This is an appeal from the decree of the Orphans' Court of York County denying the claim of the Commonwealth for certain "transfer inheritance taxes" claimed on a portion of the estate of Harry C. Neller, who died January 18, 1945, intestate. Surviving him were two daughters of his marriage with Kathryn E. Neller, and a son by a former marriage. Kathryn E. Neller presented her claim against the estate for one fourth of the net estate, pursuant to a "separation agreement" which she entered into with the decedent on October 30, 1934. In it the husband admitted his liability for the support of his wife, and she agreed that she would not press any nonsupport charge against him and in lieu of her claim for support that she would accept $75 per week until April 1, 1935, and thereafter the sum of $50 per week for and during her natural lifetime. The husband agreed to make these payments and also that "at the time of his death there shall be paid *Page 630 from his estate to the wife a sum equal to one fourth of the net amount of said estate". It was further provided that the agreement shall "not be terminated by either party obtaining a divorce but that if the wife should remarry all her rights to weekly payment as set forth in the agreement shall be void and of no effect and his estate shall also be relieved from the payment of the obligation mentioned" (i. e., the one fourth of the net amount of his estate). In the adjudication the wife was awarded, according to this agreement, one fourth of the estate, amounting to $10,950.77. On this sum of money the Commonwealth makes its tax claim.
The Commonwealth based its claim for a transfer tax on section 1 (c) of the Transfer Inheritance Tax Act of June 20, 1919, P. L. 521, as last amended by the Act of June 22, 1931, P. L. 690, 72 PS 2301 (c), which provides as follows: "A tax shall be, and is hereby, imposed upon the transfer of any property, real or personal, or of any interest therein or income therefrom in trust or otherwise, to persons or corporations in the following cases: . . . (c) When the transfer is of property made by a resident, . . . by deed, grant, bargain, sale or gift, made in contemplation of the death of the grantor, vendor, or donor, or intended to take effect in possession or enjoyment at or after such death."
In connection with this case consideration must also be given to section 1 of the Act of May 27, 1943, P. L. 757, 72 PS 2302, which provides, inter alia, that: "In ascertaining the clear value of such estates, the only deductions to be allowed from the gross values of such estates by the register of wills shall be the debts of the decedent, reasonable and customary funeral expenses. . . . Provided, That the deductions herein allowed in the case of any indebtedness of the decedent shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth." *Page 631
This amended Act of 1943 makes it clear that the Legislature did not contemplate by the Transfer Inheritance Tax Act that the transfer of money used to pay a bona fide debt for an adequate and full consideration in money or money's worth should be taxable. This reduces the problem now before us to these questions: Did the separation agreement create a debt due his wife and payable upon the husband's death and was it bona fide for an adequate and full consideration in money or money's worth? We decide that it was. The husband's obligations which the "separation agreement" created relieved him of all legal obligations to give additional financial support to his wife, no matter how wealthy he might become. She by this agreement precluded herself from making him pay her more than (1) $75 per week until April 1, 1935, and (2) thereafter the sum of $50 per week during her natural lifetime, and (3) one fourth of his estate at the time of his death. These debts "were contracted bona fide and for an adequate and full consideration in money or money's worth".
Certainly the Legislature did not intend by the Transfer Inheritance Tax Act of June 20, 1919, and its amendments, that the money used by an executor or administrator to pay the debts a deceased debtor intended to have paid only after his death should be subject to a transfer tax. Many individuals late in life incur debts whose payments they do not intend to be made until after their death, for the reason that their chief assets consist of the promises in their life insurance policies or because their estate is in such form that their debts cannot be liquidated until their estate is converted into money or its equivalent. If the money received by a creditor in payment of a debt from a decedent is subject to an inheritance tax because the debtor's intention was that the payment should be made only after his death it is impossible to find any reason whyall moneys received by creditors after the death of their debtors should not be taxed, provided both creditor and debtor intended or knew that the debt would not be paid until *Page 632 after the debtor's death. There is no basis for a logical distinction in imposing "transfer taxes", between a transfer of money from a decedent's estate to pay his general debts and a transfer of money from a decedent's estate to pay a debt whose time of payment was formally fixed "at or after his death". If A gives B two notes, each for a certain sum, and makes one payable 10 years later and makes the other one payable at A's death, and A dies 10 years later, the money used by A's executor in paying the first note is admittedly not subject to a transfer tax, but according to the Commonwealth's argument the money used by A's executor to pay the second note is subject to a transfer tax. We do not believe that the legislature in passing the Act of 1919, and its amendments, intended any such absurd result. The Statutory Construction Act of May 28, 1937, P. L. 1019, Article IV, section 52, 46 PS 552, declares that in ascertaining the intention of the Legislature in the enactment of a law the courts may be guided by the following presumptions among others: "(1) That the Legislature does not intend a result that is absurd, impossible of execution or unreasonable . . ."
The very name "Transfer Inheritance Tax" by which the tax imposed by the Act of 1919 is generally referred to* indicates that the transfer which is taxable arises from an inheritance and not from a creditor-debtor relationship based on a contract.
President Judge HARVEY A. GROSS of the court below succinctly summed up this case when he said: "If this decedent had agreed in writing for the same considerations to pay his wife a fixed and definite sum of money, or had executed and delivered to her a promissory note for the same purpose payable at his death, it could hardly be successfully argued that he would not have created a debt against his estate, and we fail to see any *Page 633 difference between the contract as written and the two methods just mentioned, nor are we able to distinguish between the effect of this contract and an antenuptial agreement insofar as the payment of transfer inheritance tax is concerned."
A question somewhat similar to the one at bar arose in In reVanderbilt's Estate, 172 N.Y. Supp. 511. The facts were that a testator made a bequest to his wife, pursuant to and in full satisfaction of the covenants of an antenuptial agreement wherein he had agreed to give his wife the sum so bequeathed. It was held that the bequest was not subject to transfer tax, having been made in consideration of marriage, and not in contemplation of death. In that case Justice PAGE said:
"In the case at bar, Mrs. Vanderbilt's right to receive these securities did not grow out of the will; its source was in the antenuptial agreement, and the obligation could have been enforced against the estate had there been no will. It rested upon a valuable consideration, which was executed by marriage. The mere fact that the method of the payment and satisfaction of the obligation was directed by the will did not change the inherent character of the obligation. As the Court of Appeals said:
" 'Transfers resting upon a valuable and adequate consideration, although within the classification of the statute, are not within the intendment of it, and are not taxable . . . The taxability does not depend upon fraud or an attempt to evade the statute; nor does it depend upon the . . . form given to the transfer. The law searches out the reality, and is not halted or controlled by the form. Matter of Gould,156 N.Y. 423 [51 N.E. 287]. The measure determining the liability or freedom from liability to the tax is the nature, the essence, the effect of the the transfer. If, in truth, it, in effect, bestows, under the statutory conditions, a bounty or benefaction, and is not a transfer for money's worth, it is taxable'. Matter of Orvis, 223 N.Y. 1, 6, 8, 19 N.E. 88, 89."
It can with equal logic be said of the case at bar that Mrs. Neller's right to receive the $10,950.77 on which *Page 634 the State seeks to impose a transfer inheritance tax did not grow out of either her husband's will or his intestacy. Its source was the post-nuptial agreement and it rested upon a valuable consideration.** The mere fact that the time fixed for payment was after the decedent's death did not change the inherent character of the obligation. For example, if on October 30, 1934, when the post-nuptial agreement was executed, Neller had agreed to pay his wife $10,950.77 eleven years thereafter, i. e., on October 30, 1945, the fact that he had died previous to the date of the payment, i. e., on January 18, 1945, would not have made the $10,950.77 an inheritance whose transfer *Page 635 from his estate to Mrs. Neller was subject to the transfer inheritance tax. See also Hill et al. v. Treasurer and ReceiverGeneral, (the Supreme Judicial Court of Massachusetts)116 N.E. 509.
That a judicial decision may deprive the state of some inheritance taxes does not condemn the decision. There are many legitimate ways of "tax avoidance". If a man worth a million dollars presents his wife with one-half of it on their wedding day, there will be when he dies 500,000 fewer dollars in his estate but that fact does not make his wedding day gift illegal or subject to an inheritance tax. In the Vanderbilt case, supra, Mr. Vanderbilt's estate was depleted to the extent of $2,000,000 because of his antenuptial agreement with the woman who became his wife but that fact did not make the transaction illegal, nor did it subject the $2,000,000 to an inheritance tax.
If a husband and wife agree on a separation and in the separation agreement it is stipulated that in consideration of his wife's not asking for a support order against him, his estate will on his death pay her a certain sum of money, that sum of money cannot be taxed as an inheritance for it is adebt.
It is contended that the marital rights which the wife waived in this case cannot be construed as "money's worth". Undoubtedly, there are some marital rights that cannot be expressed in terms of money but a wife's right to support certainly can be so expressed. A $25 a week reduction in the amount of support Mrs. Neller was to receive after she received $75 a week for 5 months amounted at the end of the husband's life to a reduction of $12,783.33 in the amount of financial support she would have received if there had been no reduction from $75 to $50 each week. This was a sum about $1,800 more than the one-fourth of her husband's estate she was entitled to under the separation agreement. If, for example, the separation agreement had provided that instead of paying Mrs. Neller $75 a week after April 1, 1935, the husband would pay her $50 a week and allow *Page 636 the $25 a week which he had previously paid her to accumulate until the time of his death, the sum so accumulated would amount to $12,783.33 and clearly would be a debt and not an inheritance.
A husband and wife living amicably together and expecting to continue to do so do not make a separation agreement. But when this husband and wife decided to separate and the husband promised his wife in writing that he would support her by paying the sums stipulated, this promise gave rise to a debt. The amount of support due at his death was as much a debt as would have been any arrearages in the weekly sums he had agreed to pay her for her support.
In the instant case there is neither allegation nor proof that Neller and his wife entered into a separation agreementfor the purpose of defrauding the Commonwealth of a transfer inheritance tax on any part of his estate. If in any case such a fraudulent purpose is alleged and proved by facts or by reasonable inferences from the circumstances, such fraud would, of course, vitiate the contract. In the instant case there is no fraud or grounds for alleging fraud. In view of Mrs. Neller's agreeing to accept after the separation continued for 5 months, $25 a week less than she had been receiving for five months by way of support, this reduction of $25 a week to continue for the remainder of Neller's life, the promise that in lieu of additional support she should at Neller's death receive one-fourth of his net estate was a logical and natural provision to make. There is nothing in this record which justifies any intimation that this provision was a device to avoid taxation. In view of Mrs. Neller's separation from her husband, she would have no motive to enter into any agreement whereby any part of her husband's estate should be relieved of taxation, and Mr. Neller, of course, would have no motive to contrive any device by which whatever sum his separated wife should receive from his estate should be relieved of a "transfer inheritance tax". The separation agreement this husband and wife made nearly *Page 637 12 years before the husband's death was clearly not a "tax evasion" device to defraud the Commonwealth. It was a reasonable contract for a separating husband and wife to make and its promise to the wife created a debt based on a consideration which had "money's worth".
We agree with the court below on the major issue and also on its conclusion as to the legality of the "separation agreement" which gave rise to the obligation whose discharge the Commonwealth seeks to subject to a transfer inheritance tax. On the question of the validity of the "separation agreement" the court below aptly said:
"A contract of this character is binding on both parties, although a divorce was in the minds of the parties when made, unless the contract amounts to collusion in procuring the divorce. There is no such inference to be drawn from this contract nor from the facts admitted by counsel as part of the record. Ray's Est., 304 Pa. 421; Lineaweaver's Est., 284 Pa. 384; Miller v. Miller, 284 Pa. 414; Conway v. Conway, 156 Super. Ct. 189; Greene v. Greene, 150 Super. Ct. 182; Muhr's Est., 59 Super. Ct. 393; and Snyder v. Snyder, 57 Super. Ct. 575."
The decree is affirmed at appellant's cost.
Justices LINN, STERN and JONES dissent.
* In the Commonwealth's Statement of Questions Involved the first question is stated thus (after quoting from the post-nuptial agreement): "is the said one-fourth of his estate taxable for inheritance tax purposes as a transfer", etc. (italics supplied).
** In re Seitz's Estate, 262 N.Y. 32, 186 N.E. 193, holds that an antenuptial agreement in which the affianced husband agrees to give his affianced wife $20,000 "conditioned upon her surviving him six months subsequently to his death", which sum she "agrees to accept . . . in full satisfaction of all claims for dower in the real estate which" he "then owned or might thereafter acquire" was taxable under an amendment made to New York's tax law in 1930, as an "interest" in property belonging to the decedent at the time of his death and as a transfer "intended to take effect in possession or enjoyment at or after death". The court held that "a promise to marry is not 'an adequate and full consideration in money or money's worth' for a transfer of property real or personal."
In the instant case we are basing our decision on the fact that an agreement made between a husband and wife who were separated that she "would not press any nonsupport charge against him and in lieu of her claim for support she would accept $75 per week until April 1, 1935, and thereafter the sum of $50 per week for and during her natural lifetime" in consideration that "at the time of his death there shall be paid from his estate a sum equal to one fourth of the net amount of said estate" was a full and adequate consideration in "money or money's worth" for the promise he made to her, within the meaning of the Pennsylvania Act of May 27, 1943, P. L. 757, 72 PS 2302.
There is room for a difference of opinion as to whether the mutual pledge to marry made by a man and a woman can be measured in terms of "money or money's worth" but there can be only one opinion as to the pledge made by a wife whose financially responsible husband has separated from her not to press nonsupport charges against him, being measurable in terms of "money or money's worth".