*237 Decision will be entered for the respondent.
Divorce -- Periodic Payments -- Section 22 (k). -- A divorced wife received periodic payments from her former husband under a decree of divorce based upon a written instrument executed by the parties as an incident to such divorce and separation. Under the evidence, held that such payments were made by the husband in discharge of a legal obligation "because of the marital or family relationship," and that they were includible in the wife's gross income under section 22 (k), I. R. C.Floyd H. Brown, 16 T. C. 623, followed.
*865 The Commissioner determined deficiencies in petitioner's income tax as follows:
| Year | Amount |
| 1944 | $ 628.00 |
| 1945 | 1,540.00 |
| 1946 | 1,294.28 |
| 1947 | 1,292.00 |
The sole question presented is whether certain payments made to petitioner by her former husband pursuant to a decree of divorce were includible in petitioner's gross income under the provision of section 22 (k) of the Internal Revenue Code, as determined by the Commissioner.
*238 FINDINGS OF FACT.
Some of the facts were stipulated and are so found.
Petitioner is now a resident of California, but her prior residence was in Chicago, Illinois. She filed no Federal income tax returns for the calendar years 1944, 1945, 1946, and 1947, contending she had no taxable income for these years. Subsequently, returns for these years were prepared for petitioner by a deputy collector and signed by her, reflecting no income, no deductions, no tax and one surtax exemption for herself.
Petitioner was married to Sol Nathan (hereinafter called Nathan) on May 25, 1932. There were three children born of this marriage who, on June 21, 1944, were of the respective ages of 9, 8, and 6 years.
Subsequent to the institution on August 9, 1950, of this proceeding, petitioner has remarried and her present name is Julia Nathan Hyman.
In 1929 Nathan and one Ben Berg entered into a written partnership agreement whereby each contributed $ 5,000 cash and both worked full time in a general merchandise business known as B & N Sales, which partnership continued until 1937, when Ben Berg died.
*866 The partnership, at the time of Nathan's marriage to petitioner, operated two stores in Chicago. *239 Thereafter and prior to Berg's death the partnership opened additional branch stores in Cincinnati, Detroit, Cleveland, Pittsburgh, Dallas, St. Louis, and Milwaukee. Berg, the older partner, at all times remained in Chicago, the headquarters of the business. Nathan handled the field work for the firm. It was his job to find the location for a branch store, and he would remain at the new branch until it was established, usually 3 or 4 months, and then another was placed in charge.
The Cincinnati store was opened shortly after petitioner's marriage to Nathan and she accompanied him to Cincinnati and they both remained there about three and a half months, during which time she was of some assistance to Nathan in operating the store. She helped him put up shelves, made sales to customers and performed other functions. She was not paid a salary. The Cincinnati store was small and its business was on a modest scale. All bookkeeping there except daily sales records was conducted in Chicago. Nathan at the time drew $ 75 per week from the partnership, arising out of the firm's earnings in Chicago and Cincinnati, which he and petitioner used for their living expenses.
Early in 1933*240 petitioner and Nathan went to Detroit where the second branch store was opened by Nathan for B & N Sales. Petitioner there assisted Nathan in performing much the same service as in Cincinnati. Petitioner and Nathan remained in Detroit about 6 months. When the third branch store was opened by Nathan at Cleveland, petitioner assisted him for about 3 weeks. The only personal service rendered by petitioner in Nathan's business was that as above detailed at Cincinnati, Detroit, and Cleveland. She contributed no money or capital to the business, but at times Nathan consulted with her concerning same.
In the early years of their marriage Nathan promised petitioner a partnership in his business, but no steps were ever taken to effectuate same or give recognition thereto, although petitioner on numerous occasions insisted that he do so.
Upon Berg's death in 1937 Nathan bought from his estate Berg's one-half interest in the partnership for $ 51,200 with his own funds. No part of same was contributed by petitioner. At this time petitioner again insisted that Nathan now recognize her as a partner, but he declined to do so. In 1941 he told her he might create a family partnership, naming*241 petitioner and their children as owners of one-half of his business, but later declined doing so on the ground that his tax lawyer had advised against it. In August 1941 Nathan filed statement with the county clerk of Chicago that he was sole owner of the business he was operating under the name of Berg & Nathan.
*867 Petitioner and Nathan had marital difficulties and after several separations and reconciliations were finally separated in 1941 or 1942. During the marital embroilment and negotiations between the parties and their attorneys which continued from 1941 until the middle of 1944, petitioner at various times hired five different lawyers to represent her. During this separation Nathan paid petitioner $ 125 per week for her support. In addition petitioner ran up bills on charge accounts at various stores which at one time amounted to $ 500. Nathan also gave her $ 200 for a trip to Florida. Petitioner had trouble in living on the amounts furnished by her husband.
During the prolonged negotiations between the parties for a marriage settlement various suggestions were made and considered. Among other claims petitioner's attorneys claimed that she had a partnership *242 interest in the business, which Nathan and his attorneys denied.
The outcome of the negotiations was an "Agreement" in writing executed by the parties on June 16, 1944, which was substantially as follows:
The preamble of which recited that the parties were married, are now separated, have three children and cannot live together, and that it was the intention of the parties
to settle and adjust finally and absolutely all of their mutual and respective present and future property rights, and to adjust the custody, care and maintenance of the aforementioned minor children of the parties hereto, * * *
NOW, THEREFORE, the parties hereto have agreed as follows:
(1) That each of the parties shall have as his or her sole and separate property all cash, personal wearing apparel and ornaments as may now belong to them or to either of them, and such as are now in the possession of either of the parties hereto; * * *
* * * *
[The husband agrees to the following:]
(3) * * * to pay for any home that the Wife may purchase in the State of California in the maximum sum of $ 16,000; * * *
(4) * * * to furnish adequate transportation, upon notice by the Wife to HENRY KOVEN, ESQ., to enable her and*243 the said three minor children to be taken to California, and further to provide and pay for transportation by motor truck for all of the furniture and possessions of the said Wife and the family; * * *
(5) * * * pay for an acceptable car [for the wife] * * * in a class that generally sells in California for somewhere between twelve and sixteen hundred dollars.
(6) * * * that he is now carrying insurance in the Franklin Life Insurance Company, in the sum of $ 40,000 in Policies Number 492422 and 495360, payable to JULIA NATHAN, but intended for the benefit of JULIA NATHAN and the said three daughters. * * * that he will maintain the insurance in said amount; and both parties agree that Forty Per Cent (40%) thereof shall be deemed to be for the benefit of the said Wife and Twenty Per Cent (20%) thereof shall be *868 deemed to be for the benefit of each of the three children; and that said insurance shall be maintained in such proportions, at least until each of the said daughters has reached the age of twenty-one years, respectively, and as to the Wife, the said insurance shall be maintained during her lifetime. The Husband and Wife shall waive the right to change beneficiaries.
*244 (7) * * * the policies of insurance will be assigned to JULIA NATHAN and will be thereafter held by JULIA NATHAN; and an amount equal to the annual premium will be paid timely by Husband to JULIA NATHAN.
(8) The Wife hereby waives any claim, including dower and homestead, that she may have in and to any real, personal or mixed property that the Husband now owns or may hereafter own or acquire; and Wife agrees that she will, upon request, execute in duplicate good and sufficient releases and appropriate deeds of conveyance to any person whom the Husband may designate in reference to any deed or deeds to any property now owned or hereafter to be acquired by said Husband; and more particularly, but not by way of limitation, the wife waives her claim to a partnership in the business of the Husband, arising out of service rendered and further out of the ownership in part of the Cincinnati Store and of the profits therefrom and of the proceeds of the sale thereof invested and reinvested by the Husband; and in consideration of the said waiver and the abandonment of said claims, the Husband makes further provisions as set forth in the following paragraphs.
(9) The Husband agrees that beginning*245 with July 1st, 1944, he will pay, in equal semi-monthly payments, to JULIA NATHAN, the Wife, the sum of $ 17,500 per year.
The parties agree that said funds shall belong to the Wife to the extent of Forty Per Cent (40%) thereof, by reason of her waiver of claims as above set forth; and that the balance thereof shall be held for the support of each minor child to the extent of one-third of said balance for each child; and that any excess funds therefrom in the discretion of the wife, shall be placed in a trust fund for the benefit of said children respectively, or the survivor of them. Payments to the wife of the 40% set apart for her shall cease and the husband released of the liability for the payment thereof upon the wife's death or remarriage.
The parties agree that as each daughter reaches the age of twenty-one years or marries prior thereto, or dies prior thereto, the Husband may stop payment of her respective share of the said funds required to be paid for the children.
* * * *
(11) Each party hereby releases and relinquishes any and all rights that he or she may have or may hereafter acquire (a) to share in any capacity whatsoever in the estate of the other party upon the *246 latter's death; and (b) to act as executor or administrator of the estate in any manner; and the Wife does further waive and relinquish her right to claim or receive an award for family allowance from the estate of the Husband or to claim any other right or benefit which the said Wife might, under the probate laws of the State of Illinois, or of any other state, be entitled to claim or assert against the estate of the Husband in the event of his death by reason of their marital relationship or by reason of the fact that the said parties hereto have been Husband and Wife. * * *
(12) In the event that an action for absolute or limited divorce is instituted by either party, * * * this Agreement may be merged in any decree or judgment that may be granted in such action; but notwithstanding said merger, this Agreement shall survive the same and shall be forever binding and conclusive on the parties.
(13) It is expressly agreed that the consideration for the provisions made for the payment to JULIA NATHAN is based upon the waiver of her claims to the *869 present interest in the business of the Husband, and the waiver of her dower rights and not otherwise; and that this Agreement shall*247 be considered based upon such consideration for all purposes. Wife waives all claims for alimony or attorneys' fees in connection with any marital disputes or actions.
* * * *
(15) The parties agree that, in the event of the death of Husband within five years from the date hereof, his estate shall be obligated for the amounts due to the Wife under paragraph 9 hereof for a total period of five years from the date hereof. This shall be subordinate to commercial creditors claims.
* * * *
(17) The Husband further agrees to pay the costs of negotiations that have been taken [sic] place within the last several years between the Husband and Wife, to AARON DROUCK, ESQ., DetroitMichigan, and HARRY G. HERSHENSON, of Chicago, Illinois, such sums as Husband may agree with them directly; to MICHAEL H. BRODKIN, ESQ., and RICHARD DEVINE, ESQ., of Chicago, Illinois, and AARON SAPIRO of Los Angeles, California, the sum of $ 2,000 together with any costs incurred in any of the said negotiations or legal proceedings.
On June 17, 1944, a complaint was filed by petitioner in the Superior Court of Cook County, Illinois, for a divorce and custody of the children. In her prayer for relief she requested*248 the court to require Nathan to pay her "such sums as the Court may deem reasonable and proper, as and for alimony, support of the minor children of the parties hereto, attorneys' fees and court costs."
On June 17, 1944, a hearing was held, the action was uncontested by Nathan and on June 21, 1944, a decree of divorce was granted, which decree incorporated the June 16 "Agreement" and followed its terms almost verbatim in the "Order."
Pursuant to the decree, petitioner received from Nathan periodic payments in the following amounts: 1944, $ 8,750; 1945, $ 17,500; 1946, $ 17,500; 1947, $ 14,620.
The deficiencies in income tax determined by the Commissioner against petitioner were based upon 40 per cent of the periodic payments made under the decree.
OPINION.
Respondent in his deficiency notice held that the payments in question made to petitioner by her former husband by virtue of the agreement and divorce decree constituted taxable income to her under the provisions of section 22 (k) of the Internal Revenue Code. The pertinent part of section 22 (k) reads:
(k) Alimony, etc., Income. -- In the case of a wife who is divorced or legally separated from her husband under a decree of divorce*249 or of separate maintenance, periodic payments * * * 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 *870 the gross income of such wife. * * * Installment payments discharging a part of an obligation the principal sum of which is, in terms of money or property, specified in the decree or instrument shall not be considered periodic payments for the purposes of this subsection; * * *
The only ground upon which petitioner seeks to prevent the imposition of section 22 (k) is that the payments were not made in discharge of a legal obligation "because of the marital or family relationship," but, as she alleges, such "payments were made as the purchase price of her ownership in the business."
Respondent's affirmative determination in his deficiency notice that the payments in question were made in discharge of a legal obligation "because of the marital or family relationship" imposes upon petitioner the burden of disproving same, which she has failed *250 to do. On the contrary, the evidence we think sustains respondent's determination.
Frank J. DuBane, 10 T.C. 992">10 T. C. 992, cited by petitioner is clearly distinguishable. There the written agreement was made after the divorce was granted and the decree contained no stipulation for the payments. Under the state of the record we held that the written agreement did not impose the obligation as one arising out of the marital relationship, but rather as an obligation to pay a purchase price for real property.
Floyd H. Brown, 16 T. C. 623, cited by respondent, sustains his contention in the instant case, as does Thomas E. Hogg, 13 T. C. 361. There, if any difference, the facts more strongly indicate than they do here that the payments, at least in part, were made in settlement of property rights, and yet in both cases we held the payments in question were made in discharge of a legal obligation "because of the marital or family relationship" and that section 22 (k) was applicable.
In the instant case, as in the Brown and Hogg cases, under the divorce settlement sums other than the periodic payments*251 in question were made by the husband to his divorced wife. Here, in addition to the $ 7,000 annually ($ 583.33 monthly) which petitioner received as her 40 per cent of the $ 17,500 annual payments, she also was awarded property and other pecuniary benefits aggregating over $ 38,000, none of which is included in the taxable income here in controversy. Items comprising this amount are:
| Home in California | $ 16,000 |
| Petitioner's transportation costs to California, estimated | 200 |
| Transportation cost of fur. and household effects to Cal., est | 250 |
| New automobile | 1,600 |
| 40% of $ 40,000 Life Insurance | 16,000 |
| Petitioner's attorney, Aaron Sapiro, fee | 2,000 |
| Fees of four other lawyers of petitioner, estimated | 2,000 |
| $ 38,050 |
*871 Here, unlike the Brown case, there was no community property and no property in which the wife owned an undisputed interest. Here her only property claim is a disputed one, a claimed interest in her husband's business which, under the evidence, we regard as doubtful. Under petitioner's own testimony her claim rests alone upon Nathan's unfulfilled promise of partnership. Certainly no valid partnership was created and no recognition was ever *252 given by the parties or the public to the existence of one. Respondent's brief aptly describes petitioner's claim as more in the nature of a "chose-in-action" than an ownership in property.
It was in 1932, while petitioner was helping Nathan open and operate a branch store in Cincinnati, that the promise of partnership was made, and it is not entirely clear whether the promised partnership related to the Cincinnati or Detroit store only or to Nathan's entire interest in the B & N Sales. The value of Nathan's interest in either store was not shown, nor was there evidence as to the value of Nathan's total interest in B & N Sales. Petitioner contributed no capital to the business and the only personal service rendered by her was several months in each of the Cincinnati and Detroit stores and about 3 weeks in the Cleveland store, all of which was prior to 1935 when petitioner's first child was born.
Though petitioner's attorneys threatened to bring suit to establish her claim in the business, none of the five who represented her at different times during the negotiations, which continued from 1941 to 1944, ever brought any form of legal action. An unfulfilled promise of 10 years duration, *253 with no steps taken to enforce it, would seem to be of questionable validity.
If it be conceded that petitioner did own an interest in the business or had a valid claim for damages as result of Nathan's breach of his contract to give her such an interest, there is no evidence in the record from which such valuation may be determined. In the absence of such we cannot say that the $ 38,000 or a part thereof may have been regarded as sufficient in full payment of her so-called property interest, and if so, no part of the periodic payments may be deemed in settlement of property rights.
Furthermore, we think it affirmatively appears that the payments in question were designed primarily for petitioner's support and hence were made in discharge of a legal obligation because of the marital or family relationship. Among the circumstances so indicating are these:
(1) The fact that the monthly rate of these payments was $ 583, or only $ 83 in excess of the monthly payments made by Nathan for petitioner's support during the 3 years of their separation evidences his recognition of his marital obligation to support her, and also that the *872 same was an amount the parties deemed necessary*254 for that purpose. That petitioner had had difficulty in living upon the $ 500 might be the reason for the $ 83 increase.
(2) Except for the 5-year clause, payments were to continue for an indefinite period until the wife died or remarried, which is more indicative of support than settlement of a property claim.
(3) The state law of Illinois provided for alimony after divorce, giving petitioner a legal right thereto, and in her bill for divorce she specifically prayed for alimony. While the decree of divorce does not term the payments alimony, it does recite that "the plaintiff having waived the same be and she is forever barred from making any claim for alimony." As we said in Brown, supra, "it would be unrealistic to hold that she gave up this right to support without consideration," and in Hogg, supra, "the wife obviously relinquished a present legal right to support in exchange for a future contractual right to support."
In an Illinois case of Walters v. Walters, 94 N. E. 2d 726, affd. 99 N. E. 2d 342, the court was called upon to determine whether certain*255 payments under a decree of divorce were for support or whether they represented consideration for property settlement, and as a basis for its determination the court said:
It is not the labels placed upon the decree of payments which constitutes them either alimony or lump sum property settlement, it is the elements inherent in the case as a whole.
Considering the evidence in this case as a whole, we think the respondent's determination should be affirmed.
Decision will be entered for the respondent.