*225 Decision will be entered under Rule 50.
T made payments to his two children as heirs of his former wife pursuant to an Oklahoma divorce decree. Held, these payments were in respect of a "division" of property jointly acquired during marriage in accordance with Okla. Stat. Ann., tit. 12, sec. 1278; they accordingly do not qualify as alimony under sec. 71(a)(1), I.R.C. 1954, and are not deductible under sec. 215(a).
*125 The Commissioner determined deficiencies in petitioner's income tax for the years and in the amounts as follows:
| FYE Sept. 30 -- | Deficiency |
| 1963 | $ 2,801.85 |
| 1964 | 2,959.98 |
| 1965 | 3,260.29 |
A decree of divorce terminating petitioner's marriage required him to make certain payments over a period of years until a fixed amount had been paid. At issue is whether such payments made after the wife's death to her heirs and applicable to years after her death qualify under section*227 71, I.R.C. 1954, in the circumstances of this case, and are therefore deductible under section 215. Other issues, relating to a net operating loss carryback as well as an investment carryback and carryover, are governed by a stipulation of the parties which will be given effect under Rule 50.
FINDINGS OF FACT
The facts stipulated by the parties are incorporated herein by this reference.
Petitioner Lewis B. Jackson, Jr., was a resident of Tulsa, Okla., at the time his petition was filed in this case. He filed his individual income tax returns for the fiscal years ended September 30, 1963, 1964, and 1965, respectively, with the district director of internal revenue at Oklahoma City, Okla.
Petitioner and Louise A. Jackson were married to each other on June 17, 1931. Two children, Diane and Lewis B. Jackson III, were born of the marriage. During the taxable years Diane Jackson was not a minor or a dependent of petitioner. Lewis B. Jackson III was a minor and a dependent of petitioner during the fiscal years ending September 30, 1963, and September 30, 1964, but not for the year ending September 30, 1965.
*126 On May 15, 1961, petitioner filed a petition for divorce from his *228 wife with the District Court for the County of Creek, Oklahoma. In this petition, he sought the following relief:
Wherefore, plaintiff prays that he be decreed an absolute divorce from the defendant on account of the fault and neglect of the defendant herein; that he be awarded the exclusive care, custody and control and education of his minor son; that the real property owned by the parties hereto in the nature of the parties' former homestead located at 2939 East 32nd Street in Tulsa, Oklahoma, be ordered disposed of in such an equitable manner as this Honorable Court may deem just and proper in the premises and the proceeds derived from the same be equally distributed between the parties hereto; that the plaintiff be awarded the real property owned by him at 4103 South Sandusky, in Tulsa, Oklahoma, together with all the household goods and furnishings located therein; and the remainder of the properties of the parties that was jointly acquired during the marriage relationship as a result of the efforts of the defendant be divided by this Court in an equitable manner; that plaintiff's separate property inherited or given to him by members of his family, including his deceased father*229 and his deceased mother, be set aside for him, free and clear of any interest, claims or demands of the defendant herein, and a restraining order be issued as set forth in plaintiff's petition and that he have such other and further relief as to this Honorable Court may be deemed just and proper in the premises.
For approximately 6 years prior to the filing of the petition for divorce petitioner and his wife lived separate and apart although their marital problems existed for approximately 14 years. During the 6-year period of separation, and prior to the filing of the petition for divorce, petitioner voluntarily paid his wife $ 650 per month. He also made the mortgage payments on the house she occupied, furnished her an automobile, and paid various household debts incurred by her during this period of time. She had psychiatric problems and was hospitalized from time to time.
On August 28, 1961, petitioner's motion for "Default Judgment And Setting Case For Trial" was "sustained" since his wife failed to appear and answer in the proceedings. On September 14, 1961, a hearing on the divorce action was held at the District Court for Creek County. Petitioner's wife was not present*230 at this hearing and she was not represented by counsel.
At the hearing held September 14, 1961, it was established that the greater portion of petitioner's assets were acquired either by inheritance or through living trusts established by his late father. Such assets were referred to as his separate property. It was also established that certain other assets, referred to as community property, were accumulated during coverture. For the purpose of establishing the amount which his wife might receive under the divorce decree, petitioner at the divorce hearing introduced the testimony of his accountant, who in reliance upon a financial statement as to petitioner's net worth, purported to place a value on both his "separate" assets and the *127 "community property." Petitioner's accountant testified that the property accumulated during coverture -- i.e., the "community property" -- had a value of approximately $ 250,000 as of December 31, 1959. At the trial herein, petitioner submitted the financial statement to which his accountant referred at the divorce hearing. In summary, this uncertified statement disclosed petitioner's "separate" property and "community property," together*231 with liabilities applicable to each category, as of December 31, 1959, as follows:
| Separate | Community | |
| property | property | |
| Assets | $ 719,631.47 | $ 509,265.88 |
| Liabilities | 10,242.06 | 256,759.29 |
| Net worth | 709,389.41 | 252,506.59 |
There was no substantial difference between the values shown on this statement and the values of petitioner's "separate" and "community" property as of the time of the divorce hearing on September 14, 1961. The statement also noted contingent liabilities in the total amount of $ 455,760.98. Although such contingent liabilities were itemized, there was no indication whether they were applicable solely to petitioner's "separate" property, or to what extent, if any, they were applicable to the "community property." Nor does the record disclose the nature of these contingent liabilities or whether they in fact represented any substantial threat or charge against any of the "community property."
Petitioner is an oil producer, and at the divorce hearing he explained that most of his assets consisted of fractional interests in oil properties, and that an allocation of specific properties between him and his wife would result in a "tremendous amount" *232 of confusion to him and his business partners. Thus, he asked that the court's judgment be in the form of a lump-sum amount to be liquidated by monthly payments.
No evidence was introduced at the divorce hearing with respect to the amounts needed by the wife for her support and maintenance. Petitioner did testify, however, that the home occupied by his wife had a value of $ 31,000 and that the furnishings therein were worth about $ 9,000. He testified that she had jewelry which was "quite valuable," though he could not give an approximate value of the jewelry. He testified that she had a Cadillac automobile having an approximate value of $ 2,700. He also testified at that hearing and at the trial herein that she then had a cash hoard which he believed to be in the neighborhood of $ 18,000 to $ 20,000. Other than her duties as a housewife and the occasional entertainment of his business associates while he and his wife lived together (although her relations with the business associates may have been at times more harmful than helpful to him), she was not otherwise employed during their marriage. She brought no separate property to the marriage.
*128 The petitioner was granted*233 a divorce on September 14, 1961. The jugment of the court in the divorce proceeding provided, among other things, as follows:
It Is Therefore Ordered, Adjudged and Decreed By This Court that the bonds of matrimony heretofore existing between the plaintiff, Lewis B. Jackson, Jr., and the defendant, Louise A. Jackson, be and they are hereby dissolved and both parties released from the same on account of the fault of the defendant herein.
It Is Further Ordered, Adjudged and Decreed By This Court that plaintiff be awarded the exclusive care, custody and control of the parties' minor son, Lewis B. Jackson, III.
It Is Further Ordered, Adjudged and Decreed By This Court that the defendant herein be and she is hereby awarded as her sole and separate property, free and clear of all liens, claims, and demands of the plaintiff herein, the following described real and personal property, to-wit:
The home occupied by the defendant at 2139 East 32nd Street, in Tulsa, Oklahoma, the legal description of which is as follows: Lot 9, Block 4, Bren Rose Addition to the City of Tulsa, Tulsa County, State of Oklahoma according to the recorded plat thereof, together with all improvements, furnishings and*234 fixtures located therein and the plaintiff shall pay the mortgage indebtedness due against the said real property in the manner and in the form prescribed by the mortgage covering the same.
1. 1958 Cadillac Fleetwood automobile.
All of the furs, jewelry and personal effects owned by the defendant, together with all cash monies owned by her and under her control at this time.
It Is Further Ordered, Adjudged and Decreed By This Court that the defendant herein be and she is hereby awarded a judgment against the plaintiff herein in lieu of any further division of the properties owned by the parties hereto, and in the nature of permanent alimony, in the sum of $ 100,000.00, the same to be paid to the defendant by the plaintiff in the following manner, to-wit: The sum of $ 500.00 per month commencing on the 10th day of October 1961, with a like payment on the 10th day of each and every month thereafter; said alimony judgment shall not bear interest in any amount whatsoever, except on particular delinquent payments.
As of the time of the divorce from petitioner, his wife was 48 years of age.
Petitioner's wife died intestate on August 15, 1962, leaving Diane and Lewis B. Jackson III as her*235 sole heirs at law and next of kin.
In each of the taxable years ended September 30, 1963, 1964, and 1965, petitioner made aggregate payments of $ 6,000 to his children, the only heirs of his former wife.
The Federal estate tax return and the Oklahoma estate tax return of the decedent Louise A. Jackson, filed by Diane as "executrix," included as an asset of her estate the fair market value of the judgment granted by the District Court, Creek County, Oklahoma, on September 14, 1961. The fair market value of this judgment, as of the date of her death, was $ 61,333.33. It was the principal asset shown on the returns. The total amount of Federal estate tax, as finally determined, was $ 746.65.
*129 On each of the three income tax returns filed by petitioner for the years in issue, he claimed a deduction for "Alimony payments to Louise A. Jackson under decree granted September 14, 1961. Terms $ 500.00 per month for seventeen years."
OPINION
Petitioner claims the deductions in issue under section 215(a) on the ground that the $ 6,000 annual payments qualified as alimony under section 71(a)(1). 1 The Government defends the disallowance of the deductions on two grounds: (a) That*236 the payments were made simply in satisfaction of property rights in lieu of a division of the "community property" and were therefore not alimony under the foregoing statutory provisions; and (b) that, in any event, even if the divorce decree did provide for the payment of alimony which would otherwise qualify under these provisions, those payments accruing after the wife's death were not "received" by the wife under section 71(a) and therefore are not deductible under section 215, see Rev. Rul. 60-121, 1960-1 C.B. 30. Since we decide in the Government's favor on the first ground, we do not reach the second and it becomes unnecessary to consider petitioner's answer thereto based upon section 691 relating to income in respect of a decedent.
*237 We have recognized on a number of occasions that where there is a division of property or where the husband makes payments in satisfaction of property rights of the wife the amounts received by the wife are capital in nature and are neither includable in her gross income under section 71 nor deductible by the husband under section 215. See Ann Hairston Ryker, 33 T.C. 924, 929; Wilma Thompson, 50 T.C. 522, 525; Brantley L. Watkins, 53 T.C. 349.
The divorce decree here involved describes the payments in issue as being "in lieu of any further division of the properties owned by the parties hereto, and in the nature of permanent alimony." Whether the payments referred to actually represent a division of property as suggested by the first clause of the above-quoted phrase, or alimony, *130 as suggested by the second clause, turns on all the circumstances surrounding the divorce decree and not merely the labels used therein. Bardwell v. Commissioner, 318 F. 2d 786 (C.A. 10), affirming 38 T.C. 84; Ann Hairston Ryker, supra;*238 Blanche Curtis Newbury, 46 T.C. 690, 694; Wilma Thompson, supra;William M. Joslin, Sr., 52 T.C. 231, 236.
Under Oklahoma law, the wife has a vested interest in property jointly acquired during marriage. Davis v. Davis, 61 Okla. 275, 278, 161 P. 190, 193. As the Supreme Court of Oklahoma pointed out, "The nature of the wife's interest is similar in conception to community property of community property states, and is regarded as held by a species of common ownership." Collins v. Oklahoma Tax Commission, 446 P. 2d 290, 295 (Okla. 1968). The wife's interest thus acquired is protected at the time of divorce by Oklahoma statute. Thus, although a wife is entitled to alimony where the divorce is granted by reason of the fault of the husband, no such requirement of fault is contained in the statute affecting her rights in respect of a "just and reasonable" division of the so-called community property or the payment of a sum of money in lieu thereof. The applicable statutory provisions are set forth in Okla. Stat. Ann., *239 tit. 12, sec. 1278 (1967):
Sec. 1278. Disposition of property -- Restoration of wife's maiden name -- Alimony
When a divorce shall be granted by reason of the fault or aggression of the husband, the wife shall be restored to her maiden name if she so desires, and also to all the property, lands, tenements, hereditaments owned by her before marriage or acquired by her in her own right after such marriage, and not previously disposed of, and shall be allowed such alimony out of the husband's real and personal property as the court shall think reasonable, having due regard to the value of his real and personal estate at the time of said divorce; which alimony may be allowed to her in real or personal property, or both, or by decreeing to her such sum of money, payable either in gross or in installments, as the court may deem just and equitable. As to such property, whether real or personal, as shall have been acquired by the parties jointly during their marriage, whether the title thereto be in either or both of said parties, the court shall make such division between the parties respectively as may appear just and reasonable, by a division of the property in kind, or by setting*240 the same apart to one of the parties, and requiring the other thereof to pay such sum as may be just and proper to effect a fair and just division thereof. In case of a finding by the court, that such divorce should be granted on account of the fault or aggression of the wife, the court may set apart to the husband and for the support of the children, issue of the marriage, such portion of the wife's separate estate as may be proper. [Emphasis supplied.]
It is important to note that "the particular proviso [in section 1278] respecting the division of jointly acquired property when granting a divorce is not permissive, but defines a mandatory duty placed upon the trial court." Collins v. Oklahoma Tax Commission, supra at 294. The awarding of alimony to the wife as opposed to the mandatory division of joint property, turns on which party is at fault in the *131 divorce. Where, as in this case, the husband is granted a divorce because of the fault of the wife she is not entitled to alimony as a matter of right out of the husband's property; the court may allow her alimony only if she would otherwise become a public charge. Chilton v. Chilton, 207 Okla. 647, 648, 252 P. 2d 121, 122;*241 Herd v. Bilby, 199 Okla. 437, 439, 186 P. 2d 833, 835; Haynes v. Haynes, 190 Okla. 596, 598, 126 P. 2d 65, 66; Whitehorn v. Whitehorn, 178 Okla. 633, 634, 64 P. 2d 299, 300; and Flaxman v. Flaxman, 177 Okla. 28, 29, 57 P. 2d 819, 820.
Against this background we note first that Mrs. Jackson was not entitled to alimony under the law of Oklahoma because she was at fault in the divorce. There was no suggestion at the divorce hearing that she might become a public charge in the absence of an alimony award. In fact, much to the contrary, petitioner's evidence at the divorce hearing and the trial herein sought to establish that his wife had a cash hoard as well as furs, jewels, and other personal property of substantial value at the time of the divorce.
Though Mrs. Jackson's right to alimony was highly doubtful, under Oklahoma law she clearly had an interest in the properties jointly acquired during coverture. And we think that the divorce judgment here in issue was intended to effect the division*242 of the property acquired during the marriage of petitioner and his wife. At the divorce hearing petitioner sought to establish that the value of the assets acquired during marriage was approximately $ 250,000. At the trial herein, petitioner introduced the financial statement from which this figure was derived, and in this statement the net value of property acquired during marriage, described as "community property" in the statement, was set at $ 252,506.59. We think the clear purpose of the introduction of this evidence at the divorce hearing was simply to facilitate the division of property required by Oklahoma law. This is confirmed by petitioner's remark at the trial here that, in reference to the divorce judgment, "I felt that the property I gave her was a fair split on everything we had worked on together to get."
We recognize that under Oklahoma law the trial judge is not required to divide jointly acquired property equally upon divorce. See Tobin v. Tobin, 89 Okla. 12, 17, 213 P. 2d 884, 889; Williams v. Williams, 428 P. 2d 218, 222. However, we think it would be naive to believe that*243 the divorce judgment here was not directly related to approximately $ 250,000 in property admittedly acquired by petitioner and his wife during marriage.2
In his reply brief, petitioner makes the contention for the first time that the value of the joint properties was not $ 250,000 because petitioner's financial statement also showed contingent liabilities of $ 455,760.98. *132 We disagree. Petitioner made no effort to show to what extent, if at all, these contingent liabilities related to the "community property" rather than to his "separate" property. Moreover, there was no explanation of the nature of the contingencies, and we have no basis whatsoever to judge the likelihood that the so-called contingencies might become liabilities, or to what extent they represented any substantial threat against the "community property."
Petitioner argues*244 that he intended to pay his wife alimony and support because of her inability to support herself and that the judgment with respect to the $ 100,000 payable at $ 500 monthly of the divorce court had this purpose. Although the matter may not be completely free from doubt, we think the scales tip against petitioner. No evidence was presented at the divorce hearing with respect to the support needs of his wife, and we note that the monthly payments provided for in the decree were to cease once the amount of $ 100,000 was reached. Thus, since she was 48 years of age at the time of the divorce the payments would have come to an end when she reached age 65. To be sure, petitioner may have expected her to use the payments in issue for support. This does not mean, however, that such payments were not in satisfaction of her vested property interest. 3
*245 Nor are we persuaded that the payments in issue are alimony by the fact that petitioner made monthly payments of $ 650 to his wife during the 6 years prior to the divorce. That petitioner may have felt an obligation to support his wife prior to their divorce does not bear on whether petitioner and his wife had jointly acquired property which was required to be divided between them upon divorce.
While petitioner may have had an obligation to support his wife prior to divorce, he had no such obligation once he was granted a divorce due to the fault of his wife -- assuming, of course, that his wife would not have otherwise become a public charge, as indicated above.
On the record before us, we cannot find that the Oklahoma court intended its $ 100,000 judgment, payable in $ 500 monthly payments, as an award of alimony to Mrs. Jackson. More likely, we think that the divorce judgment was framed in response to petitioner's uncontested request that his wife be given a monetary sum rather than specific items of joint property so that she would thereby be prevented from further interfering with his business activities.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.
(a) General Rule. --
(1) Decree of divorce or separate maintenance. -- If a wife is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, the wife's gross income includes periodic payments (whether or not made at regular intervals) received after such decree in discharge of (or attributable to property transferred, in trust or otherwise, in discharge of) a legal obligation which, because of the marital or family relationship, is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation.
SEC. 215. ALIMONY, ETC., PAYMENTS.(a) General Rule. -- In the case of a husband described in section 71, there shall be allowed as a deduction amounts includible under section 71 in the gross income of his wife, payment of which is made within the husband's taxable year. No deduction shall be allowed under the preceding sentence with respect to any payment if, by reason of section 71(d) or 682↩, the amount thereof is not includible in the husband's gross income.
2. Petitioner does not argue on brief that the properties acquired during marriage were not "jointly" acquired under the terms of Okla. Stat. Ann., tit. 12, sec. 1278↩.
3. We do not base our finding that the payments herein were pursuant to a division of property on the fact that the divorce award was stated as a lump sum since Oklahoma law then in force required all alimony awards to be stated as a lump sum. See Dobry v. Dobry, 203 Okla. 327, 220 P. 2d 698↩.