F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JUN 18 2002
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
JOHN H. LOVEJOY,
Petitioner - Appellant,
v.
No. 00-9031
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
Appeal from the United States Tax Court
(No. 8158-97)
Thomas G. Hodel of Doussard Hodel & Markman, P.C., Lakewood, CO, for
Petitioner-Appellant.
Teresa T. Milton, Attorney, Tax Division (Jonathan S. Cohen, Attorney, Tax
Division, with her on the brief), Department of Justice, Washington D.C., for
Respondent-Appellee.
Before SEYMOUR and EBEL, Circuit Judges, and BROWN, * Senior District
Judge.
EBEL, Circuit Judge.
*
Wesley Brown, Senior United States District Judge for the District of
Kansas, sitting by designation.
Petitioner-Appellant John H. Lovejoy appeals the tax court’s determination
that certain support payments he made to his ex-spouse during divorce
proceedings were not deductible under the Internal Revenue Code. The payments
were unallocated, meaning there was no designation as to whether they applied to
child support (which is not deductible) or spousal maintenance (also known as
alimony, which is deductible). This case turns on whether Lovejoy’s obligation to
make these payments would have terminated automatically had his spouse died;
they qualify as deductible alimony only if they would have so terminated.
Because we predict that the Colorado Supreme Court would hold that these
payments would not automatically terminate on the death of Lovejoy’s spouse, we
conclude that Lovejoy has not met his burden of showing that the payments are
deductible. We therefore AFFIRM the tax court.
****
We have jurisdiction to review the tax court’s decision under I.R.C.
§ 7482(a)(1) “in the same manner and to the same extent as decisions of the
district courts . . . tried without a jury.” We therefore review the tax court’s legal
conclusions de novo and its findings of fact for clear error. Consolidated Mfg.,
Inc. v. Comm’r, 249 F.3d 1231, 1236 (10th Cir. 2001). Lovejoy bears the burden
of showing that he is entitled to a deduction. Love Box Co. v. Comm’r, 842 F.2d
1213, 1216 (10th Cir. 1988).
2
Under I.R.C. § 215(a), a taxpayer is “allowed as a deduction an amount
equal to the alimony or separate maintenance payments paid during such
individual’s taxable year.” The term “alimony or separate maintenance payment”
is defined as “any payment in cash if”:
(A) such payment is received by (or on behalf of) a spouse
under a divorce or separation instrument,
(B) the divorce or separation instrument does not designate
such payment as a payment which is not includible in gross
income under this section and not allowable as a deduction
under section 215,
(C) in the case of an individual legally separated from his
spouse under a decree of divorce or of separate maintenance,
the payee spouse and the payor spouse are not members of the
same household at the time such payment is made, and
(D) there is no liability to make any such payment for any
period after the death of the payee spouse and there is no
liability to make any payment (in cash or property) as a
substitute for such payments after the death of the payee
spouse.
I.R.C. § 71(b)(1).
In addition, § 71(c)(1) provides that “any payment which the terms of the
divorce or separation instrument fix (in terms of an amount of money or a part of
the payment) as a sum which is payable for the support of children of the payor
spouse” is not includible in the recipient’s income. Such payments include
“amounts specified in the instrument [that are to be] reduced . . . on the
happening of a contingency specified in the instrument relating to a child (such as
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attaining a specified age, marrying, dying, leaving school, or a similar
contingency).” § 71(c)(2). Thus, Lovejoy may deduct payments to his ex-spouse
only if the payments both meet the alimony definition in § 71(b)(1) and are not
child support within the meaning of § 71(c)(1) or (c)(2).
There is no dispute that Lovejoy’s payments to his ex-spouse were cash and
meet the requirements of § 71(b)(1)(A)-(C). The principle question is whether
they satisfy § 71(b)(1)(D) – whether Lovejoy would have been obligated to
continue with the payments if his ex-spouse had died.
As originally enacted in 1984, § 71(b)(1)(D) required that this absence of
continued liability be stated explicitly in the divorce court’s order. In a
“technical correction” in 1986, Congress removed the requirement that this be
expressed in the order. Payments now satisfy § 71(b)(1)(D) when the divorce
order is silent if background principles of state law mandate that the payments
necessarily terminate upon the death of the payee spouse. See generally Hoover
v. Comm’r, 102 F.3d 842, 845-47 (6th Cir. 1996); Zinsmeister v. Comm’r, 80
T.C.M. (CCH) 774 (2000). Because neither the temporary orders nor the
permanent orders in this case expressly state whether Lovejoy’s obligations would
continue in the event his ex-spouse died, we look to Colorado law.
Colorado has adopted the Uniform Dissolution of Marriage Act (“UDMA”),
which states that “[u]nless otherwise agreed in writing or expressly provided in
4
the decree, the obligation to pay future maintenance is terminated upon the death
of either party.” Colo. Rev. Stat. § 14-10-122(2) (emphasis added). Conversely,
the obligation to pay child support does not terminate upon the death of the
custodial parent. Abrams v. Connolly, 781 P.2d 651, 656-57 (Colo. 1989) (en
banc). The disputed question on appeal is whether, under Colorado law, the death
of a recipient automatically terminates the spouse’s obligation to make
unallocated payments such as those at issue in this case. The tax court ruled that
it does not.
There is no Colorado law squarely addressing the treatment of unallocated
payments upon the death of the payee spouse. The only on-point cases cited by
the parties address California law and are conflicting. Compare Heller v.
Comm’r, 103 F.3d 138, 1996 WL 713049, at *3 (9th Cir. 1996) (unpublished)
(holding that the obligation to pay unallocated support would automatically
terminate upon the recipient’s death), and Ambrose v. Comm’r, 71 T.C.M. (CCH)
2429 (Mar. 14, 1996) (same), with Wells v. Comm’r, 75 T.C.M. (CCH) 1507 (Jan.
5, 1998) (holding that the obligation does not terminate upon death). This split of
authority interpreting California law is no help to Lovejoy’s attempt to show that
Colorado law provides for the termination of unallocated payments upon the
payee spouse’s death.
5
Lovejoy also gains no support from Commissioner v. Lester, 366 U.S. 299
(1961), in which the Supreme Court held that a dissolution agreement “providing
for . . . periodic payments must specifically state the amounts or parts thereof
allocable to the support of the children” in order to avoid classification as
alimony. Id. at 301. The governing statute at that time specifically provided that
periodic payments received by a wife pursuant to a dissolution agreement were
“‘includible in the gross income of such wife’” unless the agreement’s terms
“‘fix . . . a portion of the payment, as a sum which is payable for the support of
minor children of such husband.’” Id. at 301 n.1 (quoting I.R.C. § 22(k) (1939)).
Lester is unhelpful to our current inquiry because the statutory requirement that
the dissolution agreement itself must explicitly allocate a portion of the payment
as child support in order for it to be so considered was later deleted from the
statute. In its place, Congress enacted the statutory test found in § 71(b)(1).
Given that Lester did not consider this new statutory test, it is of no assistance to
Lovejoy, who must meet the new statutory test in order to prevail.
Lovejoy’s strongest argument is that his ex-spouse’s death would have
divested the family court of jurisdiction over the divorce action. Therefore, he
argues, the temporary order would have abated and he would have had no
continuing obligation to make the unallocated payments required by that order. In
Colorado, as in most jurisdictions, it is true that, upon the death of a party during
6
the pendency of a divorce action and before a final decree of dissolution is
entered, “‘the general rule of law is that a divorce action immediately abates.’”
In re Marriage of Connell, 870 P.2d 632, 633 (Colo. Ct. App. 1994) (emphasis
added) (quoting Estate of McLaughlin v. Craig, 184 P.2d 130, 132 (Colo. 1947)).
However, Colorado law provides that “provisions for the support of a child are
[not] terminated . . . by the death of a parent obligated to support the child.”
Colo. Rev. Stat. § 14-10-122(3); see also Abrams, 781 P.2d at 656-57 (holding
that custodial parent’s death does not terminate non-custodial parent’s child
support obligations set forth in dissolution decree).
It is not clear under Colorado law which rule trumps the other – i.e.,
whether the abatement of dissolution proceedings upon a spouse’s death would
negate temporary orders providing for child support payments. However, we are
inclined to believe that the Colorado Supreme Court would hold that temporary
orders providing for child support payments, even when included within a general
unallocated payment obligation, do survive the death of the recipient spouse. If
one spouse dies after a dissolution decree is entered, the court retains jurisdiction
to resolve other matters raised in the proceedings. See Burford v. Burford, 935
P.2d 943, 954 (Colo. 1997) (en banc) (citing other Colorado cases holding: 1) no
abatement upon death of spouse before permanent orders entered as long as
parties agreed the marriage was irretrievably broken; and 2) no abatement when
7
death occurred while dissolution orders were on appeal). Further, as the tax court
recognized, the unallocated support payments required by the temporary order
were to continue “until further Order of Court.” There is no reason to believe that
the death of a spouse negates this language.
The need for child support, which is encompassed by the unallocated
payments, will frequently continue beyond the death of the custodial spouse, as
reflected in Colorado’s requirement that allocated child support continue after the
custodial parent’s death. If the obligation to make unallocated payments for the
benefit of a child ceased at death, and if the noncustodial parent was not
immediately given custody of the children, there would be a substantial risk that
the children would be without support for some period of time, until a new order
could be obtained. This potential hardship to the children is to be avoided under
Colorado law. Cf. Colo. Rev. Stat. § 14-10-102(1), (2)(b) (stating that the
Colorado divorce laws should be liberally construed to “mitigate the potential
harm to the spouses and their children caused by the process of legal dissolution
of marriage”). The relevance of these policy considerations does not hinge on
whether a final divorce decree has been entered.
Admittedly, there is a substantial likelihood that the parent making
unallocated payments will be overpaying for a period of time after the death of
the recipient spouse until he or she can have the support order modified because
8
the unallocated payments include maintenance for the deceased spouse. This
amount, however, presumably is one that the paying parent can reasonably afford.
Cf. id. §§ 14-10-114 (2)(f), -115(1)(e) (stating that the ability of a paying parent
to make maintenance and child support payments is relevant to setting the level of
support required). Moreover, the paying parent – who has been a party to the
underlying divorce proceedings – is likely to be in a better position to ask for a
modification of the court orders than any other custodian of the children (for
example, the relatives of the deceased spouse), who may not have been involved
in those proceedings. And the paying parent could protect his or her interests
from the start by asking the court to include specific provisions in the support
order for tax purposes. Finally, if the paying parent became the custodial parent,
it should not be difficult to get the court to eliminate the unallocated payments
entirely.
However, even if we are incorrect in predicting that the Colorado Supreme
Court would hold that temporary unallocated payment obligations for both child
support and spousal maintenance survive the death of the recipient spouse, we
would still uphold the tax court’s opinion. Lovejoy bore the burden of proving
that his obligation to make unallocated payments would cease upon his ex-
spouse’s death. Because the divorce court orders are silent and Colorado law is at
best unclear on the issue, and likely contrary to Lovejoy’s position, he has failed
9
to meet this burden. See Hoover, 102 F.3d at 848 (“Given the ambiguity of the
then-applicable state law as to the termination of payments, we hold that Ohio law
does not ‘save’ the payments in question for purposes of § 71(b)(1)(D).”).
Given our conclusion that Lovejoy has failed to establish that the
unallocated payments qualify as alimony under § 71(b)(1), we need not determine
whether any portion of the payments qualify as child support under § 71(c)(1).
The unallocated payments were not deductible, and the tax court’s judgment is
AFFIRMED.
10
Lovejoy v. Commissioner
Court: Court of Appeals for the Tenth Circuit
Date filed: 2002-06-18
Citations: 293 F.3d 1208
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