*1433 On September 6, 1933, petitioner and his wife, while living separate and apart, entered into a property settlement agreement in which they agreed that all subsequently acquired property should be the "separate property" of the party by whom it was acquired, and that the said agreement should continue in full force and effect even if the parties should later become reconciled. A reconciliation took place on October 2, 1933, and the parties lived together intermittently until about June 1936, when they again were separated and later divorced. Held, the 1933 agreement was in full force and effect during the taxable years 1934 to 1937, inclusive, during which years all of petitioner's earnings are taxable to him as his separate property.
*911 The respondent determined deficiencies in income tax against petitioner for the calendar years 1934 to 1937, inclusive, in amounts as follows:
| Docket No. | Taxable Year | Deficiency |
| 98999 | 1934 | $16,085.65 |
| 97525 | 1935 | 12,777.67 |
| 98044 | 1936 | 26,306.90 |
| 98044 | 1937 | 20,585.00 |
*1434 The sole remaining issue in all three proceedings is whether petitioner is taxable on only one-half of his earnings for personal services rendered under the community property laws of California, or whether he is taxable on the entire amount of his earnings as the result of a written property settlement agreement entered into between petitioner and his wife on September 6, 1933, in which he *912 and his wife, among other things, agreed that "any and all properties that the respective parties shall acquire on and after the date hereof shall be and the same is hereby declared to be the separate property of the party by whom it is acquired, free and clear of any and all claims and demands of the other." Petitioner contends that this agreement, which is relied upon by the respondent, was inoperative during the years 1934, 1935, 1936, and until April 14, 1937, when another written agreement was entered into, for the reason that, on or about October 2, 1933, he and his wife became reconciled and orally agreed to cancel and annul the agreement of September 6, 1933. Certain other assignments of error relating to the disallowance of certain deductions claimed by petitioner were waived. *1435 The proceedings were consolidated for hearing.
FINDINGS OF FACT.
Petitioner and Myrtle Lee Reeves were married in 1921. They resided in the State of California from the time of their marriage until the end of the taxable years here involved. On February 23, 1940, a final judgment of divorce (No. D 155211) was entered in the Superior Court of the State of California in and for the County of Los Angeles. During the taxable years involved petitioner was employed as an actor by Hal Roach Studios, Inc.
About the year 1922 petitioner discovered that his wife had the habit of using intoxicating liquor to excess. At such times she would usually absent herself from home and it would take petitioner from two days to sometimes six weeks to locate her. During her temperate periods petitioner would turn over to his wife his salary checks and she would manage the home and all of their personal business affairs. Beginning about 1931, at which time her father swore out a psychopathic complaint against her on account of her drinking habit, her intemperate periods seemed to become more frequent. In 1933 a sister of petitioner's wife told petitioner she believed that if petitioner would*1436 start a divorce proceeding against his wife it might awaken her to her senses and might cure her of her drinking habit. Ptitioner then, during 1933, filed a suit for divorce against his wife, and while that action was pending and while the parties were separated, petitioner and his wife, on September 6, 1933, entered into a a written property settlement agreement, hereinafter sometimes referred to as the 1933 agreement.
In this 1933 agreement Myrtle Lee Hardy was referred to as first party and Oliver Norville Hardy as second party. Among other things the agreement recited that at that time the parties were living separate and apart; that there were no children; that an action for divorce was pending; that "the parties hereto are not only *913 desirous of effecting a settlement of their property rights in the light of such pending action, but expressly intend that this agreement will continue in full force and effect in the event that their respective differences can be composed and a reconciliation, whether permanent or otherwise, take place"; and that during their marriage certain property had been acquired with the earnings of the second party, consisting of certain real*1437 estate used as a residence which was subject to a mortgage of about $12,000, furnishings of the house, two automobiles, $15,000 of life insurance on the life of the second party; a five-year endowment insurance policy of $100,000 which was taken out on January 18, 1932, cash of $9,100 in possession of second party, and certain other personal property, effects, and jewelry. Under this agreement the parties agree first, that the $9,100 shall be divided equally; second, that the real estate shall be disposed of as soon as possible and the proceeds divided equally; that until the real estate is sold the second party shall continue to make payments on the mortgage as such payments become due and to pay the taxes thereon; third, that the house furnishings shall be sold and the proceeds divided equally; fourth, that if either party shall die before the sale of the real estate and house furnishings, such property shall then be the absolute property of the survivor; fifth, that one of the automobiles shall be the separate property of the first party; sixth, that the other automobile shall be the separate property of the second party; seventh, that the second party shall continue to pay the*1438 premiums on the ordinary life insurance policies of the face value of $15,000; that the first party shall continue as the beneficiary under these policies; eighth, that all jewelry shall be the separate property of the first party; ninth, that the personal effects shall be divided between both parties as mutually agreed upon between them; and tenth, that as and for the support of the first party the second party shall pay to the first party until she remarries one-fourth of his income but in no event more than $250 per week. The sixteenth paragraph of the agreement provided in part, as follows:
SIXTEENTH: It is further specifically understood and agreed by and between the parties hereto that, as herein expressly set out, any and all properties that the respective parties shall acquire on and after the date hereof shall be and the same is hereby declared to be the separate property of the party by whom it is acquired, free and clear of any and all claims and demands of the other.
In the twenty-first paragraph the parties agreed to have the $100,000 endowment policy placed in trust for substantially the equal benefit of both parties. The twenty-second paragraph of the 1933 agreement*1439 was as follows:
TWENTY-SECOND: The parties hereto agree that they have made a careful study of the terms and provisions of this agreement and have separately consulted *914 counsel, representing one to the other that such consultation of counsel was and is for the purpose of being fully advised in the premises.
Each of the parties hereto further acknowledges that each and all of the terms and provisions hereof have been fully and extensively discussed, not only between the parties hereto but with counsel by each of the parties hereto.
All such steps have been taken for the purpose of insuring a final, definite, fair, just and equitable settlement between them, which the parties hereto, after careful study and consideration, believe this agreement to be.
The final paragraph of the 1933 agreement was as follows:
TWENTY-FOURTH: This agreement can only be changed, altered or vacated by the express written agreement, signed and acknowledged by both parties hereto.
At the time of the execution of the 1933 agreement petitioner delivered to his wife one-half of the $9,100 cash then in his possession, and during the next three weeks he delivered to her through his attorney*1440 weekly payments of $250 each as provided for in paragraph tenth or the agreement. Thereafter, on or about October 2, 1933, the parties became reconciled. The divorce proceeding then pending was dismissed. Mrs. Hardy returned home and began to manage the house and the personal business matters of both parties just as she had always done theretofore. Petitioner turned over to his wife his weekly salary checks and she endorsed them and used them to pay the personal living expenses of the family and also certain periodic payments which the Hardys were making to some of their close relatives.
During the period between the execution of the 1933 agreement and for a short time after the October 2, 1933, reconciliation, petitioner's attorney, Benjamin W. Shipman, and the attorney for Mrs. Hardy, David H. Cannon, engaged in considerable correspondence relative to the completion of the inventory, appraisal, and division of the personal effects, and the execution of the trust agreement relative to the $100,000 endowment policy called for under the 1933 agreement, and also in regard to Cannon's fee.
On October 20, 1933, Cannon wrote Shipman, saying:
My many efforts to contact you personally*1441 or over the telephone have been unavailing, hence this letter.
After I talked with Mrs. Hardy this morning I called your office and have called several times since, leaving my number on each occasion but I have not heard from you.
Mrs. Hardy told me this morning that she and Mr. Hardy have determined not to file the insurance policy with the bank under any trust indenture, and consequently it will not be necessary for your or for me to give further attention to it. She further stated that Mr. Hardy had told her that he had communicated this information to you yesterday.
On October 23, 1933, Shipman wrote Cannon, saying:
I have your letter of October 20th, and this is also to confirm our telephone conversation of Saturday, the 21st of October.
*915 I stated to you my understanding from Mr. Hardy that Mr. and Mrs. Hardy have agreed to restitute the terms of the endowment life insurance policy to its former recitals of ownership. That, however, the other recitals contemplated to be accomplished through the medium of the Bank of America as trustee would be accomplished through the medium of endorsements upon the policy itself.
I have accordingly communicated with*1442 Mr. Mead Horton, the insurance company representative, who handled the writing of this policy in the first instance, who assured me that he would take the matter up with the home office at once for the purpose of accomplishing the purposes that we want.
In the meantime, however, I am preparing a document reciting the changes made by the parties by reason of their reconciliation, and this document I trust I shall be able to send over to your office for your perusal some time today.
On October 23, 1933, Shipman wrote petitioner, saying:
I have communicated with Mr. Cannon advising him of the changes that will be made in the policy, which will thus dispense with the necessity of placing the policy with a corporate trustee.
I have also communicated with Mr. Horton asking him that he communicate with his own office and secure the necessary endorsement or the method of operation that the insurance company will wish to secure for the purpose of accomplishing the various results desired. He has assured me that he would communicate with the New York office forthwith and handle all correspondence by air mail.
On November 1, 1933, Shipman wrote Cannon, saying:
I wonder if you*1443 have been able to go over the matter of the supplemental agreement, a draft of which I submitted several days ago. I should like to be in a position to finish this matter as rapidly as possible.
On November 2, 1933, Cannon wrote Shipman, saying:
Today when I received your letter on the first instant I called Mrs. Hardy to get her reaction to the rough draft of the supplemental agreement sent me the other day by you, and a copy of which I furnished to her. She told me that she and Mr. Hardy had been away and just had returned yesterday and that both of them were much surprised to know that any such proposed agreement had been drawn; that it was not their intention to do anything at all about the insurance policy.
I told her that this was certainly not your understanding from the instructions given to you by Mr. Hardy. Whereupon she said that Mr. Hardy was right there while she was talking with me and that he would call you, and that thereafter she would call me. In a little while she called me and told me that Mr. Hardy just talked with you and had told you that they did not want to do anything at all with the insurance policy.
Mrs. Hardy then asked me to return all of*1444 the papers including the insurance policy to her, and this I expect to do right away.
Under these circumstances I suppose the matter is closed, and for that reason I should appreciate your taking up with Mr. Hardy at your earliest convenience the settlement of my account, a statement of which I sent you the other day.
On November 16, 1933, Shipman wrote Cannon, saying:
It appears that since out conversation relating to the changes to be made in the policy, in view of the complete reconciliation between Mr. and Mrs. Hardy it is not desired to complicate the situation by carrying out formally the prior agreement of the parties.
*916 After the reconciliation of October 2, 1933, Mrs. Hardy did not remain temperate at all times, but occasionally resorted to her old habit of drinking and absenting herself from home. During these periods petitioner would deposit his checks in his own account and would himself pay the family running expenses and the periodic payments to the relatives. Checks received by petitioner from Hal Roach Studios, Inc., from October 2, 1933, to December 31, 1936, were endorsed by Mrs. Hardy and petitioner, respectively, as follows:
| Endorsed by | Oct. 2 to Dec. 31, 1933 | 1934 | 1935 | 1936 | Total |
| Mrs. Hardy | $23,996.93 | $74,400 | $22,400.00 | $4,000.00 | $124,796.93 |
| Petitioner | None | 12,600 | 51,521.34 | 83,216.42 | 147,337.76 |
| Total | 23,996.93 | 87,000 | 73,921.34 | 87,216.42 | 272,134.69 |
*1445 At the close of these intemperate periods, it usually was necessary to place Mrs. Hardy in sanitariums where she could have medical attention. During the period October 2, 1933, to April, 1937, petitioner paid out more than $20,000 for such medical services performed on behalf of his wife.
In June 1935, upon petition signed by Mrs. Hardy's sister, Mrs. Hardy was again placed under the supervision of a psychopathic officer of the court of Los Angeles County, and continued under such control until about October 29, 1936, when she was dismissed.
On November 9, 1936, petitioner's wife commenced an action against petitioner for separate maintenance. In her complaint she alleged considerable scandalous matter and, among other things, that defendant (petitioner herein) "through the exercise of fraud, menace, intimidation, duress and undue influence, secured what appears to be the consent and signature of plaintiff to a certain purported property settlement agreement which appears to have been executed on September 6, 1933"; that defendant had breached the alleged 1933 agreement; and that "defendant did not intend when he made said agreement to live up to and perform the same, but*1446 induced plaintiff to enter into the same with an ulterior motive so as to enable him to assume the attitude of entire freedom from his marital obligations and to hold said agreement over the head of plaintiff as a means of coercion to compel plaintiff to obtain a divorce from him which he has often expressed the wish for plaintiff to do." In this complaint, plaintiff's wife requested the court to adjudge, among other things, that the alleged 1933 agreement be set aside, canceled, and rescinded; that the community property of the parties be equitably apportioned; that plaintiff have judgment against the defendant for permanent support and maintenance; that defendant be restrained and enjoined *917 from conveying or encumbering, or in any other manner dealing with the community property of the parties and the separate property of the defendant except as may be reasonably necessary for the necessities of life; that defendant pay plaintiff $2,500 per month as permanent support and maintenance; that defendant pay plaintiff a reasonable sum as attorney fees and court costs incurred in bringing the action; and that a receiver be appointed to take possession of the community property*1447 of the parties and the separate property of the defendant.
On November 17, 1936, petitioner's wife filed an amendment to her complaint in which she alleged that defendant failed, neglected, and refused to pay to plaintiff the sum of $4,550 (one-half of the $9,100) mentioned in the alleged 1933 agreement.
On November 17, 1936, petitioner filed an affidavit in the action brought by his wife in which petitioner, being first duly sworn, deposed as follows:
I am the defendant in the above entitled action. This action is brought for the purpose of separate maintenance and rescission of a property settlement agreement, entered into between my wife, plaintiff herein, and myself, on the 6th day of September, 1933. This agreement was entered into while we were living separate and apart and while there was an action for divorce pending between us * * *. This action was commenced by me, and my wife filed an answer and cross-complaint. * * *
This action was brought and was pending subsequent to the time when there were other difficulties between us, arising from our marital relationship, and both my wife and myself were desirous of definitely arranging our property rights and of providing*1448 for my wife and her comfort and well-being. Throughout the negotiations for the making of and the execution of the property settlement agreement, my wife was represented by her own attorney, and I was represented by my attorney, and there was no reconciliation between us until after the execution of this agreement. * * *
The agreement provided for the division of our community property, and, in accordance with such agreement, out community property was divided. From my share of the cash of the community property, I paid the fee of my wife's attorney, and, after the signing of the agreement, I have complied with it. * * * After the reconciliation, subsequent to September 6th, 1933, my wife, during the periods when she controlled her habit of intemperance, managed and had full control of my affairs and I turned over to her my salary for the purpose of fully complying with said agreement, such as to make the payments to herself and to have money for the payment of income taxes and the money necessary for the endowment fund with the New York Life Insurance Company, the payment of premiums on the ordinary life policies, taxes and other charges, and between our reconciliation, which*1449 took place on or about the 2nd day of October, 1933, and the 1st day of June, 1936, I turned over to my wife approximately $124,000.00, for which she has made no accounting to me. These sums were turned over, as above stated, during the time that my wife exercised control over her habit of intemperance. My wife did not wish to sell the house * * *. The furniture and fixtures in the house have been especially designed for the house and should not be sold separate and apart from it.
* * *
*918 The allegations in the complaint filed in this instant proceeding are untrue and, particularly, as they bear upon the question of the property settlement agreement, I state and declare that the property settlement agreement was entered into while we were separated, while there was a divorce action pending initiated by me and to which my wife had filed her cross-complaint; that she was fully and completely represented at the time and received everything that she or her counsel wanted or desired.
* * *
By reason of the division of property that has taken place between my wife and myself, my wife is worth at least $100,000.00 consisting of one-half of the endowment*1450 fund of $100,000.00, one-half of the house and lot and furniture, equipment and fixtures of the house at Beverly Hills, a Packard sedan automobile; she is entitled to the proceeds of my life insurance policy of $50,000.00, as beneficiary under it; she has jewelry, or had jewelry, the last I knew of it, of the value of about $30,000.00, and, under the property settlement agreement, she is entitled to, and I am ready, able and willing to make the payments of $250.00 a week, as therein provided.
My separate property consists of one-half of the house and lot, one-half of the endowment policy, about $21,000.00 in cash, the Packard Coupe, which does not exceed in value the Packard Sedan owned by my wife; I have, since the agreement of September 6, 1933, invested in a venture in Alaska, but, apparently it has no present value. This investment was in the sum of about $6,000.00.
There is no community property, and I know of no other separate property that I have except wearing apparel and some effects that I received under the settlement of September 6th, 1933, which are of very small value, not exceeding $1,000.00.
* * *
I have not taken advantage of my wife in any particular in*1451 the property settlement agreement or in any other manner and nothing has been pointed out to me in what respect this agreement is unfair or unjust.
I am ready, able and willing to pay the payments of $250.00 a week, as provided in the agreement, as the court may direct, although I have paid for my wife's care and maintenance, as will appear from the attached copy of statement of the Rosemead Sanitarium to the 20th day of this month, and I am willing that any such payments by me shall be without prejudice to my wife's position as to any claim she may have as to the validity or invalidity of the property settlement agreement. I know of nothing else that I can do.
On November 17, 1936, petitioner filed a "Husband's Questionnaire" in the suit in which he stated in affidavit form that:
All of our property rights have been settled by a just and fair property settlement agreement, entered into on September 6th, 1933, whereby the community property was divided and provision was made for the support and maintenance of the plaintiff in the sum of $250.00 a week, when a defendant's salary is $1,000.00 a week or more.
Thereafter the Court made an order allowing temporary alimony and*1452 counsel fees. Petitioner appealed from this order in as far as the matter of attorney's fees was concerned. Petitioner also filed a demurrer to the original complaint.
On December 18, 1936, petitioner's wife filed an "AMENDED COMPLAINT FOR PERMANENT SUPPORT AND MAINTENANCE", which, to a large *919 extent, was substantially the same as the original complaint. In paragraphs XIII and XIV thereof she alleged as follows:
XIII. That upon the reconciliation of the parties on or about October 2, 1933, as herein described, they resumed marital relations and lived together and cohabited as man and wife whereupon they mutually agreed in connection with said reconciliation and as a part thereof that said agreement should be and it thereupon was abandoned, abrogated, and deemed by them to be cancelled and to be of no further effect, and thereafter said agreement was and has been wholly disregarded by the parties since October 2, 1933, from which time to June, 1936, the parties at various times and for varying periods lived and cohabited together as husband and wife as above described in total disregard of said agreement, and at no time prior or since said last named date has defendant*1453 made any payments to plaintiff under said agreement, and particularly has not paid to plaintiff the sum of $4,550.00 stipulated therein, nor said weekly payments of $250.00 stipulated therein, nor income taxes assessed against plaintiff stipulated therein, all of which defendant was obligated to pay if said agreement should be deemed to be and remain valid and subsisting.
XIV. That by reason of the facts and circumstances herein described said items above mentioned as embraced in said agreement became and are community property and since the date of said agreement defendant accumulated and has funds and property, the exact nature, amount and value whereof is unknown to plaintiff, but which likewise became and is community property.The prayers for judgment in the amended complaint were substantially the same as in the original complaint except that in the amended complaint petitioner prayed, among other things, as follows:
9. That it be judicially declared said purported property settlement agreement bearing date September 6, 1933, has been abandoned, abrogated, rescinded and cancelled, and is of no further force or effect.
On December 28, 1936, petitioner filed a notice*1454 of motion to strike, seeking to strike certain matters in the amended complaint, among which matters were paragraph XIII thereof. This motion, as far as it involved paragraph XIII was granted by the court on January 11, 1937.
Prior to the filing of the amended complaint petitioner's attorney, Shipman, began negotiations with Mrs. Hardy's then counsel, Roger Marchetti, which negotiations finally resulted in an agreement entered into on April 14, 1937, by and between Myrtle Lee Hardy, as first party, and Oliver Norville Hardy, as second party, hereinafter sometimes referred to as the 1937 agreement. After reciting that the parties were now living separate and apart; that they had entered into the 1933 agreement; and that action No. D 149876 was at this time pending, the 1937 agreement continued as follows:
Differences having arisen between the parties thereto as to the validity, effect and performance of the terms of the agreement of September 6, 1933, and it being the intention of the parties hereto to compose such differences, it is agreed that said agreement shall continue in full force and effect and that the transfers of property and of interests in insurance policies and*1455 the *920 payments of money provided for herein shall be a complete acquittance, release and satisfaction of any claim either of the parties hereto may have against the other under said agreement, between the date of its execution, September 6, 1933, and the date hereof and in consideration of the performance of the covenants contained herein and in said agreement of September 6, 1933, wherein by the terms hereof performance is requisite subsequent to the date hereof, the parties hereto hereby release each other of all claims one may have against the other arising thereunder.
The 1937 agreement then stated that the $100,000 endowment policy had been fully paid up; that no trustee was necessary; that the fund shall be held by the issuing life insurance company, which company shall make payments equally to both parties under a certain option providing for 20 annual payments; and that the interest of each party in and to said fund shall continue only during the life of the party and vest completely in the survivor upon the death of either party. The 1937 agreement further provided that all the real estate and furnishings of the house, except certain personal property which had*1456 already been identified as belonging to second party, shall be the separate property of first party; that the first party shall release all of her rights under the $15,000 of ordinary life insurance; that the second party shall pay the first party $12,500 in full payment of any attorney's fees and costs incurred in all litigation between the parties; that the parties shall join in the dismissal of the appeals pending; and that
It is hereby agreed that the first party accepts the provisions made or incorporated herein by reference to the agreement of September 6, 1933, in lieu of and in satisfaction of any and all claims she might have against the second party in whatever manner arising out of the marital relationship existing between the parties, or for maintenance or support, in any other manner except as herein provided either expressly or by reference to said agreement of September 6, 1933, and it is further expressly understood that, although this agreement does not have as its object the dissolution of the marriage contract or the facilitating of that result and is intended solely as an adjustment of the property rights of the parties and provision for the support and maintenance*1457 of first party, the terms hereof may be incorporated, upon approval by the Court, in any decree of divorce or separate maintenance hereafter obtained by either of the parties hereto in lieu of any provision of a similar nature by the Court in such decree and the power of the Court to change or modify its provision for the support of the first party shall not be restricted in any way by the agreement of the parties hereto.
The 1937 agreement has been lived up to by both parties thereto.
On April 24, 1937, petitioner filed a complaint for divorce, No. D 155211, against his wife in the Superior Court of the State of California in and for the County of Los Angeles, on the grounds of cruelty. In this complaint petitioner, among other things, alleged that he had in 1933 commenced an action for divorce, No. D 112877; and
*921 That, thereafter, such proceedings were had therein that defendant therein appeared in said action and filed a cross complaint therein and, in the course of the pendency of said action, an agreement settling their various marital property rights was entered into on or about the 6th day of September, 1933, a copy of which agreement is attached hereto. *1458 That said agreement was entered into, as aforesaid, while the parties were living separate and apart and in the course of conducting litigation between themselves over their marital property rights. That, thereafter, and subsequent to the entry into such property settlement agreement, the above entitled action was dismissed, and the parties, for a time thereafter, became reconciled to the extent of occupying the same domicile. That the matters and things which occasioned prior separations of the parties recurred, however, and the parties again separated upon numerous occasions and finally did become separated, as aforesaid, on or about the 14th day of June, 1936.
That, thereafter, on or about the 9th day of November, 1936, defendant herein commenced an action against the plaintiff herein for separate maintenance and support and, in the course of such action and proceeding, and prior to its dismissal, the parties modified said agreement of September 6th, 1933, by entering into a new and additional agreement, dated the 14th day of April, 1937, a copy of which is likewise attached hereto. That said new and additional agreement of April 14th, 1937, was likewise entered into*1459 at a time when the parties were living separate and apart, litigation was pending between them, and in all other respects the parties, in entering into said agreement and the agreement of September 6th, 1933, dealt at arms-length, being separately represented by counsel and dealing with counsel, arriving at the terms and provisions of said agreement under advice and guidance of counsel.
* * * That said agreements of September 6, 1933, and April 14th, 1937, and each of them, particularly by reason of the equitable benefits and provisions thereof, should be confirmed by this court as constituting the property settlement agreement of the parties and provision for the support and maintenance of the defendant.
On May 18, 1937, action No. D 149876 was dismissed without prejudice.
On May 26, 1937, an interlocutory judgment of divorce (default) in action No. D 155211 was entered. This judgment is in part as follows:
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that said agreements, so dated September 6th, 1933, (inclusive of supplement thereto of like date), and April 14th, 1937, respectively, are, in all particulars, hereby affirmed and approved, as constituting and being just, *1460 fair and equitable in their provisions for the separation and segregation of the property rights of the parties, and in the provision for the maintenance and support of defendant by the plaintiff, and as being the free and voluntary act of the parties, and just, fair, and equitable in all respects;
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that plaintiff is entitled to a divorce from defendant; that, when one year shall have expired after the entry of this interlocutory judgment of divorce, a final judgment dissolving the marriage between plaintiff and defendant be entered and, at that time, the court shall grant such other and further relief as may be necessary to a complete disposition of this action.
During the taxable years here involved petitioner and his wife filed separate income tax returns, each reporting one-half of petitioner's *922 earnings for the respective year. The income reported and the deductions claimed in these returns were as follows:
| 1934 | 1935 | 1936 | 1937 | |
| Income: | ||||
| Petitioner | $43,450.00 | $39,058.00 | $54,298.95 | $48,408.33 |
| Myrtle Lee Hardy | 43,450.00 | 39,058.01 | 54,298.95 | 48,408.33 |
| Deductions: | ||||
| Petitioner | 2,249.88 | 2,824.95 | 4,241.65 | 4,730.88 |
| Myrtle Lee Hardy | 2,249.89 | 2,824.97 | 4,297.65 | 4,730.88 |
| Net income: | ||||
| Petitioner | 41,200.12 | 36,233.05 | 50,057.30 | 43,677.45 |
| Myrtle Lee Hardy | 41,200.11 | 36,233.04 | 50,001.30 | 43,677.45 |
*1461 The respondent determined that petitioner was taxable on all of his earnings instead of one-half thereof, disallowed certain of the deductions claimed, and thus arrived at a taxable net income for petitioner for each of the years involved as follows:
| 1934 | $85,299.35 |
| 1935 | 76,144.85 |
| 1936 | 104,540.59 |
| 1937 | 91,183.08 |
During the period from January 1, to April 14, 1937, petitioner received earnings in the amount of $26,233.33.
The agreement of September 6, 1933, sometimes referred to herein as the 1933 agreement, was not annulled, rescinded, or canceled by the parties, but as far as the sixteenth paragraph thereof is concerned was in full force and effect during the taxable years 1934 to 1937, inclusive.
OPINION.
BLACK: The sole issue which we have to decide in these proceedings is largely a question of fact, namely, whether petitioner and his wife did actually annul and cancel the 1933 written property settlement agreement prior to the beginning of the taxable years involved, and supersede it with an executed oral agreement.
At the outset it should be noted that under the laws of California, where petitioner and his wife were domiciled, they had a right*1462 to enter into such an agreement as they did on September 6, 1933, regardless of whether they were living together or whether they were living apart and later became reconciled; and that so long as such an agreement was in full force and effect petitioner's earnings would be his separate property and would all be taxable to him. Civil Code of California, secs. 158 and 159; ; affd., ; ; ; certiorari denied, ; ; affd., ; certiorari denied, ; *923 ; certiorari denied, ; ; ; ; ; McKay on Community Property, 2d ed., sec. 1318. *1463 Furthermore, it should be noted that, notwithstanding the provision in the 1933 agreement that it could "only be changed, altered or vacated by the express written agreement, signed and acknowledged by both parties", the 1933 agreement could have been changed, altered or vacated by an "executed oral agreement" of the parties. Civil Code of California, sec. 1698; 17 Corpus Juris Secundum, Contracts, sec. 377. Cf. ; . On these propositions of law, we understand the parties to be in agreement.
There was no written agreement which in any way canceled or even modified the herein material provisions of the 1933 agreement other than the 1937 agreement referred to in our findings. If petitioner is to prevail, his proof must show that there was an executed oral agreement between himself and his wife prior to the beginning of the taxable years here involved which did away with the 1933 agreement or at least that provision of the 1933 agreement contained in the sixteenth paragraph wherein the parties agreed that "any and all properties that the respective parties shall acquire*1464 on and after the date hereof shall be and the same is hereby declared to be the separate property of the party by whom it is acquired." It is well to bear in mind that there was a provision contained in the 1933 agreement stating that the parties are not only desirous of effecting a settlement of their property rights, "but expressly intend that this agreement will continue in full force and effect in the event that their respective differences can be composed and a reconciliation whether permanent or otherwise, take place." This latter provision was no doubt placed in the 1933 agreement for the purpose of avoiding the application of such cases as ; ; ; ; ; ; ; and , which cases stand for the authority that property settlement agreements are sometimes set aside where the acts, conduct, and relations of the parties thereafter are of such a character as to justify*1465 the conclusion that the parties intended and agreed orally to annul and cancel the same. In other words, it is apparent that the parties to the 1933 agreement wanted to guard against any future contention by either party that they had orally agreed to rescind the 1933 agreement with the hope of proving such contention by showing evidence of a reconciliation. Evidently as *924 a further guard against any such future contention, they put in the provision that the 1933 agreement could only be changed, altered, or vacated by an express written agreement to that effect. While it is our opinion that it was possible to annul and cancel the 1933 agreement by means of an executed oral agreement to that effect, we think the burden was on petitioner to prove the existence of such an executed oral agreement, and we think he has failed to do so.
On the other hand, the evidence convinces us that the 1933 agreement continued in full force and effect until the written agreement of April 14, 1937. Even then it was not abrogated by the latter agreement, but was merely modified and changed in certain material respects, and as modified it continued in full force and effect. It was not changed*1466 or modified in respect to the sixteenth paragraph fully set out in our findings of fact.
We consider it unnecessary to rehearse in this opinion the facts upon which we base our conclusion. We have stated the facts fully in our findings of fact. Upon these facts we hold that the Commissioner did not err in his determination that in the taxable years involved in these proceedings the earnings of petitioner were his own separate property and taxable entirely to him. If taxpayers do not wish to be bound by such agreements they should not enter into them. Cf.
Decision will be entered for respondent.