*66 Decision will be entered for the petitioner.
While a divorce action was pending the taxpayer and his wife, through attorneys, entered into protracted negotiations, resulting in a general agreement for maintenance and support, the division of property, and settlement of marital claims, which agreement was incorporated in the divorce decree. By it the taxpayer agreed, inter alia, to pay specified monthly amounts, varying according to contingencies, for the wife's support and maintenance. In compromise of her demand for a share in his prospective benefits from certain trusts, he further agreed that in the event of her remarriage he would make specified lesser monthly payments until the end of 1955. By the agreement he assigned fractions of his interests in certain trusts to their children, reporting the value of such fractions as gifts. The wife remarried in 1947.
(1) The taxpayer's agreement to make monthly payments to the wife after her remarriage, held, not a gift made in the absence of an obligation of support, but an undertaking supported by full and adequate consideration, i. e., the taxpayer's release from marital claims. E. T. 19, 1946-2 C. B. 166,*67 not followed.
(2) The taxpayer's agreement to make monthly payments to the wife after her remarriage, held, not a gift in 1943 because operation of the provision so requiring was contingent on the parties' survival and the wife's remarriage.
*543 The Commissioner determined a deficiency of $ 4,973.97 in petitioner's gift tax for 1943 by adding to the value of gifts reported $ 24,286.96 representing the determined value of petitioner's agreement to pay his divorced wife specified monthly amounts from the time of her remarriage through 1955. This provision*68 was one of many in a separation agreement, incorporated in the divorce decree, whereby the parties made a division of property and gave a mutual release from all marital claims. Petitioner contends that the agreement to make further payments after the wife's remarriage was not a gratuitous undertaking to support, as the Commissioner determined, but was based on full and adequate consideration and is therefore not a gift.
FINDINGS OF FACT.
This case was submitted upon a stipulation and exhibits, which we incorporate as findings of fact, and upon the testimony of an attorney *544 who represented petitioner in negotiating a separation agreement with his wife, later divorced. From this record we find that:
Petitioner, a resident of Colorado Springs, Colorado, filed a gift tax return for 1943 with the collector of internal revenue for the second district of New York. On this return he reported total gifts of $ 67,934.10, representing the value of an assignment of a part of his beneficial interest in trusts to his two children. The assignment was pursuant to a separation agreement made as of June 1, 1943, with his later divorced wife.
Petitioner and his former wife, Ann Meem McLean, *69 were married May 25, 1938. A daughter, Emily, was born to them on July 27, 1939, and a son, Edward B. McLean, Jr., on March 20, 1941. As a result of disputes and differences they separated in April 1943, being then domiciled in Colorado Springs, Colorado, and the wife became a resident of the District of Columbia. While living separate and apart and after petitioner had instituted a divorce action in a district court of Nevada, they entered into a written separation agreement as of June 1, 1943, signed by the wife on July 21 and by petitioner on July 26, following. The terms of this agreement were reached after protracted negotiations between their respective attorneys and reflected compromise modifications of proposals and counterproposals made by each party. The wife initially demanded $ 18,000 a year, free of tax, and in addition $ 110,000, of which $ 50,000 should be paid in July 1943, $ 35,000 at the end of five years, and $ 25,000 at the end of ten years. The suggested dates of payment corresponded with petitioner's right as a beneficiary under a trust created by John R. McLean, to receive $ 100,000 of the principal upon reaching 25 years of age and a like amount upon *70 reaching 30 and 35 years of age.
Prior to his father's death in 1941 petitioner had no substantial income, but by that event he became entitled to trust income which in 1943 was about $ 300,000. Petitioner was also a remainder beneficiary under a trust created by his grandmother, Carrie B. Walsh, which had assets of a value in excess of $ 4,000,000 and an annual income of $ 120,000. Petitioner's mother, Evalyn Walsh McLean, was life beneficiary of this trust, and upon her death, petitioner and her other two children became entitled to a third each of the income for five years and to a third of the principal at the end of the five years. In 1943 Evalyn Walsh McLean was 63 years of age and had a life expectancy of 12.05 years.
In negotiations leading to the separation agreement petitioner's wife, through her attorney, was insistent that petitioner transfer to her a lump sum in addition to recurrent payments, arguing that she was entitled to share in his trust benefits. Petitioner's attorney resisted this demand. Negotiations were conducted in a spirit of acrimony *545 and at times were broken off. Finally, in July, the attorneys agreed to a compromise whereby the lump sum *71 demanded was reduced to $ 100,000, payable in installments over a twelve-year period and the demanded annual payment of $ 18,000, free of tax, was reduced to about $ 16,500. The formula on which the agreement was based was intended to provide maintenance and support for wife and children jointly and to settle all marital claims between the parties.
As of June 1, 1943, petitioner and his wife signed the separation agreement prepared by the attorneys. In it they recited a desire to settle their property rights and petitioner's desire to make provision for the maintenance and support of the wife and children and agreed that "in full and complete satisfaction of the Husband's obligation to maintain and support the Wife and for the care, maintenance, support and education of the children" the husband shall pay $ 4,458.33 a month to the wife commencing June 1, 1943, and continuing through 1955 and $ 2,291.68 a month thereafter, such amounts to be reduced by $ 416.66 as each child should marry, become of age, or die. But the aggregate amount payable in any one year was limited to 45 per cent of the husband's gross income for the year during the period 1944-1955 and to 25 per cent for subsequent*72 years.
This payment formula was applicable only for a year in which the husband could deduct the payments from income for Federal income tax purposes. For a year in which no such deduction could be made, the husband agreed in the alternative to pay monthly to the wife a sum equal to one-twelfth of 40 per cent of his gross income, reduced by taxes for the preceding year, during the period 1944-1955 and a sum equal to one-twelfth of 30 per cent of such income for subsequent years. Reductions of 15 per cent and 20 per cent on payments in the respective periods were to be allowed upon the majority, death, or marriage of a child. In the event of the wife's remarriage the husband agreed, in lieu of the foregoing provisions, to pay the wife $ 2,355 a month until the end of 1955 and $ 1,125 a month thereafter, both amounts to be reduced by $ 562.50 upon the majority, death, or marriage of a child. These amounts were contingent upon the husband's right of deducting them for income tax purposes, failing which, they were to be reduced to $ 1,402.77 and $ 625, respectively, less $ 312.50 upon the majority, death, or marriage of a child. The aggregate annual payment under this contingency*73 was likewise limited to 45 per cent of the husband's gross income before 1956 and to 35 per cent thereafter. It was specifically provided that all payments made after 1955 were for the children's support alone "in the event of the remarriage of the wife." Otherwise, there was no allocation of payments as between wife and children. Other provisions related to adjustments for unanticipated taxes payable by the wife, for overpayments, refunds and *546 the cost of suits for refunds, and for extraordinary medical expenses and higher education for the children, which latter expenses the husband assumed. All the husband's obligations under the agreement were to cease upon the death of the wife or upon his death. Each party released the other from all claims and rights by reason of their marital relation, and as security for performance the husband assigned the wife $ 4,458.33 a month until December 31, 1943, and $ 1,500 a month for twelve years thereafter, out of his income from the estate of John R. McLean and from the trust created by Carrie B. Walsh, for application to amounts due the wife.
By the agreement the husband also transferred in equal shares to the two children 25 per*74 cent of the trust principal that might be distributable to him under the will of John R. McLean, subject to a maximum of $ 600,000, and 12 1/2 per cent of the principal that might be distributable to him from the trust created by Carrie B. Walsh, subject to a maximum of $ 90,000. Other provisions of the agreement related to custody of the children and fixed the division of specified real and personal property.
Petitioner and his wife were granted an absolute divorce from the bonds of matrimony by the Second Judicial Court of Nevada on July 27, 1943. In its decree the court ratified, approved, and confirmed the separation agreement, ordering that each party perform all obligations imposed by its terms, and specifically that the husband pay to the wife the amount or amounts required to be paid by that agreement for her separate support and maintenance and for the support, maintenance, and education of the children. The wife remarried in January 1947.
On a gift tax return for 1943 petitioner reported total gifts of $ 67,934.10, representing the value of interests in trusts transferred to his children under the separation agreement. To the gifts reported the Commissioner added $ 24,286.96*75 representing the value of petitioner's contractual obligation "to pay your wife monthly sums even after remarriage, which was not an obligation imposed upon you by law," and by this addition he determined a deficiency in gift tax.
OPINION.
During the pendency of a proceeding which resulted in a divorce decree, petitioner and his wife entered into a formal agreement relating to his duty of maintenance and support for the wife and two children, a division of property, a mutual release of claims, and an assignment by him to the children of fractional interests in certain trusts, of which he was a beneficiary. The agreement was ratified, approved, and confirmed by the court's decree of July 27, 1943, which granted the divorce and ordered each party to perform *547 his obligations under the agreement. Petitioner reported the value of the trust interests transferred to the children as gifts on a gift tax return filed for 1943, but reported no part of the benefits for the wife as gifts. The Commissioner recognized that other transfers and payments were partly in discharge of obligations imposed on petitioner, but, viewing the provision that he pay the wife monthly sums even after*76 her remarriage as not an obligation imposed by law, he determined that "the value of this part of the contract constitutes a gift subject to gift tax," and computed the value at $ 24,286.96, which he added to the gifts reported. Although the wife did not in fact remarry until January 1947, and hence the formula requiring lesser payments after such event did not take effect until that time, the Commissioner nonetheless used the ages of the spouses in 1943 and the amount ($ 1,402.77) that would have been payable if the wife were remarried, reduced by deductions ($ 625) for death of the children, as factors in evaluating her right to receive the resulting $ 9,333.24 a year through 1955. As petitioner does not attack the computation factors, we do not discuss them.
Respondent defends his determination by the argument that petitioner was under no legal or moral obligation to support his wife after her remarriage, and hence his agreement to make payments to her after such event "constitutes a gift as to such payments." Petitioner argues, to the contrary, that the provision for such payments was in compromise to the wife's demand for a lump sum in addition to recurrent contributions to*77 her support and should be treated like the lump sum settlements in Converse v. Commissioner (C. C. A., 2d Cir.), 163 Fed. (2d) 131, and Albert V. Moore, 10 T. C. 393, which were not held gifts; that in any event petitioner procured by his agreement a release from claims arising out of the marital relations, so that payments under it are supported in a full and adequate consideration, Estate of Josephine S. Barnard, 9 T. C. 61, and the obligation to pay, being fixed by court decree, was vested with the character of a debt. Converse v. Commissioner, supra.
It seems settled that transfers may be properly held gifts unless "the circumstances negatived the presence of a donative intent and showed an arm's length transaction." Roland M. Hooker, 10 T. C. 388. In respect of all payments due the wife, we are convinced that there was no donative intent, but that, on the contrary, the provisions for her benefit were the result of bargaining between the parties' two attorneys, which had as the sole object the securing of terms most*78 advantageous economically for their respective clients. The wife demanded not only recurrent payments for support, but also a share in petitioner's trust rights. Her attorney's insistence on a lump sum payment of $ 110,000 was compromised by provisions which insured her receipt of $ 100,000 over the twelve-year period, 1943-1955, and by formulae applicable to *548 various contingencies her receipt of such an aggregate amount was made certain even though she should remarry.
If petitioner had agreed to pay her a lump sum immediately, it seems settled that the payment would not have been a gift, for by it and other undertakings he would have discharged his duty of support, effected a property settlement, and procured release from claims against him arising out of the marital relation. Commissioner v. Converse, supra; Albert V. Moore, supra; Estate of Josephine S. Barnard, supra; Clarence B. Mitchell, 6 T. C. 159; dismissed (C. C. A., 7th Cir.), Oct. 7, 1946; Herbert Jones, 1 T. C. 1207; dismissed (C. C. A., 7th Cir.), May*79 1, 1944. The release of such claims constitutes "an adequate and full consideration in money or money's worth" for the husband's payment, Lasker v. Commissioner (C. C. A., 7th Cir.), 138 Fed. (2d) 989, and this is no less true because a part of the payments is required to be made in the future. Matthew Lahti, 6 T. C. 7. Should the possibility that the wife may be remarried when she receives future installments convert them into gifts? We perceive no valid reason for so holding. Whatever effect the wife's remarriage might have on the husband's duty of support and the court's power to order his payment of such support, the remarriage would not alter the terms of the general settlement agreement or the court's power to enforce the decree incorporating it. Had a lump sum been paid after entry of the decree or securities transferred, or a trust created, remarriage would not have altered the character of such transfers as made in discharge of the husband's duty of support or in settlement of marital claims against him, although income from them might still contribute to the wife's support.
By incorporating the parties' *80 general settlement agreement in the decree here considered, the court in our view did not intend to recognize or impose on petitioner a duty of support after the wife's remarriage. It merely gave sanction to the terms of an agreement requiring for a twelve-year period specified payments which incidentally might fall due after such event. The circumstances of the negotiations and the terms agreed upon give ample color to this testimony, and, viewing this provision of the agreement as a part of the consideration for the wife's release of claims and division of property, we sustain petitioner's contention that it was made for a full and adequate consideration in money or money's worth. As said by the Circuit Court of Appeals for the Third Circuit in Commissioner v. Mesta, 123 Fed. (2d) 986:
* * * the amount of the taxpayer's obligation to his wife was fixed * * * by the parties themselves who really dealt at arm's length with one another. * * * We think that we may make the practical assumption that a man who spends money or gives property of a fixed value for an unliquidated claim is getting his money's worth.
*549 Respondent challenges this*81 view, invoking E.T. 19, 1946-2 C. B. 166, in which he ruled that transfers of property pursuant to an agreement incident to divorce are not for an adequate and full consideration in money or money's worth and are hence taxable gifts under section 1002, Internal Revenue Code, to the extent that they are made in consideration of the release of marital rights except the right of maintenance and support. This ruling is based on holdings of the Supreme Court in Commissioner v. Wemyss, 324 U.S. 303, and Merrill v. Fahs, 324 U.S. 308, both of which involved transfers made pursuant to antenuptial agreements. In the former the taxpayer made the transfer solely as an inducement to marriage, compensating the prospective bride for trust income which she lost by remarriage. In the latter the taxpayer made the transfer in consideration of marriage and the prospective bride's release of all rights that she might acquire as wife and widow in his property except the right to support.
We can not construe those holdings as covering a situation in which divorce has converted the wife's marital rights into*82 immediately enforceable claims. By making the agreement under the circumstances here shown, petitioner was not gratuitously diminishing his taxable estate, but, on the contrary, was defending it by making the most advantageous settlement possible of the wife's claims against him. Conceivably, he could have transferred to her more than the minimum demanded or than the court ordered. Such an excess has been held a gift, Estate of Josephine S. Barnard, supra (second issue). But the evidence rebuts any inference that petitioner did not seek his best advantage in the negotiations leading to the agreement here considered. For reasons not clear to us, E. T. 19 excepts support and maintenance from marital rights the release of which does not constitute full and adequate consideration. We deem the ruling invalid in so far as it does not also except transfers made to settle presently enforceable claims.
In reaching the above conclusion, we have adhered to the contentions advanced by the parties. We take note, however, that the wife was not remarried until January 1947. When the gift tax return was filed in 1943, it was not certain that she would remarry, *83 and, as respondent's determination rests wholly on the theory that some of the required payments were gifts as a consequence of remarriage, it rests wholly on the postulate of a contingency which had not then occurred. Nothing passed in 1943 from petitioner to the wife by virtue of the provision in controversy, and, if the wife had never remarried, or if either party had died before a remarriage, nothing would ever have passed, and the provision would have remained wholly inoperative. Even under the assumption, arguendo, that respondent was correct in his contention, we do not consider that petitioner made a gift in *550 1943 by promising to make specified payments in the future if and when the wife should remarry and if both should live until such event. Cf. Fred G. Gruen, 1 T. C. 130; Lorraine Manville Gould Dresselhuys, 40 B. T. A. 30.
Decision will be entered for the petitioner.
Disney, J., dissenting: In my view the result reached by the majority is wrong.
In the first place, as I understand the facts here, the respondent added $ 24,286.96 to the gifts reported by the petitioner on the theory*84 that such amount was the present value of the transfer made to the wife so far as it covered any period after her remarriage. In short, he seems to have used actuarial tables to determine the present value of the gift up to the time of the wife's remarriage, leaving $ 24,286.96 ascribable to the period after remarriage. The transfer, during the period prior to remarriage, he recognized as being not a gift because of full and adequate consideration in money or money's worth, under the husband's duty to support the wife, within section 1002, Internal Revenue Code. The transfer after such remarriage he held to be gift because of the lack of such consideration. The use of tables to compute the probability of a wife's remarriage has been recognized by us in Estate of Pompeo M. Maresi, 6 T. C. 583; affd., 156 Fed. (2d) 929; and by the Supreme Court of the United States in Brotherhood of Locomotive Firemen and Enginemen v. Pinkston, 293 U.S. 96. We may, therefore, properly ascribe the $ 24,286.96 to the period after remarriage; and, in my view, there was no full and adequate consideration in *85 money or its worth for the agreement to pay that amount and, therefore, it was properly determined to be gift. Though I do not say the divorce court could not award support and maintenance for a period after a wife's remarriage (though there is authority to that effect), it is clear that a court will ordinarily at least set aside any such provision, in case of remarriage. 27 C. J. S. 994. The husband's promise to pay after remarriage, therefore, is deemed to be without consideration, even in the ordinary sense, and certainly not to be based upon full and adequate consideration in money or its worth within the statute. Moreover, the majority opinion does not convince me that there was not donative intent in the ordinary sense so far as the husband agreed to pay the wife after remarriage. Nothing indicates that he was advised or under any impression that he would be required so to pay.
I further consider the majority view erroneous in that it appears to be based upon the idea that, because the wife contended for a share in petitioner's trust rights as well as rights to support, the agreement *551 to pay her even after remarriage was not gift. It is well settled that the rights*86 to support afford full and adequate consideration in money or its worth -- and the transfer, to that extent, is not here questioned by the respondent -- but a transfer of property by the husband in consideration of the release of any marital rights is within the estate tax law, section 812 (b) of the Internal Revenue Code, not to be considered based to any extent on a consideration in money or money's worth. The Supreme Court, in Merrill v. Fahs, 324 U.S. 308, and Commissioner v. Wemyss, 324 U.S. 303, laid down the rule that the estate tax and the gift tax are in pari materia and to be construed together; also that the law of gift tax is aimed to reach transfers which are drawn from the donor's estate. Both of these cases, it is true, involved prenuptial transfers, but, in my opinion, there is no difference whatever between such transfers and those made between husband and wife, of property for relinquishment of marital rights, after marriage. The majority view here is essentially based on the idea that if a husband and wife are estranged they so deal at "arm's length"; that there is full and adequate consideration*87 in money or its worth within the statute. Though, romantically speaking, the parties in the Wemyss and Merrill v. Fahs cases might be thought not to have dealt at "arm's length" during their courtship, in any real business sense the transfers in those cases were as much at arm's length as in the instant case. In the Wemyss case the wife-to-be required her future husband to make a transfer to her to make up for income which she would lose from another source, marriage obviously being dependent on such an arrangement. In Merrill v. Fahs, supra, the husband-to-be made the transfer to his wife-to-be in order to secure from her a release of marital rights which otherwise she would have had after marriage. Can there be any question that these transfers were not actuated by the ordinary donative intent existing between sweethearts? Is there any possible difference between the consideration actuating the release of marital rights in Merrill v. Fahs before marriage and release of marital rights after marriage, in consideration of a property transfer just as in Merrill v. Fahs? In the two cited cases it is obvious, I think, *88 that ordinary donative intent, such as is commonly evidenced in presents between sweethearts, was altogether absent and that cold business motives actuated the transfers, yet the Supreme Court said that within the intent of the gift tax law there were gifts, despite such lack of ordinary donative intent. In Commissioner v. Greene, 119 Fed. (2d) 383, it was held that donative intent was unnecessary to the gift tax, that state law (which means ordinary concepts of consideration) did not govern, and even that a state court decision did not control. The same court, in Giannini v. Commissioner, 148 Fed. (2d) 285, again stated that the "existence of legal consideration according to local *552 law is immaterial under the tax laws involved herein" -- the Federal gift tax. In my view, these cases are controlling and there was gift for that additional reason. Cases such as Commissioner v. Converse, 163 Fed. (2d) 131; Clarence B. Mitchell, 6 T. C. 159; Herbert Jones, 1 T. C. 1207, involving release of rights of support*89 and maintenance, should not be followed, as here, to the extent of holding, contrary to the statutes as to both estate and gift tax and the above pronouncements of the Supreme Court, that transfers of property for release of marital rights rest on full and adequate consideration in money or money's worth and are, therefore, not gifts. Other cases followed by the majority, founded thereon and to any extent involving property as well as support rights, are, in my view, not sound basis for the conclusion reached.
Moreover, the divorce decree here merely adopted the agreement of the parties and did not, as in Estate of Josephine S. Barnard, 9 T. C. 61, adjudicate the agreement to be "fair, just and equitable" and, in my opinion, is a consent judgment adding nothing to the force of the agreement previously made. We said in Roland M. Hooker, 10 T. C. 388, in effect, that we disagree with any idea that payment in liquidation of a judgment is necessarily a taxable gift within section 1002. The thought is obviously valid as against agreed judgment. Freuler v. Helvering, 291 U.S. 35. Believing*90 that the mere idea of an "arm's length" transaction between husband and wife, such as here involved, is fully covered by the Wemyss and Merrill v. Fahs cases and does not demonstrate the consideration required by section 1002, but, on the contrary, under section 812 (b) is not the requisite consideration, and that the judgment is not of the character which should be recognized as diminishing the donor's estate, I respectfully dissent.