*1052 Decedent's first wife asserted a claim against his estate for alimony, subsequent to decedent's death, that had been decreed to her by an Iowa court in the "sum of $4,500 per annum during her natural life" payable in accordance with the terms of an agreement between the parties. Decedent's second wife, as executrix, compromised and settled the claim for alimony by paying $12,500 out of the assets of the estate with the approval of and upon order by the Arizona court wherein decedent's estate was being administered. Held, that the amount paid in compromise of the first wife's claim is deductible from decedent's gross estate, since the claim did not rest upon a promise or agreement but rested upon a decree of court fixing and determining the amount of an obligation imposed by law.
*231 This proceeding involves a deficiency in estate tax in the amount of $421.40. The issue is whether decedent's gross estate should be reduced by $12,500 under the facts hereinafter set forth. The answer admits some of the allegations of the petition and the other*1053 facts are stipulated. We set forth only so much thereof as are deemed necessary for a determination of the case.
FINDINGS OF FACT.
The petitioner, Edythe C. Young, is the duly appointed, qualified, and acting sole executrix of the last will and testament of William J. Young, Jr., who died May 31, 1935, a resident of Pima County, Arizona.
Until November 13, 1917, the deceased was the husband of Katherine P. Young, who resided in Clinton County, Iowa. The said Katherine P. Young had instituted divorce proceedings in said county against the decedent, and on November 12, 1917, the plaintiff and defendant entered into a written agreement as follows:
It is hereby stipulated by and between the parties hereto that in event decree is granted to plaintiff herein, she shall be awarded, as alimony:
1. The homestead, now occupied by the said plaintiff, in the City of Clinton, Iowa, title to which is now in the names of the parties hereto.
2. All household effects, furniture, carpets, dishes, pictures, books and all other personal property now in said homestead, except so much as may remain of the personal jewelry and photographs said defendant left when he went to Arizona in*1054 1909.
3. The sum of $4,500 per annum during the life time of plaintiff, to be paid monthly or quarterly, in advance, as defendant may from time to time elect.
4. The sum of $1,000 attorney fees.
5. Said defendant, in consideration of the acceptance by said plaintiff of the foregoing provisions for alimony, hereby agrees to convey at once all his interest in said homestead to said plaintiff; to pay, in addition thereto, all the taxes on said homestead and furniture for the year 1917, and all in excess of $300 for the year 1918; furnish and pay for a sufficient amount of fuel to properly heat said homestead during the winter and spring of 1917 and 1918; pay all claims now owing by said plaintiff which have been heretofore allowed by said defendant as a part of said plaintiff's expenses, and if at the expiration of the year 1918, said plaintiff elects to sell said homestead, or has been unable to sell it prior to that time, that he will purchase said homestead, and pay therefor the sum of $10,000 cash, provided, however, that said homestead is in the same condition as it is now in, ordinary wear excepted, and, in the event of its destruction, in whole or in part, by fire, *1055 prior to that time the plaintiff will credit as part payment of said sum of $10,000 whatever sum she may realize from the insurance on said property and during all of said period.
Said plaintiff agrees to keep at least $5,000 insurance in force on said premises.
Under date of November 13, 1917, the judge of the District Court in and for Clinton County, Iowa, entered a decree of divorce and for alimony, which, after preliminary recitals, contains the following:
WHEREFORE, it is hereby ordered, adjudged and decreed by the court that said plaintiff be and she is hereby divorced from the said defendant and each of said *232 parties is restored to all the rights and privileges of single persons, except that neither party hereto may remarry within one year from date of this decree; that said plaintiff be and she is hereby awarded all household goods, furniture, furnishings, books, pictures, etc., now in and about the premises, now occupied by her as a homestead, in the City of Clinton, Iowa, and the sum of $4,500 per annum during her natural life to be paid in accordance with the terms of a stipulation this day entered into, by and between the parties hereto, which is hereby*1056 made a part hereof, as alimony, and that he pay into court the sum of $1,000 attorney fees, and that she have and recover of and from said defendant the costs of this action, taxed at the sum of $8.25, and judgment is hereby rendered herein accordingly.
The alimony payments required to be made up to and including the date of decedent's death were made.
After the death of decedent, Katherine P. Young made claim that she was entitled to be paid from the assets of the estate the sum of $4,500 per annum for as long as she might live, and the question arose as to whether said payments should continue after decedent's death. Thereafter, the claim was compromised and settled by a written agreement entered into on the 20th day of February 1936, by and between Edythe C. Young, as executrix of the last will and testament of William J. Young, Jr., deceased, as party of the first part, and Katherine P. Young as party of the second part. The agreement recites, among other things, the decree of the divorce court, the dispute as to the rights of Katherine P. Young "under said decree after the death" of the decedent, and the proposed compromise of the claim of Katherine P. Young by the prompt*1057 delivery of $12,500 par value of notes of W. J. Young & Co., then owned by the estate. The agreement then provides:
The party of the second part agrees that upon this agreement being approved by said Superior Court of the State of Arizona in and for the County of Pima, and upon said $12,500.00 par value of notes of said W. J. Young & Company, a corporation, being delivered to the party of the second part, to be, with the income accrued and to accrue thereon from and after the 31st day of May, 1935, the absolute property of the party of the second part, she, the party of the second part, shall not have nor make any further claim of any kind, character, or description whatsoever against the estate of said William J. Young, Jr., deceased, or any property of said estate, and that all of the remainder of the property of the estate of said William J. Young, Jr., deceased, shall go and be distributed in accordance with the terms of the aforesaid last will and testament of said William J. Young, Jr., deceased.
Thereafter, petitioner filed a petition in the Superior Court of Arizona for approval and confirmation of the proposed settlement, and on the 28th day of February 1936, the settlement*1058 and compromise of the claim was duly approved by the court in an order reading as follows:
The petition of Edythe C. Young, as executrix of the last will and testament of the above named decedent, for an order authorizing her to compromise a claim against the said estate made by Katherine P. Young, coming on regularly *233 to be heard, the Court deeming notice of said petition to be unnecessary, and the Court being advised in the premises and finding the averments of the petition to be true and that it is to the best interests of the said estate that the said petition be granted and the compromise therein mentioned effected, now, therefore, it is
ORDERED, that the said petition be and the same is hereby granted; that the said executrix be and she hereby is authorized and directed to enter into a contract in the terms set forth in the draft of an agreement attached to said petition and that the said agreement so signed by her shall be in all things binding and of full force and effect; that the said executrix is hereby directed to carry out the terms of said agreement and to convey unto the said Katherine P. Young $12,500.00 par value of the priomissory notes of W. J. Young*1059 & Company, a corporation of Clinton, Iowa, and all unpaid interest which has accrued thereon since May 31, 1935, and to pay to the said Katherine P. Young any and all interest which has accrued on said amount of promissory notes since May 31, 1935 and which has been paid to the said estate, the said notes, interest, and payment to be the property and estate of the said Katherine P. Young free and clear of any and all claims against the estate of the said decedent and any and all obligations of the said estate; that said transfer and payment shall be made to the said Katherine P. Young in full payment and discharge of any and all claims which she has or may have against the said estate and the property thereof and against Edythe C. Young as distributee thereof, under or by virtue of the decree of divorce mentioned in said petition or the stipulation in said decree referred to, or otherwise.
Petitioner duly filed a Federal estate tax return as executrix, wherein a deduction was claimed in the amount of $12,500 on account of Katherine P. Young's claim against decedent's estate which had been duly allowed by the Superior Court of the State of Arizona in and for the County of Pima. The*1060 respondent disallowed the deduction. Since the issuance of the deficiency notice, petitioner has consented to the immediate assessment and collection of $420 of said alleged deficiency in order to avoid the accrual of interest thereon during the pendency of the proceeding.
OPINION.
ARNOLD: Petitioner contends that the right of deduction is specifically granted by section 303(a)(1) of the Revenue Act of 1926, as a claim allowed by the laws of the jurisdiction under which the estate is being administered, that the claim is not founded upon a promise or agreement but upon a decree of a court of competent jurisdiction, which decree is founded on an obligation imposed by law.
Respondent disallowed the deduction on the ground that the claim is founded upon a promise or agreement to pay alimony during the lifetime of the decedent's former wife and contends it was not incurred for adequate and full consideration in money or money's worth within the meaning of sections 804 and 805 of the Revenue Act of 1932, amending section 303(a)(1) and (d) of the Revenue Act of 1926.
*234 Section 303(a)(1) and (d) of the Revenue Act of 1926, as amended by sections 804 and 805 of the Revenue*1061 Act of 1932, and as further amended by section 403(a) of the Revenue Act of 1934, is set out in the margin, in so far as applicable. 1
The first*1062 question to determine is whether the claim was founded upon a promise or agreement. If not so founded, the provisions of the act with reference to consideration will not be applicable. We think the claim was not founded upon a promise or agreement, but was founded upon the divorce decree in which alimony was awarded in a fixed sum of $4,500 per year, payable annually during the lifetime of Katherine P. Young.
It is true that Katherine P. Young and the decedent entered into an agreement during the pendency of the divorce proceedings which provided inter alia for the payment of alimony in the event a decree for divorce was granted, but the wife's right to alimony grows out of the legal duty of the husband to support her and not out of a promise or agreement.
Even if the parties have settled their property rights, and have made provision for the support of the wife by a written agreement, the court may disregard the agreement and award such alimony as it deems right. In such case the right to alimony is predicated on the action of the court and not upon the agreement of the parties.
*1064 In
After the marriage was dissolved in 1917, Katherine P. Young was no longer a member of decedent's family, and the only relationship which existed between them was that of a judgment creditor and a judgment debtor. As a judgment creditor she was vested with the same rights to enforce her claim which the law gives to all other creditors of that class.
It would seem to follow that the claim which Katherine P. Young asserted against the decedent's estate rested immediately upon the judgment and decree of the Iowa court, which in turn was a judicial determination of the amount required from decedent to discharge an obligation imposed by law. Neither the obligation, *1065 nor the amount thereof, was created or determined by the agreement of the parties. The law imposed the one and the decree of court determined and adjudicated the other.
Both parties rely upon our decision in the
The facts here make this case distinguishable from the Phillips case. The claim here is not founded on the promise or agreement between husband and wife in settlement of dower or other marital rights in the decedent's property or estate, but upon the decree of the Arizona court which recognized the obligation imposed upon the estate by the decree of the Iowa court. The claim against the estate rests upon alimony, which is not founded on contract, *1067 express or implied, but on the natural and legal duty of the husband to support the wife.
In view of the foregoing discussion it is our opinion that the amount paid in satisfaction of the claim for alimony is a proper deduction from the decedent's gross estate. In so holding we have assumed that the petitioner is entitled to the entire amount of the deduction claimed, if, as a matter of law, she is entitled to any deduction whatever, since the parties have tried and briefed the issue upon that theory.
It is admitted that subsequent to the issuance of the deficiency notice, the petitioner consented to the immediate assessment*1068 and collection of $420 of the alleged deficiency, in order to avoid the accrual of interest thereon during the pendency of this proceeding. The inference is that payment of the $420 was made, but, the admissions in the pleadings and the stipulation of facts are insufficient to support a finding that the $420 was actually paid. If payment of this portion of the asserted deficiency has been made, there has been an overpayment of tax, and decision will be entered accordingly.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 303. For the purpose of the tax the value of the net estate shall be determined -
(a) In the case of a citizen or resident of the United States, by deducting from the value of the gross estate -
(1) Such amounts -
* * *
(C) for claims against the estate,
* * *
(E) * * * as are allowed by the laws of the jurisidction, whether within or without the United States, under which the estate is being administered * * *. The deduction herein allowed in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth. * * *
(d) * * * For the purposes of this title, a relinquishment or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, shall not be considered to any extent a consideration "in money or money's worth" ↩