*215 Decision will be entered under Rule 50.
Petitioner separated from his wife in 1926. At that time he asked her to obtain a divorce and offered to pay her $ 16,000 yearly for her maintenance and support, plus $ 4,000 for the maintenance and support of their minor son. She refused the request and offer. Petitioner made further efforts in 1927 to induce his wife to procure a divorce and agree to a proposed financial arrangement for maintenance and support. In 1928 petitioner became engaged to be married, contingent upon his wife's obtaining a divorce. In 1928 petitioner offered to pay his wife $ 50,000 a year for maintenance and support. Negotiations on the basis of this offer were concluded in 1929. In the latter year petitioner obligated himself in writing to pay $ 30,000 annually to his wife in an unsegregated amount for the maintenance and support of her and their minor son. He also established a trust fund for her benefit, estimated to yield an additional $ 20,000. These financial provisions were made on the wife's verbal assurance that she would obtain a divorce. She procured a divorce. Pursuant to such obligations petitioner paid his wife $ 30,000 in each of the *216 years 1942 and 1943. Held, the obligation in question was incident to divorce as provided in section 22 (k), Internal Revenue Code, and that the payments thereunder in the years involved are deductible by petitioner under section 23 (u), Internal Revenue Code.
*647 The respondent determined a deficiency in petitioner's income and victory tax for the calendar year 1943 in the amount of $ 33,536.39. The issue arises out of deductions claimed by petitioner on his 1942 and 1943 income tax returns in the amount of $ 30,000 for each year. However, due to the forgiveness feature of the Current Tax Payment Act of 1943, the deficiency relates only to the latter year. Because of certain adjustments made by respondent on petitioner's 1943 tax return, he claims an overpayment of approximately $ 600.
The sole question for our determination is whether the agreement of September 5, 1929, providing $ 30,000 periodic annual payments to petitioner's divorced wife, was executed incident to divorce in accordance with section *217 22 (k), Internal Revenue Code.
The petitioner filed his income tax returns for the period here involved with the collector of internal revenue for the fifth district of New Jersey at Newark.
The record consists of a stipulation of facts, testimony, and exhibits. The facts as stipulated are so found.
*648 FINDINGS OF FACT.
Petitioner resides at Rosedale Road, Princeton, New Jersey.
On October 18, 1916, petitioner married Elizabeth Ross. A son, Robert Wood Johnson, Jr., was born to them on September 9, 1920. Sometime during August 1926 petitioner and Elizabeth separated. During that month petitioner asked her for a divorce. At the same time petitioner offered to provide $ 16,000 a year for her maintenance and support and $ 4,000 a year for the support of their son during minority. These proposed financial arrangements were conditioned upon and in contemplation of Elizabeth instituting proceedings for divorce. They were rejected by petitioner's wife on the ground that the proposed financial arrangements were inadequate.
During September 1926 petitioner discussed with Elizabeth's lawyer the possibility of her obtaining a divorce in Paris and the amount Elizabeth would require*218 for maintenance and support. The attorney would not agree either to a Paris divorce or to the amount petitioner believed sufficient for Elizabeth's maintenance and support. There were further negotiations between petitioner and Elizabeth during 1927. Petitioner, during this time, increased the amount of his offer for her maintenance and support. No agreement thereon resulted.
During May 1928, while petitioner was in Paris, he became engaged to Margaret Shea. Their marriage was contingent upon his obtaining a divorce from Elizabeth.
Sometime during 1928 petitioner offered to pay Elizabeth $ 35,000 annually for her maintenance and support. She refused the offer. In October 1928 petitioner agreed to pay Elizabeth $ 50,000 annually, payment to be made each month.
For the purpose of showing Elizabeth that his offers for her maintenance and support were fair, petitioner, during 1928, showed her an itemized list of maintenance and other expenses as follows:
| Furniture and fixtures | $ 1,000.00 |
| Household wages | 8,494.20 |
| Telephone and telegraph | 401.98 |
| Heat, light and power | 3,949.21 |
| Household miscellaneous | 5,704.45 |
| Farm wages | 9,152.28 |
| Farm miscellaneous | 462.44 |
| Repairs to equipment | 37.50 |
| Repairs to buildings | 3,824.61 |
| Automobile wages | 1,440.00 |
| Oil, gas | 913.08 |
| Tires and tubes | 377.05 |
| Automobiles -- repairs | 1,500.00 |
| Miscellaneous expenses | 91.94 |
| Repairs roads | 544.22 |
| Uniforms | 150.00 |
| Seeds, plants | $ 608.90 |
| Mrs. Johnson | 12,000.00 |
| Freight and express | 31.76 |
| Water | 112.50 |
| Automobile licenses | 129.00 |
| Total | 50,925.12 |
*219 *649 Certain other items were added to this list at Elizabeth's request. These brought the total of the expenses paid by petitioner to roughly $ 56,000.
Negotiations continued after October 1928, which were concerned with the method of payments and what provision should be made to guarantee payments. Such matters as trust funds and insurance policies were discussed.
During August 1929 there were negotiations leading to a final arrangement with respect to divorce and Elizabeth's maintenance and support. Petitioner's attorney wrote him on August 8, 1929, of a conversation with Elizabeth's lawyer concerning the proposed agreement and divorce. The letter mentioned that Elizabeth's attorney wanted petitioner to understand that:
* * * the execution of these agreements by Mrs. Johnson would not be conditioned upon or in consideration of any promise or agreement on her part to institute a divorce proceeding, and that Mrs. Johnson will be absolutely free to do so or not to do so, as she sees fit. * * *
The letter further stated:
Mr. Faulks [Elizabeth's attorney] told me sometime ago that, in his opinion, you deserted Mrs. Johnson several years ago, although thereafter you and she*220 lived under the same roof for successive limited periods of time, and I understood that he had advised Mrs. Johnson that a right of action on the ground of desertion accrued to her sometime ago. On August 5th, he told me that he intended to advise Mrs. Johnson not to proceed until June, 1930, two years subsequent to the time that you moved to Princeton in June 1928. Mr. Faulks said, as noted above, that Mrs. Johnson intends to institute a divorce proceeding, but so many new circumstances might intervene between now and next June, that I question the wisdom of executing these agreements at this time. While there is no agreement between you and Mrs. Johnson that she will institute divorce proceedings, nevertheless you are influenced in executing the agreements by the hope and expectation that she will do so. Her present intention may be relied upon by you with reasonable safety, but a present intention upon which action will be postponed for ten months is quite different.
On September 5, 1929, petitioner agreed in writing to pay $ 30,000 a year to Elizabeth for her maintenance and support and the maintenance and support of their son. That instrument contained no specific designation*221 of the portion allocable to the support of the child. In addition he executed, on the same date, another agreement setting up a $ 400,000 irrevocable trust fund for Elizabeth's partial separate maintenance and for the partial support of the son during minority. *650 The total annual amount payable to Elizabeth under both instruments was estimated at $ 50,000. The instrument giving Elizabeth $ 30,000 per year during her life provided in part as follows:
Second: That the said party of the first part [petitioner] shall and will pay to the Trustee for the maintenance and support of the party of the second part [Elizabeth] and the maintenance and support of the son, Robert Wood Johnson, Jr., the sum of Thirty Thousand Dollars per year, payable in equal quarterly installments in advance, for and during the term of her natural life of the said party of the second part -- subject to the provisions of Paragraph "Fifth" hereof.
Third: That the party of the first part shall and will, in addition to the foregoing payments, pay to the Trustee the disbursements of the party of the second part for the salary of the governess or tutor of said Robert Wood Johnson, Jr., for his clothing and *222 for his education.
* * * *
Fifth: That should the marriage between the parties of the first and second parts hereto be dissolved or terminated by the death of Robert Wood Johnson, or otherwise, and should the said Elizabeth Ross Johnson thereafter re-marry, then the payments agreed to be made under the terms of Paragraph "Second" hereof shall cease and determine.
Sixth: That the party of the first part shall and will forthwith properly execute a last will and testament and shall thereafter, during the lives of the parties of the first and second parts, unless their marriage be dissolved and the party of the second part shall re-marry, keep in force a duly executed last will and testament in and by which a trust fund shall be created and established in an amount sufficient to produce an income equal to the sum agreed to be paid to the Trustee under the terms of Paragraphs "Second" and "Third" hereof, and shall by said will direct that from the income of said trust fund there shall be paid to the Trustee the amount or amounts agreed to be paid under the terms of paragraphs "Second" and "Third" hereof.
Petitioner agreed to permit Elizabeth to occupy and use the residence at Bellevue Farm, *223 Highland Park, New Jersey, together with other buildings thereon, free from any rent, taxes, assessments, and other charges, which were to be paid by petitioner. He also consented to her having legal custody of the son.
The instrument establishing the $ 400,000 irrevocable trust fund provided that upon the death of petitioner's wife "The Trustee shall and will transfer the trust fund held hereunder to Robert Wood Johnson, Jr., son of the parties of the first and second parts, if he be living and has then attained the age of twenty-one years." It further provided that if he was under the age of 21 the trustee was to use the income for his maintenance and support until he attained the age of 21 and that the principal was to be paid to him upon attaining such age.
These agreements between petitioner and Elizabeth did not specify that they were conditioned upon the fact that she would obtain a divorce because petitioner was advised and believed that under New Jersey law such condition would preclude the granting of a divorce. *651 Petitioner signed these agreements, however, upon Elizabeth's assurance that she would proceed with the divorce action. Petitioner's wife did not institute*224 divorce proceedings immediately after the agreements were executed. Petitioner thereupon inquired of Elizabeth why she had not carried out her promise in respect of instituting such proceedings. She informed him that she would contact her attorney to determine the cause of delay.
On December 10, 1929, Elizabeth instituted divorce action against petitioner. The proceeding was referred to a special master in chancery to take depositions and other evidence with respect to the petition for divorce. The report of the special master, dated April 19, 1930, contained the following:
3. The petitioner [Elizabeth] and defendant lived together as man and wife from the date of their marriage until on or about the month of August, 1926, at which time the defendant wilfully deserted the petitioner and since which time the said desertion has been continued and obstinate. * * *
The special master further stated:
* * * the defendant [petitioner] was anxious to get a divorce and insistent upon having it at all costs. * * *
* * * *
The testimony also indicates that the defendant has made ample provision for the support and maintenance of his wife and of the child.
On May 28, 1930, the New Jersey*225 Chancery Court, "for the cause of desertion," granted Elizabeth a decree nisi for absolute divorce. On August 29, 1930, the court entered a final decree of divorce. Neither of those decrees provided for alimony or mentioned the written agreements signed September 5, 1929.
Petitioner married Margaret Shea on September 19, 1930, in Paris, France.
In his deficiency notice respondent stated as follows:
(a) It has been determined that the deduction you have claimed on your return may not be allowed for reason that the circumstances of making such payments to Elizabeth Ross Johnson do not qualify under the provisions of the law and regulations governing such deduction, section 23 (u) of the Internal Revenue Code.
The written instrument providing for periodic payments of $ 30,000 per annum to Elizabeth was executed incident to the divorce granted Elizabeth by the Court of Chancery of the State of New Jersey.
OPINION.
Petitioner contends the payments of $ 30,000 each in the years 1942 and 1943 were in discharge of a legal obligation which was incurred by him under a written instrument incident to divorce, *652 in accordance with section 22 (k), Internal Revenue Code, 1 and, therefore, *226 are deductible under section 23 (u). Solution of the problem hinges upon whether the agreement signed by petitioner and Elizabeth on September 5, 1929, was made in connection with a contemplated divorce. See Tuckie G. Hesse, 7 T.C. 700">7 T.C. 700, 704.
*227 There is sharp conflict between the testimony of Elizabeth and petitioner. Petitioner stated he would not have signed the agreement in question if he had not had Elizabeth's assurance that she would begin divorce proceedings. Elizabeth, on the other hand, testified that at the time of its execution there was no agreement, either oral or written, between her and petitioner that she would initiate a divorce action. We conclude from all the evidence, however, that Elizabeth did assure petitioner she would commence a divorce suit if he would sign the agreement in question and that there was a direct relationship between that instrument and the divorce proceeding.
It should be noted, first, that the action for divorce was started by Elizabeth on December 10, 1929, slightly more than three months after the execution of the involved instrument. We believe that alone speaks convincingly for petitioner's contention that there was some connection between it and the divorce.
Moreover, from the moment of separation in 1926 petitioner sought a divorce. He consulted prominent attorneys in New Jersey and in New York for the purpose of obtaining a divorce. From August 1926 to September 5, 1929, *228 he persistently either contacted Elizabeth personally or through her attorney, seeking both divorce and a satisfactory financial arrangement for her support and maintenance. In May 1928 he became engaged to be married, contingent upon Elizabeth's procuring a divorce, and he testified that after becoming engaged he felt divorce would be worth almost "any price." His offers for Elizabeth's maintenance and support ranged from annual payments of $ 16,000 to $ 50,000, plus the use of his residence, rent-free and tax-free, and reimbursement *653 for the clothing and education of their son. We believe the foregoing facts, which clearly indicate not only petitioner's strong desire for divorce, but also much effort and expense to accomplish that purpose, substantiate his testimony that he would not have signed the agreements of September 5, 1929, unless he had had Elizabeth's assurance that she would divorce him.
It is true the written instrument did not mention that it was conditioned upon Elizabeth's bringing an action for divorce. However, both Elizabeth's and petitioner's attorneys believed that if the agreement had been so conditioned it would have been voidable and also would*229 have constituted collusion for divorce under New Jersey law. See Griffiths v. Griffiths, 60 A. 1090">60 A. 1090; 69 N.J. Eq. 689">69 N.J. Eq. 689; Sheehan v. Sheehan, 77 A. 1063">77 A. 1063; 77 N.J. Eq. 411">77 N.J. Eq. 411; Dennison v. Dennison, 130 A. 463">130 A. 463; 98 N.J. Eq. 230">98 N.J. Eq. 230.
Respondent points to the language of the letter written to petitioner by his attorney under date of August 8, 1929, and argues that it proves the involved written instrument was not conditioned upon or in consideration of any promise or agreement on Elizabeth's part to institute a divorce proceeding. It should be mentioned, however, that it also contains statements of Elizabeth's intention to begin a divorce action, which, we believe, was based upon petitioner's agreement to make a satisfactory arrangement for her maintenance and support. Moreover, we think the language that the written instrument executed on September 5, 1929, was not to be conditioned upon or in consideration of Elizabeth's procuring a divorce merely reflected the attorneys' concern over whether the agreement*230 would fall within the New Jersey rule on collusion. 2
Respondent further argues that the undated list of items prepared by petitioner sometime during 1928 and setting forth various amounts he had paid annually to Elizabeth and for household expenses shows*231 the agreements of September 5, 1929, were no more than the reduction to writing of a preexisting financial arrangement. This fact, he claims, refutes petitioner's argument that he would not have made such a generous offer if Elizabeth had not agreed to a divorce. It is true that the items on the list, including those Elizabeth added, totaled *654 approximately $ 56,000 and that that amount was somewhat in excess of the annual payments provided for her by petitioner. It should be noted, however, that petitioner promised to give Elizabeth much more than payments of $ 50,000 yearly. He also agreed to give her, for so long as she desired, without any charge for taxes, rent, or other costs or assessments, the use of his residence and other buildings on Bellevue Farm; he consented to give her legal custody of their son; and he promised to pay the expenses for the son's governess, clothing, and education. In addition, he consented to place $ 400,000 in an irrevocable trust to guarantee part payment of the $ 50,000 Elizabeth was to receive each year, with remainder benefits to their son after her death. Finally, he agreed to provide in his will a testamentary trust to guarantee, *232 after his death, the $ 30,000 annual payments to Elizabeth. We believe these facts show petitioner paid, and obligated himself to pay, substantial amounts in excess of $ 50,000 annually as an inducement to procuring a divorce. Moreover, petitioner testified that in 1926 he believed the amount required to properly support his wife should be $ 14,000 to $ 16,000 a year, plus $ 4,000 a year for the son. Petitioner increased the annual amounts in other offers he made from time to time until she finally agreed to accept the offer embraced in the agreements signed on September 5, 1929. The latter financial arrangement was the culmination of efforts of petitioner from 1926 to that date to reach an agreement with Elizabeth on an amount which she would accept for maintenance and support and obtain a divorce.
The special master in chancery, in his report on the divorce proceedings, stated that certain testimony taken in the case indicated "that the defendant was anxious to get a divorce and insistent upon having it at all costs." The special master also stated in his report to the chancellor that petitioner had made ample provisions for the support and maintenance of his wife and of the*233 child. Those provisions include the obligation of petitioner to pay annually to his former spouse the amount of $ 30,000. Such amount was so paid in each of the years here involved, and the payments are properly characterized as payments in the nature of or in lieu of alimony. See Internal Revenue Bulletin, C. B. 1942-2, pp. 427, 568. We conclude from the whole record that the payments were made under an obligation of petitioner created by a written instrument executed as an incident to the divorce which his former wife promised to, and did, obtain. It is true that the periodic payments here involved were for the support and maintenance of both petitioner's wife and their minor son. However, as we have found, there was no designation of the part of such periodic payments which was to be payable for the support of the minor child, Dora H. Moitoret, 7 T.C. 640">7 T.C. 640; Robert *655 W. Budd, 7 T.C. 413">7 T.C. 413; affirmed without opinion, C. C. A., 6th Cir., June 10, 1947. Moreover, prior to the tax years before us, petitioner's son had attained his majority. It follows that the payments in question are deductible by petitioner*234 under section 23 (u) of the Internal Revenue Code.
Because of petitioner's claim of overpayment,
Decision will be entered under Rule 50.
Footnotes
1. The material part of section 22 (k) reads as follows:
"SEC. 22. GROSS INCOME.
* * * *
"(k) Alimony, Etc., Income. -- In the case of a wife who is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, periodic payments (whether or not made at regular intervals) received subsequent to such decree in discharge of, * * * a legal obligation which, because of the marital or family relationship, is imposed upon or incurred by such husband under such decree or under a written instrument incident to such divorce or separation shall be includible in the gross income of such wife, and such amounts received as are attributable to property so transferred shall not be includible in the gross income of such husband. This subsection shall not apply to that part of any such periodic payment which the terms of the decree or written instrument fix, in terms of an amount of money or a portion of the payment, as a sum which is payable for the support of minor children of such husband. In case any such periodic payment is less than the amount specified in the decree or written instrument, for the purpose of applying the preceding sentence, such payment, to the extent of such sum payable for such support, shall be considered a payment for such support. * * *"
See, sec. 29.22 (k)-1, Regulations 111.↩
2. The following language from Griffiths v. Griffiths, supra, is significant in this connection:
"* * * If arrangements between parties providing for the institution of divorce suits in consideration of the payment of a large sum of money are to receive the sanction of this court, every legal restriction against the voluntary dissolution of the marriage tie can readily be avoided * * *." [Italics supplied.]
The Dennison case, supra, contains the following:
"* * * generally speaking, all agreements conditioned upon↩ divorce are held to be void as against public policy. * * * But * * * a contract in settlement of claims for alimony is valid where there is no collusion to procure a divorce * * *." [Italics supplied.]