interpretation of Rotter v. Rotter, 80 Wis.2d 56, 257 N.W.2d 861 (1977) amended the judgment by adding paragraph thirty-four to provide:

"That, in enforcement of this judgment and not as alimony, support or maintenance (William Wright) shall pay to (Jean Wright) forthwith the sum of $102,840.00, which sum, in the intent of this court, shall not be includable in the income of (Jean Wright) for income tax purposes nor deductible from the income of (William Wright) for income tax purposes."

The amended judgment was signed by the clerk on March 3, 1978.

The Wisconsin Court of Appeals held that the trial court was without authority to enter the order and judgment appealed from, either under the provisions of sec. 247.01, Stats., or under sec. 247.32, Stats. and reversed. The matter is now before us on review.

There are two principle questions on review:

1. Did the circuit court have authority under sec. 247.01, Stats. (1977) to order payment of an additional $102,840 to Jean Wright under the theory it was merely enforcing the original divorce judgment?

We conclude that it did not have such authority.

2. Did the circuit court have authority under sec. 247.32, Stats. (1967) to modify the original divorce judgment to provide for additional alimony?

We conclude the answer is no.

1. DID THE CIRCUIT COURT HAVE AUTHORITY UNDER SEC. 247.01 STATS. (1977) TO ORDER PAYMENT OF AN ADDITIONAL $102,840 TO JEAN WRIGHT UNDER THE THEORY IT WAS MERELY ENFORCING THE ORIGINAL DIVORCE JUDGMENT?

In the case of Rotter v. Rotter, supra, relied on by the trial court, the husband had failed to comply with explicit language of the divorce judgment in which he was ordered to cooperate in the conversion of health insurance coverage for his ex-wife. He assured her that he would do so. As a result of her reliance on the court order and his promise she incurred substantial medical bills. The husband had allowed the policy of insurance to lapse. The circuit court ordered the...