Gonzales v. Commissioner

T.C. Memo. 1999-332

UNITED STATES TAX COURT

MARIE A. GONZALES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13602-97. Filed October 1, 1999.

Alan R. Adler, for petitioner.

Caroline Ades-Pierri and William F. Halley, for respondent.

MEMORANDUM OPINION

FAY, Judge: Respondent determined deficiencies of $13,656

and $7,131 in petitioner's 1994 and 1995 Federal income taxes,

respectively. After concessions, the issue for decision is

whether petitioner must include payments from her former husband
 - 2 -

in income under section 71.1 The controversy concerns the char-

acter of pendente lite support payments that petitioner received

in a divorce proceeding.

This is a fully stipulated case that was submitted without a

trial under Rule 122. The stipulation of facts and the exhibits

are incorporated by this reference. Petitioner, who resided in

Demarest, New Jersey, when she petitioned the Court, filed her

1994 and 1995 Federal income tax returns as a head of household.

The pertinent facts follow.

Background

Petitioner married Emelito T. Gonzales (Dr. Gonzales) in

1977; on September 21, 1995, they divorced. During the marriage,

they had four children, whose ages in 1994 were 15, 13, 12, and 9

years.

The Gonzaleses had lived apart for more than 18 months

before petitioner filed for divorce in the Superior Court of New

Jersey, Chancery Division, Bergen County (superior court). Both

resided in New Jersey and were represented by counsel during the

divorce proceedings.

On February 18, 1993, the superior court entered a consent

order for pendente lite support (temporary order) awarding

1
All section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
 - 3 -

petitioner primary residential custody of the children and

directing, among other things, that Dr. Gonzales pay $7,500 a

month to support his wife and four children (family support). In

relevant part, the temporary order read:

pending the resolution of this matter * * * [Dr. Gon-
zales] shall pay $7500 per month unallocated, commenc-
ing on November 1, 1992 as and for support of * * *
[petitioner] and the infant children of the marriage,
from which sum * * * [petitioner] shall pay all family
expenses including the mortgage, children's school
expenses and unreimbursed medical expenses and her
schooling * * *

The temporary order failed to indicate how the payments would be

treated for tax purposes, whether the payments would terminate at

petitioner's death, or what portion thereof represented child

support.

On September 21, 1995, the Gonzaleses signed a written

agreement that settled such issues as property division, alimony,

and child support (settlement agreement). Under its terms, the

couple's oldest child would live with Dr. Gonzales, while the

younger siblings would remain with their mother. Beginning

September 21, 1995, Dr. Gonzales agreed to pay child support of

$40,000 a year ($13,333.33 per child) for 9 years, or until

emancipation occurred as defined in the agreement.2

2
The settlement agreement identified the Gonzaleses' second
oldest child as having special needs whose right to child support
was unaffected by the emancipation provision contained therein.
 - 4 -

Dr. Gonzales also agreed to pay alimony for 9 years, com-

mencing September 21, 1995, which would terminate earlier if

petitioner remarried or cohabited, or if either party died.

Moreover, his alimony obligation of $60,000 a year would be

reduced by $10,000 every 3 years. The settlement agreement was

incorporated, but not merged, in a final judgment of divorce

(divorce decree) rendered by the superior court on September 21,

1995.

Under the temporary order, Dr. Gonzales paid petitioner

$90,000 in 1994 and $64,0473 for the period January 1 through

September 20, 1995; for the remainder of 1995, he paid $17,307 in

alimony under the divorce decree.4 On her 1994 and 1995 Federal

income tax returns, petitioner reported $18,000 and $29,310,

respectively, as alimony income.

By notice of deficiency, respondent determined that peti-

tioner should have reported as alimony all the payments she

received under the temporary order, because "none of the

[amounts] is treated as child support". Accordingly, for each

year in issue, respondent increased her income by the difference

3
This amount was stipulated by the parties without further
explanation.
4
Neither party disputes that this amount was alimony. We,
therefore, limit our discussion to the undesignated payments
petitioner received under the consent order for pendente lite
support (temporary order).
 - 5 -

between the amount of family support she received and the amount

of alimony she reported.

Petitioner maintains that no portion of her family support

payments was alimony because, under State law, Dr. Gonzales'

obligation to make the payments would have survived her death.

Alternatively, petitioner argues that part of the family support

payments was not alimony because the settlement agreement

operated to fix a portion thereof as child support. The Court

agrees with petitioner's primary argument.

Discussion

We must decide whether the disputed payments are includable

in petitioner's income under section 71(a). Petitioner bears the

burden of proving respondent's determination wrong, which burden

remains unchanged despite the fact that this case is fully

stipulated. See Rules 122(b), 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933); Borchers v. Commissioner, 95 T.C. 82, 91

(1990), affd. on other grounds 943 F.2d 22 (8th Cir. 1991).

Generally, alimony5 is taxable to the recipient and deduct-

ible by the payor. See secs. 61(a)(8), 71, 215. A payment is

alimony, includable in a spouse's gross income, when: (1) The

payment is made in cash; (2) the payment is received by (or on

behalf of) the spouse under a divorce or separation instrument;

5
We use this term to include "separate maintenance pay-
ments." Sec. 71(a).
 - 6 -

(3) the instrument does not designate the payment as nonalimony;

(4) the spouses reside in separate households; (5) the spouses do

not file a joint return; and (6) the payor's liability does not

continue for any period after the spouse's death. See sec.

71(b)(1), (e). The payment in question must meet each criterion

in order for it to be alimony.

The parties agree that the disputed payments meet the first

five criteria enumerated above. We, therefore, concern ourselves

with the last requirement; i.e., the termination-at-death provi-

sion. See sec. 71(b)(1)(D). The dispositive question is whether

Dr. Gonzales had any "liability to make * * * [family support

payments] for any period after * * * [petitioner's] death * * *

and * * * [any] liability to make any payment (in cash or prop-

erty) as a substitute for such payments after * * * [her] death".

Id. If the payor is liable to make even one otherwise qualifying

payment after the recipient's death, none of the related payments

required before death will be alimony. See sec. 1.71-1T(b),

Q&A-13, Temporary Income Tax Regs., 49 Fed. Reg. 34456 (Aug. 31,

1984).6

6
Although some parts of the temporary regulations have been
superseded by amendments to the Internal Revenue Code, this Q&A
has not been affected.
We also note that temporary regulations have binding effect
and are entitled to the same weight as final regulations. See
Peterson Marital Trust v. Commissioner, 102 T.C. 790, 797 (1994),
affd. 78 F.3d 795 (2d. Cir. 1996); Truck & Equip. Corp. v.
(continued...)
 - 7 -

Whether such an obligation exists may be determined by the

terms of the applicable instrument, or if the instrument is

silent on the matter, by looking to State law.7 See Morgan v.

Commissioner, 309 U.S. 78, 80 (1940); Sampson v. Commissioner, 81

T.C. 614, 618 (1983), affd. without published opinion 829 F.2d 39

(6th Cir. 1987); Cunningham v. Commissioner, T.C. Memo. 1994-474.

The temporary order did not indicate whether the family support

payments would cease at petitioner's death; hence, we turn to New

Jersey law8 to ascertain whether it would imply a postdeath legal

obligation.

New Jersey has a support statute authorizing courts to award

alimony (maintenance) or child support, either pending the

6
(...continued)
Commissioner, 98 T.C. 141, 149 (1992); see also LeCroy Research
Sys. Corp. v. Commissioner, 751 F.2d 123, 127 (2d Cir. 1984),
revg. on other grounds T.C. Memo. 1984-145.
7
As the Court in Mass v. Commissioner, 81 T.C. 112, 129
(1983), recognized:
The characterization of payments under State law
is not controlling of Federal income tax consequences.
* * * However, while the requirements of section 71(a)
must be considered independently of State law determi-
nation, the impact of State law is squarely felt in any
analysis of whether payments are made in discharge of a
legal obligation. In other words, while * * * [State]
law does not determine "Is this income?," it does
determine "Is this a legal obligation?" * * *
8
The parties agree that, since the temporary order was
issued by a New Jersey court having proper jurisdiction of the
divorce action, it is to be interpreted under New Jersey law.
See N.J. Stat. Ann. sec. 2A:34-8 (West 1987).
 - 8 -

divorce suit or after final judgment. See N.J. Stat. Ann. sec.

2A:34-23 (West 1987) (amended 1998). The obligation to pay

alimony ends at the recipient's death, see Jacobson v. Jacobson,

370 A.2d 65 (N.J. Super. Ct. Ch. Div. 1976); Sutphen v. Sutphen,

142 A. 817 (N.J. Ch. 1928), overruled in part by Williams v.

Williams, 281 A.2d 273 (N.J. 1971), while the obligation to pay

child support survives the death of either spouse, see Kiken v.

Kiken, 694 A.2d 557, 561-562 (N.J. 1997); Jacobson v. Jacobson,

supra. Moreover, a parent's duty to support a child terminates

when the child is emancipated. See Bowens v. Bowens, 668 A.2d

90, 92 (N.J. Super. Ct. App. Div. 1995); Mahoney v. Pennell, 667

A.2d 1119, 1121–1122 (N.J. Super. Ct. App. Div. 1995); Thorson v.

Thorson, 574 A.2d 53, 54 (N.J. Super. Ct. Ch. Div. 1989).

Under the New Jersey Rules of Court, courts are required to

"separate the amounts awarded for alimony or maintenance and the

amounts awarded for child support, unless for good cause shown

the court determines that the amounts should be unallocated."

N.J. Ct. R. 5:7-4(a). Thus, while courts are encouraged to make

specific allocations of support, they are authorized to award

combined spousal and child support. Although New Jersey statutes

do not say whether unallocated support payments terminate on the

death of the payee spouse, a New Jersey case helps reveal the

unlikelihood of that result’s occurring.
 - 9 -

In Farmilette v. Farmilette, 566 A.2d 835 (N.J. Super. Ct.

Ch. Div. 1989), the New Jersey Superior Court addressed whether

unallocated support orders are modifiable. The court held that

they are. The Farmilettes, formerly husband and wife, obtained a

divorce judgment, and Mr. Farmilette was ordered to pay $285 a

week to support his ex-wife and their two children. Sometime

after one child became emancipated and the other child began

living full time with Mr. Farmilette, the latter sought a

reduction of his unallocated support obligation, retroactive to

the time of the emancipation and change of residency. Before

deciding to what extent, if any, the support order should be

modified, the court considered its authority to do so. It

pointed to a New Jersey statute prohibiting retroactive

modifications of child support.9 The court reasoned, however,

that it "will not be so presumptuous as to assume the legislators

had in mind unallocated support orders which clearly are not

included within the statute." Id. at 835–836. The court then

held unallocated support orders modifiable and agreed to review

9
The New Jersey legislature has since made minor modifica-
tions to this statute. In relevant part, the current version of
N.J. Stat. Ann. sec. 2A:17-56.23a (West Supp. 1999) provides that
No payment or installment of an order for child support
* * * shall be retroactively modified by the court
except with respect to the period during which there is
a pending application for modification * * *
 - 10 -

the parties' submissions to determine whether, and to what

extent, a modification was warranted.

Farmilette v. Farmilette, supra, and the instant case

present similar circumstances——albeit the former rests on a real,

and not imaginary, event. In each case, a divorced husband (or

soon–to–be ex–husband) is ordered to pay family support. And in

each case, a terminating event occurred (child's emancipation or

ex-wife's hypothetical death). In Farmilette, the court squarely

faced the issue of whether (and, if so, by how much) to vary

Mr. Farmilette's family support payment beyond the terminating

event. Significant for our purposes was the court's willingness

to take on that task; i.e., to review the evidence and recalcu-

late, if necessary, the amount of family support owing following

the changed situation. The State court's willingness to do so

leads to our affirmative response to the question posed here: Is

there good reason to believe that Dr. Gonzales' family support

obligation would continue after petitioner's death? We think so.

Had petitioner died before the superior court entered the divorce

decree, Dr. Gonzales, as the noncustodial parent of three

children, could have remained liable to pay family support,

whether in full or in diminished amounts.

This Court is also mindful of the temporary nature of the

order involved here——pendente lite. As its name suggests, it is

effective only during the pendency of a divorce proceeding. When
 - 11 -

the divorce becomes final, the pendente lite order terminates

unless it provides otherwise or is reduced to judgment before-

hand. See Mallamo v. Mallamo, 654 A.2d 474 (N.J. Super. Ct. App.

Div. 1995). In the present case, the failure of the temporary

order to say expressly whether payments thereunder cease at

petitioner's death means that they terminate when the divorce

becomes final, and not at the happening of any other event.

New Jersey law also recognizes that pendente lite orders are

modifiable before and at the time of final judgment. See

Capodanno v. Capodanno, 275 A.2d 441, 445 (N.J. 1971); Jacobitti

v. Jacobitti, 623 A.2d 794 (N.J. Super. Ct. App. Div. 1993),

affd. 641 A.2d 535 (N.J. 1994); Schiff v. Schiff, 283 A.2d 131,

140 (N.J. Super. Ct. App. Div. 1971). Oftentimes, such orders

are modified because they are entered without a plenary hearing.

See N.J. Ct. R. 5:5-4(a); Schiff v. Schiff, supra. Only after a

full trial has been held does the court have a clear picture of

the parties' economic status, at which time it can reexamine the

pendente lite order and amend it retroactively. See Mallamo v.

Mallamo, supra (holding that pendente lite child support may be

modified retroactively after a full trial); Jacobitti v.

Jacobitti, supra (holding that pendente lite alimony may be

modified retroactively after a full trial).

These things taken together suggest that New Jersey law

would not necessarily have relieved Dr. Gonzales of his obliga-
 - 12 -

tion to pay family support had petitioner died before the divorce

judgment. The fact that the unallocated support order is modi-

fiable and temporary tells us, at the least, that a court might

have reduced Dr. Gonzales' payments rather than terminate them

altogether. Indeed, there are no counterindications. Accord-

ingly, we hold that the requirement of section 71(b)(1)(D) has

not been met and, therefore, all payments received by petitioner

under the temporary order are not alimony.10

We have considered the parties' other arguments and find

them unpersuasive.

To reflect concessions and our conclusion herein,

Decision will be entered

under Rule 155.

10
We need not and do not characterize the disputed payments
other than to hold that they were not alimony.
This holding comports with our conclusions reached in prior
opinions addressing the characterization of "family support".
See, e.g., Miller v. Commissioner, T.C. Memo. 1999-273 (holding
that, in Colorado, family support paid under a temporary order is
not alimony); Wells v. Commissioner, T.C. Memo. 1998-2 (holding
that, in California, family support payments are not alimony);
Murphy v. Commissioner, T.C. Memo. 1996-258 (holding that, in
California, family support payments are not alimony).