Petition — Wright v. Wright

Supreme Court brief1980

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1979

No. Q “I2OR }

JEAN WRIGHT,

Petitioner,

vs.

WILLIAM C. WRIGHT,

Respondent.

PETITION FOR A WRIT OF

CERTIORARI TO THE SUPREME

COURT OF WISCONSIN

Bruce C. O’NEILL

JOHN C. TRITSCHLER

Attorneys for Petitioner

Fox, CARPENTER, O’NEILL & SHANNON S.C.

622 N. Water Street

Milwaukee, Wisconsin 53202

(414) 273-3939

Of Counsel

‘Dated: February 2, 1980

INDEX :

PAGE

Ne AR bbs a piyc se cae scee ii

RIFE NE PG a |

‘Juestion Presented Seen ee eee eee eee teen eee ees 2

Constitutional Provision and Statutes involved ....... 2

ne Gs ede Guid Nespas ces crcie. 6

Raising the Federal ‘Question ...............-...00008- 15

Reasons for Granting the Writ ....................005. 21

EE GS RE SA SRR 31

Appendix

CITATIONS

Cases

Baldwin v. Traveling Men’s Ass’n 283 U.S. 522 (1931) .. .29

Coleman v. Alabama 377 U.S. 129 (1964) ............0.. 20

Commissioner v. Estate of Bosch 387 U.S. 456 (1967) .28,29

Commissioner v. Lester 366 U.5. 299 (1961)

Commissioner v. Sunnen 333 U.S. 591 (1948) ........ 28,29

Farwell v. Farwell 33 Wis. 2d 324, 147 N.W.

ye a TER © Sir Shree nl a ear Er rere eee 27

Freuler v. Helvering 291 U.S. 35 (1934) ...........500e. 28

Helvering v. Fitch 296 U.S. 1 (1935) ........c cece cece 22

Hesse, Marion RK. 6D TG: GES (1973S) ..in ccc cece wens 25

Fiesee, Tacnie G. 7 7.6. 700 Ure 6 Os es ec ew ete retaes 23

Hogg, Thomas E. 13 T.C. 361 (1949) ............cse0ee 23

Jackson, Lewis B. Jr. 54 T.C. 125 (1970) ............0008. 9

Jenkins v. Georgia 418 U.S. 153 (1974) .................20

Johnson v. Johnson 37 Wis. 2d 302, 155 N.W.

Se EE Ps oly CA ous aase Fata eds KE dead 17

Lemm v. Lemm 72 Wis. 2d 457, 259 N.W. 2d 440

PRUNE sista bade A + Mig PESTS Ol bode be BER OBER ROL ERE S 27

Luedke v. Luedke 215 Wis. 303, 254, N.W. 525 (1934) ...27

Miner v. Miner 10 Wis. 2d 438, 103 N.W. 2d 4 (1960) .. .24

New York ex rel Bryant v. Zimmerman 278

TC ne ee oe eis pe

Ocala Star-Banner Co. v. Damron 401 U.S. 295 (1971) ...20

Ohio ex rel Popouri v. Agler, 280 U.S. 379 (1930) ...... 21

Pittsburgh, Cincinnati, Chicago & St. Louis

Railway Company v. Long Island

Loan & Trust Company 172 U.S.

OES 6 iis biel h EAE As Se ER VORRAL os eae eR CEES 16

ae nO ll i dod <n

ili

Sholund v. Sholund 34 Wis 2d 122, 148 N.W.

ra a ee pea palears Mee a 27

Sil W. Satiew Fae Uy es. 165 (IGSED ook ec bi ccc end 16,29

Supreme Lodge, Knights of Phythias v. Meyer

Be BP Rae G Katoh eee Cb raWarcs wince whi ne 16

Thempeon,. Wilma 50 7.0. S22 CU9GB) uw cc cece ceins 8

United States v. Davis 370 U.S. 65 (1962) ............. 9,10

Van Orman v. Commissioner 418 f2d 170

renin aie POI aes ne ik go ath elo atiw ww eke “ob Bae oe,

Rules

Federal Rules of Civil Procedure, 28 U.S.C § 1738........2

Federal Rules of Civil Procedure 28 U.S.C. § 1257 (3).....2

Internal Revenue Code (1954) Reg 1.71-I(b)(4) ........ 8,25

Statutes

Internal Revenue Code (1954) § 71 8, 9, 3, 20, 21, 23, 24, 27

Internal Revenue Code (1954) § 215 ............... 4,9, 21

Internal Revenue Code (1939) § 22 ..................22,23

Wisconsin Statutes § 247526 6.0: coe ce died eens 4, 9). 12,27

Wisconsin Statutes § 247.32 ........5, 12, 13, 17, 18, 19, 27

Wisconsin Statutes-6.247:01 06... oc eee ewiees 6,12, 13

VU SRCURIIOETT SHUNU 7 Fie Gee) ws ove Seite 0 oie Se ewe cen ood 3]

Other References

Heller, Catch-22, Simon & Schuster, New York (1955) ...21

Mertens, Law of Féderal Income Taxation § 31A.02 (1975)23

H. Rep No. 2333, 77th Cong. 2d Session, p72 ..........23

IN THE

Supreme Court of the United States

OCTOBER TERM, 1979

No.

JEAN WRIGHT,

Petitioner,

VS.

WILLIAM C. WRIGHT,

Respondent.

PETITION FOR A WRIT OF

CERTIORARI TO THE SUPREME

COURT OF WISCONSIN

The petitioner, Jean Wright, respectfully prays that a

writ of certiorari issue to review the judgment and opin-

ion of the Supreme Court of Wisconsin entered in this

proceeding on November 6, 1979.

OPINIONS BELOW

The opinion of the Supreme Court of Wisconsin has

been published and is reported at 92 Wis. 2d 246,

(1979) N.W.2d . A copy of this opinion appears in

the Appendix. Also pertinent to the disposition of this

case are earlier proceedings between the parties to this

case as to the same issue and which appear in the Appen-

dix as the opinions of the Wisconsin Intermediate Court

of Appeals (unpublished); the Milwaukee County Circuit

Court, the Honorable Robert M. Curley, presiding (un-

published); the United States Court of Appeals for the

Seventh Circuit 543 F.2d 593 (1976); the United States Tax

Court 62 T.C. 377 (1974) and the Milwaukee County Cir-

cuit Court, the Honorable Leander J. Foley, presiding

(unpublished).

JURISDICTION

The judgment of the Supreme Court of Wisconsin was

entered on November 6, 1979 with no motion for rehear-

ing. -This petition for certiorari is timely filed within 90

days of that date. This Court’s jurisdiction is invoked pur-

suant to 28 U.S.C. Sec. 1257 (3).

QUESTION PRESENTED

Where Federal courts, based upon their holding that the

intent of the parties supersedes the language of a divorce

decree, have decided that certain payments are for the

support of the wife rather than for her property rights, is

it a violation of the Full Faith and Credit Clause for Wis-

consin courts thereafter to disregard such decision and,

based upon their holding that the language of a divorce

decree supersedes the intent of the parties, decide that the

payments are for the property rights of the wife rather

than for her support?

CONSTITUTIONAL PROVISION

AND STATUTES INVOLVED

UNITED STATES CONSTITUTION, Article IV,

Section |:

“Full faith and credit shall be given in each state to

the public acts, records and judicial proceedings of

every other state.”’

FEDERAL RULES OF CIVIL PROCEDURE:

28 U.S.C. Section 1738:

“. . Such Acts, records and judicial proceedings or

copies thereof, so authenticated, shall have the same

full faith and credit in every court within the United

States and its Territories and Possessions as they

have by law or usage in the courts of such State, Ter-

ritory or Possession from which they are taken. June

25, 1948 c. 646, 62 Stat.947.

INTERNAL REVENUE CODE 1954:

Section 71 Alimony and Separate Maintenance Pay-

ments.

“(a) General Rule

(1) Decree of Divorce or Separate Maintenance.

- If a wife is divorced or legally separated from

her husband under a decree of divorce or of sepa-

rate maintenance, the wife’s gross income in-

cludes periodic payments (whether or not made at

regular intervals) received after such decree in dis-

charge of (or attributable to property transferred,

in trust or otherwise, in discharge of) a legal obli-

gation which, because of the marital or family re-

lationship, is imposed on or incurred by the hus-

band under the decree or under a written instru-

ment incident to such divorce or separation.

! (1) General Rule - For purposes of subsection

(a), installments discharging a part of an obliga-

tion the principal sum of which is, either in terms

of money or property, specified in the decree, in-

strument, or agreement shall not be treated as

periodic payments.

(2) Where Period For Payment is More Than 10

Years - If, by the terms of the decree, instrument,

or agreement, the principal sum referred to in

paragraph (1) is to be paid or may be paid over a

period ending more than 10 years from the date of

such decree, instrument, cr agreement, then (not-

withstanding paragraph (1)) the installment pay-

ments shall be treated as periodic payments for

purpose of subsection (a), but (in the case of any

one taxable year of the wife) only to the extrent of

10 percent of the principal sum. For purposes of

the preceding sentence, the part of any principal

sum which is allocable to a period after the tax-

able year of the wife in which it is received shall

be treated as an installment payment for the tax-

able year in which it is received.”

Section 215, Alimony, Etc. Payments.

“(a) General Rule-In the case of a husband de-

scribed in section 71, there shall be allowed as a

deduction amounts includable under section 71 in

the gross income of his wife, payment of which is

made within the husband’s taxable year. No de-

duction shall be allowed under the preceding sen-

tence .with respect to any payment if, by reason of

section 71(d) or 682, the amount thereof is not in-

cludable in the husband’s gross income.”

WISCONSIN STATUTES:

Section 247.26 (1967)

‘‘Alimony, property division. Upon every

judgment of divorce or legal separation for any

cause excepting that of adultery committed by the

wife, the court may, subject to s. 247.20, further

adjudge to the wife such alimony out of the prop-

erty or income of the husband, for her support

and maintenance, and such allowance for the sup-

port, maintenance and education of the minor

children committed to her care and custody as it

deems just and reasonable. The court may also fi-

nally divide and distribute the estate, both real

and personal, of the husband, and so much of the

@ate of the wife as has been derived from the

husband, between the parties and divest and

transfer the title of any thereof accordingly, after

having given due regard to the legal and equitable

rights of each party, the ability of the husband,

the special estate of the wife, the character and

situation of the parties and all the circumstances

of the case; but no such final division shall impair

the power of the court in respect to revision of al-

lowances for minor children under s. 247.25. A

certified copy of such judgment which affects title

to real estate shall be recorded in the office of the

so affected are situated.”

ee ad

Section 247.32 (1967) uber

“Revision of judgment. After a judgment pro-

viding for alimony or other allowance for the wife

and children, or either of them, or for the ap-

pointment of trustees as aforesaid the court may,

from time to time, on the petition of either of the

parties and upon notice to the family court com-

missioner, revise and alter such judgment respect-

ing the amount of such alimony .or allowance and

the payment thereof, and also respecting the ap-

propriation and payment of the principal and in-

come of the property so held in trust, and may

make any judgment respecting any of the said

matters which such court might have made in the

original action. But when a final division of the

property shall have been made under s. 247.26 no

other provisions shall be thereafter made for the

wife.

Section 247.01 (1975)

“Jurisdiction. The county courts and circuit

courts have jurisdiction of all actions affecting

marriage and of all actions under s. 52.10 (or con-

current jurisdiction where other courts are vested

with like jurisdiction), and have authority to do

all acts and things necessary and proper in such

actions and to carry out their orders and judg-

ments into execution as hereinafter prescribed. All

such actions shall be commenced and conducted

ee and the orders and judgments therein enforced ac-

cording to these statutes in respect to actions in

courts of record, as far as applicable, except as

provided in this cha: ter and in s. 52.10.

Whenever any court is p.:siding in any such ac-

tion affecting marriage it shall be known as the

“Family Court Branch.”’

STATEMENT OF CASE

The petitioner (hereinafter ‘‘wife’’) and respondent

(hereinafter ‘‘husband”’) first appeared in the Milwaukee

County Circuit Court on October 4, 1967 as parties to a

stipulated default divorce proceeding. They had been

married twenty years, had two children and a net estate

subject to division of property of $837,370. (The wife had

a separate $227,752 of inherited property not subject to

division under Wisconsin law.) The husband held formal

legal title to all of these assets. It was stipulated that the

wife would be awarded the principal sum of $228,000.00,

payable over a ten and one-half year period commencing

immediately. The terms of the stipulation were approved

by Circuit Judge Leander J. Foley, Jr. (App. pp 103-105)

Subsequently, and before the signing and entry of the

findings of fact, conclusions of law and judgment, a dis-

pute arose over the intended income tax consequences of

the stipulated award. The parties returned to Judge

Foley’s court, the wife arguing that the award was in-

tended as property division and thus was not taxable to

her, and the husband countering that the award was in-

tended as alimony and thus was taxable to the wife and

deductible by the husband. The parties asked Judge

Foley to decide the matter, and each submitted proposed

findings and conclusions.(App. p. 105-06,fn.1)

Judge Foley on January 29, 1968 adopted the wife’s

proposed findings of fact and conclusions of law relative

to the $228,000 in payments. The relevant conclusions

provided that:

“Twenty-second. That alimony be and hereby is

denied. :

“Twenty-fourth. That as and for a complete divi-

sion of estate and to complete the division of prop-

erty of the parties, the plaintiff be and he hereby

shall pay to defendant the sum of $228,000.00 within

ten and one-half (1042) years of the date of this

judgment; and payable on the following terms: No

less than $2,000.00 per month be paid by plaintiff to

the defendant for the first six months; that thereafter

the plaintiff shall pay to the defendant no less than

the sum of $1,800.00 per month for the balance of

the term of payment of $228,000.00 specified

herein.’ (App. pp 106-07, 616, 617)

The taxable year 1968 was the first year in which the

parties did not file a joint income tax return, and the par-

ties treated the payments made under the divorce judg-

ment in an inconsistent manner. The wife did not report

the payments as income, while the husband deducted

the same. Thereupon, the Internal Revenue Service is-

sued deficiency notices against both parties which even-

tually resulted in the case‘coming before the United

States Tax Court.(App. pp. 510-511)

In deciding that these payments were income to the

wife the Tax Court set forth the different natures and in-

come tax consequences of alimony and property division

as follows:

Alimony

“Section 71(a) [of the Internal Revenue Code of

1954] provides that if a wife is divorced or legally

separated from her husband she must include in her

taxable income periodic payments received by her in

discharge of a legal obligation arising out of the

marital relationship and ‘imposed on or incurred by

the husband unde~ the decree or under a written in-

strument incident to such divorce or separation.’

Pursuant to the provisions of section 215(a) a hus-

band is entitled to deduct from his taxable income

such periodic payments made to his divorced wife

in the year paid.” 62 T.C. at p. 387 (App. p. 511)

and

“As we pointed out in Wilma Thompson, [50 T.C.

522 (1968)], at page 525, the text of section 71 does

not use the word ‘alimony’ and the regulations

amplify the statute by explaining that section 71(a)

applies only to payments made because of the mari-

tal relationship and in recognition of the general ob-

ligation to support. Sec. 1.71-1(b) (4), Income Tax

Regs. Nevertheless, many ses refer to these obliga-

tions arising because of the marital relationship as

‘alimony.’ ’’ 62 T.C. at p. 389 (App. p. 513)

Prop-tty Division

“We have recognized on a number of occasions

that where there is a division of property of the par-

ties to a divorce nd the husband makes payments in

satisfaction of property rights of the wife the

amounts received by the wife are capital in nature

and are neither includable in her gross income

under section 71 nor deductible by the husband

under section 215. Lewis B. Jackson, Jr., 54 T.C. 125,

129 (1970). See sec. 1.71(c) (4), Income Tax Regs.”’ 62

T.C. at pp. 388-389 (App. pp. 512-13)

The Tax Court then summarized the parties’ arguments

as follows:

“Jean argues that the sum of $228,000 to be paid

to her was payment for her inchoate interest in Wil-

liam’s property at the time of the divorce under Wis.

Stats. Ann. section 247.26 (1957). . .

“William argues the aforementioned payments

were necessarily payment for his legal obligation of

support arising from the marital relationship as Jean

did not exchange any interests in property for such

payments. . .” 62 T.C. at p. 389 (App. p. 513)

The Tax Court noted that the Internal Revenue Service

agreed with the argument of the wife. 62 T.C. at p. 388

(App. p. 512)

The husband’s incredibly chauvinistic argument was

that the wife is not entitled to division of property in a

divorce in a non-community property state, unless she

held formal legal title to some or all of the assets accumu-

lated during the marriage. More incredibly, the Tax

Court adopted this argument on the basis of an irrelevant

capital gains tax case, United States v. Davis, 370 U.S. 65

(1962). The Tax Court stated:

“In reaching this conclusion [that the payments

were property division and not alimony], we have

found persuasive that Jean, at the time of the di-

vorce, did not own any property in exchange for

which she was to receive the sum of $228,000. Jean

received all the property she owned at the time of

the divorce and additionally the sum of $228,000,

with a present value of $170,000. Therefore, those

payments were not received by Jean in satisfaction

of her property rights.” 62 T.C. at p. 390 (App. p.

514)

and

“However, Jean’s inchoate rights in her husband’s

property under a common law jurisdiction such as

Wisconsin have not been recognized as reaching the

dignity of such an interest as to support a division

of property among co-owners. As the Supreme

Court stated in United States v. Davis, 370 U.S. 65,

70, 71 (1962), in dealing with the taxability to the

husband of the value over the basis of property

transferred by a husband to a wife in a divorce set-

tlement, ‘the inchoate rights granted a wife in her

husband’s property *** do not even remotely reach

the dignity of co-ownershp’ .. .” 62 T.C. at p. 391

(App. p. 515)

and

“This record is clear that Jean did not surrender

any property interests or give up anything that is

recognized as supporting a division of property in

exchange for the disputed payments other than her

right to alimony.” 62 T.C. at p. 391 (App. p. 515)

As a general proposition the Tax Court did note that

the determination of alimony or property division “rests

upon the surrounding facts and circumstances” and that

“the intent of the parties is a necessary factor in deter-

mining the nature of the payment.” 62 T.C. at p. 389

(App. p. 513) The Tax Court concluded that the payments

“were intended by the parties’ to be alimony, since leg-

ally the payments could not have been property division.

(62 T.C. at p. 390) The Tax Court also stated that the

“labels assigned to payments ... by the divorce decree

are not conclusive.”’ 62 T.C. at p. 389 (App. p. 513) Thus,

the Tax Court held that it was not bound by the divorce

decree providing that the payments were “as and for as

complete division of estate and to complete the division

of property” and “alimony be and hereby is denied.”

The wife appealed to the United States Court of

Appeals for the Seventh Circuit. In his brief to the

Seventh Circuit, the husband argued, “In her pleadings

in the divorce action, Jean asked for alimony or support

and that is exactly wha* she received.”

The Seventh Circuit noted that the Tax Court had held

that the payments were “pursuant to William’s obligation

of support rather than in satisfaction of Jean’s property

rights.” 543 F.2d at p. 598 (App. p. 408) It further noted

that no one factor was “irrebuttable proof of the parties’

intentions” and that “the question of whether payments

are made in recognition of the general obligation to sup-

port or in settlement of a wife’s property rights depends

upon the facts and circumstances of each case.” 543 F.2d

at p. 598 (App. p. 408)

The Seventh Circuit rejected the Tax Courf’s archaic

holding that a wife must hold formal legal title to prop-

erty in order to be entitled to property division in a di-

vorce. 543 F.2d at p. 598 (App. p 409) The appellate

court, however, still ruled:

“While we consider this a close and difficult case,

we have concluded that the Tax Court’s determina-

tion should be upheld.” 543 F.2d at p. 598 (App. p.

408)

The Seventh Circuit affirmed by reviewing all of the

evidence in the divorce court proceeding and then hold-

ing:

“The intention of the parties is the principal de-

terminant. *** We find ... that the payments were

intended for the purpose of support rather than as a

409)

division of property.” 543 F.2d at p. 598 (App. p.

eee ieee —

The result of the decisions of the federal courts was the

assessment against the wife of a $102,840.00 income tax

liability which diminished her $228,000 to $125,160.

(App. p. 108)

Although believing that the federal courts had erred on

the factual issue of whether the payments were intended

for her support rather than as property division, the wife

was left with little choice but to return to the state courts.

She had had her day in federal court and put forth her

best arguments. It still was determined that the divorce

decree had granted her alimony in furtherance of the

marital obligation of support and not property division.

In 1977, with the adverse federal decisions in hand, the

wife went back to the Milwaukee County Circuit Court

for relief. (App. pp. 701-02) Although ten years had pas-

sed, the divorce court still had jurisdiction under sec.

247.32 Wis. Stats. (1967), to modify alimony upon the

basis of changed circumstances and also had jurisdiction

upon the basis of changed circumstances and also had

jurisdiction under sec. 247.01 to enforce the judgment.

The divorce court, however, did not have jurisdiction to

modify property division under secs. 247.26 and 247.32.

The wife moved the divorce court to do one of two

things, since the federal courts had determined the pay-

ments to be alimony:

a.) Modify those alimony payments by increasing

them so the wife had the money to pay the taxes,

upon the basis of changed circumstances under sec.

247.32, namely the income taxes unanticipated by

both the wife and the divorce court; or

b.) Enforce the judgment by ordering the husband

to pay the wife a net $228,000, to-wit, reimburse her

the $102,840 he had cost her by his deduction of the

payments and convincing of the federal courts that

the parties had intended those payments to be

alimony when in fact the parties and the divorce

court had intended the payments to be property di-

vision. | :

With the adeptness and lack of embarrassment of a

carnival vendor, the husband opposed her motion upon

the basis that the disputed payments in the divorce de-

cree were for property division and not alimony, such

that the divorce court lacked jurisdiction to modify them

under sec. 247.32, Wis. Stats. The husband argued that

the divorce court was not bound by the federal courts’

determinations that the payments were alimony, since a

state court is not bound by the “label” a federal court has

placed upon an award. The husband had made this same

type of “label” argument to the federal courts in convinc-

ing them to disregard Judge Foley’s conclusions and

judgment that “alimony be and hereby is denied” and

“that as and for a complete division of estate and to

complete the division of property of the parties.”

In his decision on the wife’s motion, Judge Robert M.

Curley of the Milwaukee County Circuit Court held that

Wis. Stats. §247.01 empowered the court to “make any

order necessary” in the enforcement of the original de-

cree. Judge Curley held that the payments had been in-

tended to be for property division and to be non-taxable

to the wife and ordered the husband to pay to the wife

the additional sum of $102,840.00. Judge Curley also held

that he could have entered the same order under sec.

247.32, Wis. Stats. 1967, by ordering increased alimony

payments. (App. pp. 300-310)

The husband appealed to the Wisconsin Court of Ap-

peals. That court reversed Judge Curley’s decision and

ruled that neither sec. 247.01 nor sec. 247.32 gave the di-

vorce court jurisdiction to modify the original judgment.

The Wisconsin Court of Appeals held that the language

of the judgment unambiguously provided for property

division and not alimony. The Court stated:

YEE pean

wre

“ ‘The provision for alimony may be revised from

time to time but the division of the estate is fixed

for all time. Sec. 247.32, Wis. Stats.’

“The judgment provision for payment of $228,000

in monthly installments specified that it was ‘as and

for a complete division of estate and to complete the

division of property between the parties.’ The order

appealed from invalidly modified the provision. ***

Payments to complete the division of property were

not [subject to modification under sec. 247.32, Wis.

‘Stats.]” (App. p. 211-212)

Unlike the Seventh Circuit which had held that “the

intention of the parties is the principal determinant’ and

then determined that “the payments were intended for

the purpose of support rather than as a division of prop-

erty’, supra, the Wisconsin Court of Appeals held that

the parties’ intent was irrelevant. It held that:

444

Judgments are to be construed like other writ-

ten instruments’ *** ‘[T]he office of judicial construc-

tion is not to make contracts or to reform them, but

to determine what the parties contracted to do; not

necessarily what they intended to agree to, but

what, in a legal sense, they did agree to, as evi-

denced by the language they saw fit to use.’ ” (App.

p. 209)

In other words what labels the parties chose to use.

The wife then petitioned the Wisconsin Supreme Court

for review of the lower appellate court’s decision. The

state Supreme Court affirmed the decision of the Wiscon-

sin Court of Appeals. In its decision the Wisconsin Sup-

reme Court reiterated the intermediate court’s conclusion

that the judgment was unambiguous as to providing for

property division and not alimony and therefore the in-

tent of the parties was irrelevant. The Wisconsin Sup-

reme Court stated that:

“If there is no ambiguity on the face of the stipu-

lation or judgment, the subjective intent of the par-

ties is irrelevant.” 92 Wis. 2d at p. 257 (App. p. 112)

In rejecting the wife’s claim that the federal court deci-

sions barred a relitigation of the question of whether the

award was for alimony or property division, the state’s

highest court held that the “definition of alimony and

property division under state law is not the same or co-

extensive with the provisions for periodic or installment

payments under the Internal Revenue Code.” 92 Wis. 2d

at p. 257 (App. p. 112) The Court further stated that, “al-

though the definitions and applications may overlap in

many cases, they clearly are not co-extensive for all pur-

poses and in all events.”” 92 Wis. 2d at p. 261 (App. p.

116)

The Wisconsin Supreme Court thus held that it was

not bound by the federal courts’ determination that the

parties intended support, such that the labels weren’t

binding; and, instead, the Wisconsin Supreme Court de-

termined that the labels were binding, such that the par-

ties’ intent was irrelevant. The Wisconsin Supreme Court

concluded:

“The judgment called it a division of estate and

division of property. Under Wisconsin law this was#

a property division and as such it is not subject to

modification under our statutes. The Circuit Court

lacked authority under sec. 247.32, Stats. to modify ©

the original judgment.” 92 Wis. 2d at p. 263 (App.

p. 118)

RAISING THE FEDERAL QUESTION

This Court has stated that a federal question is pre-

sented when it is contended that the ruling under review

has disregarded a prior judicial determination of the is- '

SN eT

sues between the parties. Stoll v. Gottlieb, 305 U.S. 165,

167 (1938), Pittsburgh, Cincinnati, Chicago and St. Louis

Railway Company v. Long Island Loan & Trust Company,

172 U.S. 493, 507-510 (1898). In such a situation the fed-

eral question necessarily raised is whether full faith and

credit, in accordance with Article IV, Sec. 1 of the Con-

stitution, has been accorded to the judicial proceedings

of another court in the same, or a differing court system.

In this regard, and relative to the extension of the full

faith and credit requirement as between the state and

federal courts, in Supreme Lodge, Knights of Pythias v.

Meyer, 265 U.S. 30 (1924) the Court stated at p.33:

“While judicial proceedings of the federal courts

are not within the terms of the constitutional provi-

sion, such proceedings, nevertheless, must be ac-

corded the same full faith and credit by state courts

as would be required in respect of judicial proceed-

ings of another State. Hancock National Bank v. Far-

num, 176:U.S. 640, 644, Embry v. Palmer, 107 U.S. 3,

7.”

Further, it should be recognized that the dictates of Ar-

ticle IV, Sec. 1 and its application to judicial proceedings

between the state and federal court systems have been

codified in 28 U.S.C: Sec. 1738 of the Judicial Code.

The petitioner’s decision to return to the state court

system following the adverse federal court decisions and

therein seek additional monies in order to pay for her

“unanticipated” tax liability, was irrefutably premised

upon the binding and conclusive effect of the federal

proceedings. The federal courts in reaching their deci-

sions regarding the parties’ respective tax liabilities, had

looked behind the labels placed on the original decree

and determined that the intent of the award was to pro-

vide for the petitioner’s support and was not a division

of the marital estate in recognition of her property rights.

The analysis undertaken by the federal courts as to the

intent of the award is the same as would be performed

by any state court upon a motion for additional alimony

based upon the changed circumstances of the parties.

Pursuant to Wis. Stats. Sec. 247.32 an alimony award is

subject to modification at any time if the circumstances

of the parties change; however, a division of property is

final for all times and cannot be reopened except upon

evidence fraud. Johnson v. Johnson, 37 Wis. 2d. 302, 155

N.W. 2d 111 (1967). Therefore, the petitioner believing

that the parties had litigated the issue of whether the di-

vorce agreement was to be interpreted as an alimony

award or a property settlement and that the decision of

the federal court was binding, she petitioned the state

court for additional alimony invoking the powers granted

in Sec. 247.32.

It is unmistakable from the record that the petitioner

from the onset of the state proceedings, was arguing that

the federal court had already determined the issue of

whether the award was to provide for alimony rather

than a property division, and that its decision on that

issue was binding. Accompanying the petitioner’s mo-

tion for modification of the award pursuant to Sec.

247.32, was her affidavit wherein Paragraphs 8 through

17 gave substantive attention to the issues, arguments

and decisions made in the federal courts. (App. pp. 705-

16) Additionally, the petitioner reiterated her argument

that the federal decrees were binding upon the state

court in the briefs that were submitted to the Milwaukee

County Circuit Court prior to its decision on the

petitioner’s motion. However, most conclusive in de-

monstrating that the federal question was placed

squarely in controversy between the parties is the argu-

ment in the respondent’s brief, submitted to the trial

court that:

oe SE gy SEP

CE A ETT SO EPL TY ET TT OE EE: OTT LIT TE NT ELT Ef me

“Characterizing payments as alimony or for sup-

port under Federal income tax law does not have the

effect of determining the nature of such payments

under state law, no more than state law controls the

character of such payments for Federal income tax

purposes.” (App. p. 803)

Although the Milwaukee County Circuit Court ulti-

mately granted the petitioner her requested relief, albeit

on alternative grounds, Judge Robert J. Curley explicitly

addressed and rejected the petitioner's argument that the

state court was bound by the federal decisions and

stated:

“Great emphasis is placed upon the actions taken

in the Federal Tax Court. This court can only say in

this regard that it is not bound by any decisions

made by the Federal Tax Court any more than that

court would be bound by decisions made by this

court, and that this court will consider those actions

insofar as they have operated to reduce the

defendant-wife’s settlement of $228,000.00 by a size-

able sum, to wit, $102,840.00.” (App. p. 307)

In the subsequent appeals taken before the Wisconsin

Court of Appeals and the state supreme court, the parties

continued to argue their conflicting positions as to

whether the state court for purposes of invoking its on-

going jurisdiction, pursuant to Sec. 247.32, to modify the

divorce decree, was bound by the decisions of the Fed-

eral court. This fact is amply demonstrated in the

petitioner’s Petition to Appeal submitted to the Supreme

Court of Wisconsin and the Respondent's Brief in Oppos-

ition to Petition to Appeal. (App. pp. 901-907) Further-

more, it should be pointed out that in the petitioner’s

brief to the state’s highest court she left no doubt that it

was her position that the federal court’s ruling was a bar

to any further litigation on the issue of whether the

award was intended as support or property division,

therein it was stated on her behalf:

“This is a case where the wife feels keenly the in-

jury that can result in one set of facts being tried in

two different court systems. One form of injustice

that can occur is that a party can take contradictory

positions in the two systems and still prevail in both

systems by each system refusing to recognize the ac-

tion of the other. Here, the husband argued in the

federal system that the payments were not for prop-

erty division but were for support. When the case

then returned to the state system, the husband ar-

gued and still argues that the payments were really

for property division and not for support and thus

are not modifiable regardless of how and why the

federal system treated them as support payments.

The respondent earnestly submits that this court

strike down this Catch-22 argument and affirm the

lower court’s decision which only required the hus-

band to abide by his earlier agreement to allow the

divorce court to determine the nature of the ane:

ments.” (App. pp. 1001-1005)

Lastly, it should be noted that the state supreme court

in its opinion expressly rejected the federal questién

which was raised by the petitioner at every stage of the

proceeding in controversy. In dismissing the petitioner’s

argument that the federal! decision relative to the intent

of the award was binding on the state courts for pur-

poses of a Sec. 247.32 type motion, Justice Roland Day of

the Wisconsin Supreme Court rationalized:

‘Counsel for Jean Wright argues that if the in-

stallment payments are taxable under the federal law

then they are also alimony under Wisconsin law.

This argument would equate periodic payments

under the Internal Revenue Code Sec. 71 with

ae at ea ea

etna aeeatadali

PU PRA EN He EE Loe pe woe

alimony under state law. Although the definitions

and applications may overlap in many cases, they

clearly are not co-extensive for all purposes and in

all events. The Internal Revenue Code addresses. it-

self to periodic and installment payments. It is not

the labels placed on the payments which are deter-

_ minative under the federal tax law. It is the structure

and effect of the payments which control the charac-

terization. (Footnote omitted) 92 Wis.2d at 261-62.

(App. pp. 116-17)

The petitioner has gone into great detail in exposing

the development of he1 federal question in the state court

proceedings below. This is deemed necessary in light of

the fact that heretofore the petitioner had not expressly

labeled her argument in terms of the full faith and credit

doctrine or the concommitant concept of collateral estop-

pel. However, this fact should in no manner prejudice

the petitioner’s case as the rule of New York ex rel Bryant

v. Zimmerman 278 U.S. 63, 67 (1929) propounds, that a

federal question has been ‘‘brought to the state court’s at-

tention with fair precision ... if the record as a whole

shows either expressly or by clear intendment that this

was done, the claim is to be regarded as having been

adequately presented.” Additionally, where the federal

question is disposed of by the decision of the State’s

highest court, any issue as to the proper raising of the

federal question before the state court should disappear.

Jenkins v. Georgia 418 U.S. 153, 157, (1974) Ocala Star-

Banner Co. v. Damron 401 U.S. 295, 299, (1971) Coleman v.

Alabama, 377 U.S. 129, 133 (1964). Yet, as is particularly

applicable to this case it is not essential that the state

court’s denial of the federal claim “shall have been put in

direct terms” as it is sufficient if ‘the necessary effect of

the judgment has been to deny the claim.” New York ex

» rel Bryant v. Zimmerman, supra at 67.

REASONS FOR GRANTING THE WRIT

‘““. . . Orr was crazy and could be grounded. All he

had to do was ask; and as soon as he did, he would

no longer be crazy and would have to fly more mis-

sions. Orr would be crazy to fly more missions and

sane if he didn’t, but if he was sane he had to fly

“them. If he flew them he was crazy and didn’t have

to; but if he didn’t want to he was sane and had to.

Yossarian was moved very deeply by the absolute

simplicity of this clause of Catch-22 and let out a re-

spectful whistle.

“ ‘That’s some catch, that Catch-22,’ he oheezveu.

“ ‘It’s the best there ic,’ boc Daneeka agreed.

“‘Yossarian saw it clearly in all its spinning

reasonableness. There was an elliptical precision

about its perfect pairs of parts that was graceful and

shocking, like good modern art, and at times Yossa-

rian wasn’t quite sure that he saw it at all, just the

way he was never quite sure about good modern art

or about the flies Orr saw in Appleby’s eyes.” Hel-

ler, Catch-22 (Simon and Schuster, 1955), page 46

ARGUMENT

Long ago, the Supreme Court held that the whole sub-

ject of the domestic relations between a husband and

wife belongs to the laws of the states. Ohio ex rel Popovici

v. Agler, 280 U.S. 379, 383, (1930). This decision predated

the intervention of the Internal Revenue Code into the

realm of domestic relations through §71 and §215 (Inter-

nal Revenue Code 1954). Since the adoption of §§71 and

215, Comm’r v. Lester, 366 U.S. 299 (1961) stands alone as

possible guidance on the question of the interrelation-

ship of the federal tax laws with the states’ power over

issues of domestic relations. However, a close examina- :

ROT NOD Te TERRE

OIE EE NE ISN SESE POETS g LTR RUMEN BF CET OBES CT ee GY Oe ee

tion of the Lester decision sheds little light on whether

there is, in fact, an interrelationship between the federal

taxing power and the divorce laws of the states.

Moreover, if it can be inferred from Lester that a relation:

ship exists between the federal and state powers, the de-

cision fails to expose the nature and extent of this rela-

tionship.

For these reasons the case before you presents the

Court with an opportunity to determine this crucial rela-

tionship. Furthermore, this case calls out for the overrid-

ing concern for maintaining an efficient and just system

of judicial federalism, wherein the courts of the several

states and tie astional government are required to rec-

ognize and respect the judgmenis <f one another. To this

end a review of this case is necessary to determine

whether the full faith and credit clause has viability in

the context of tax-divorce litigation, thereby insuring

litigants certainty and consistency when the same issue

is litigated in two different court systems, and thus, pre-

venting others from being placed in the same inherently

unfair predicament as the petitioner.

In Commissioner v. Lester, supra, the Court was asked to

decide under the 1939 Code, §22,' whether sums paid in-

cident to a divorce decree and not specifically attributed

to child support were properly deductible. Although the

case was ultimately decided under §22(k), a provision in

the taxing statute not applicable herein, the decision un-

dertook a general discussion on the intent of the entire

statute. The Court, citing Helvering v. Fitch, 296 U.S. 1

(1935), premised its discussion on the pre-1942 tax law

that amounts paid pursuant to a divorce decree were not

deductible unless the “decree, settlement agreement and

state law operated as a complete discharge of the-liability

1. Sec. 22 of the 1939 Internal Revenue Code was renumbered §71 in

the 1954 Code.

sent lees eesti aeiabadimmcamminall —

of support.” 366 U.S. at 301. The Court explained the

changes in the tax laws created by the promulgation of

§22 by looking at the congressional hearings on the mea-

sure. Therein, it was noted that §22 was designed “‘to

eliminate the uncertain and inconsistent tax consequ-

ences resulting from the many variations in state law”

and thereby the statute would produce uniformity in

treatment regardless of local law. Supra, at 301. The Court

concluded that since §22(k) required that amounts for

child support be specifically designated, irrespective of

state law regarding child support, the general amounts

paid to Lester’s former wife were deductible.

While Lester discussed a general intent to abandon the

use of state law in determining the tax conequences of

payments made incident to a decree of divorce, a caveat

must be added. It must be recognized that the forerunner

to §71 was primarily designed to resolve the inconsisten-

cies arising when the particular state law contained no

provision for the granting of alimony or failed to create a

duty of support following the dissolution of a marriage.

The Court in Lester, in quoting the congressional intent

underlying the statute, omitted reference to the fact that

the provision was designed to produce uniformity in tax

treatment regardless of the variance in state laws ‘‘con-

cerning the existence and continuance of an obligation to

pay alimony.” H.Rep. No. 2333, 77th Cong. 2nd Sess. p.

72. Generally See: 5 Mertens, Law of Federal Income Tax-

ation §31A.02 p. 16 (1975), citing: Tuckie G. Hesse, 7 T.C.

700 (1946), applying Pennsyivania law which had no

statutory provisions concerning alimony; and, Thomas E.

Hogg, 13 T.C. 361 (1949), where Texas law failed to im-

pose the duty of support on a divorced husband.

Thus, to the limited extent of the periodic element as

discussed hereafter and the limited extent that the laws

of some states fail to provide for alimony or the ongoing

duty of support, the petitioner agrees with the Wisconsin ‘

Courts’ statement that state divorce law and federal tax

law in regards to alimony and property division are not

the same or co-extensive for all purposes and the labels

placed on the award by either court system should not

control. However, Wisconsin is a state whose laws pro-

vide for the awarding of alimony based upon a hus-

band’s ongoing duty of support. Miner v. Miner, 10

Wis.2d 438, 103 N.W. 2d 4 (1960)2, and additional author-

ity cited infra. Therefore, the petitioner respectfully sub-

mits that what the state’s highest court failed to perceive

is that for purposes of the taxing statute, the analysis

undertaken by the federal courts in determining whether

the payments were intended as support rather than a di-

vision of property, is the same analysis and considers the

same factors as a state court would under state law in de-

termining whether the divorce decree intended to award

alimony as opposed to payment for property rights.

There is, of course, one other difference between fed-

eral and state alimony which is irrelevant to the full faith

and credit nature of this case. Sec. 71 requires that the

payment be “periodic” in addition to being in discharge

of the obligation to support. A payment can be periodic

either by being subject to a contingency or by being

payable over a period of time extending more than ten

years from the date of the decree. In this case the pay-

ments were periodic, since they extended more than ten

years from the date of the decree.* Thus, the only thing

for both the federal courts and the state courts to deter-

mine herein was the common and straight-forward ele-

2. Where at p. 466 it is stated that alimony “arises out of the hus-

band’s duty to support his wife.”

3. Under Wisconsin law the Wrights’ divorce decree did not become

final for a year. The payments extended 1042 years from the inter-

locutory decree but only 9¥2 years from the final decree. The federal

courts determined herein that the sec. 71 ten-year period commenced

running from the date of the interlocutory decree.

ment under both the federal and state systems, ‘i.e., were

the payments for the support of the wife or in settlement

of her property rights. :

The issue before the Seventh Circuit Court of Appeals

was whether under §71 the payments were includable in

the petitioner’s gross income. The Seventh Circuit

explained in the following terms that this determination

is subject to a two-part test:

“Thus, to be includable under Section 71 in the

gross income of the wife, the principal sum must be

payable in installments over a period in excess of

ten years (Section 71(c)(2)) and must be in discharge

of an obligation imposed under the decree because

of the marital relationship (Section.71(a)). This latter

requirement ‘contemplates a payment made in pur-

suance of the husband’s obligation of support and

not in satisfaction of some property rights of the

former spouse.’ ’’ Van Orman v. Commissioner, 418

F.2d 170 (7th Cir. 1969). 543 F.2d at p. 597 (App. p.

407)

See also: Reg. 1.71-1(b)(4) and Marion R. Hesse, 60 T.C.

685 (1973)

4. At p. 691 it is stated:

“The legislative purpose behind sec. 71 and 215 is uniform

treatment of amounts paid in nature of alimony or in lieu of

alimony, regardless of variances in the laws of the different

states. [citations omitted] The regulations promulgated under

sec, 71 provide such section applies only to payments made be-

cause of the family or marital relationship in recognition of the

general obligation of support. Sec. 1.71-1(b)(4), Income Tax

Regs. Payments made in recognition of such obligation are in-

cludable in the gross income of the wife under sec. 71 regardless

of the absence of alimony in the State law. [citations omitted]

On the other hand, payments made in the nature of a division

of property are capitol in nature, and therefore not subject to the

provisions of Sec. 71 even though periodic and incident to a di-

vorce. [citations omitted]}”’

— a TOT PY

In review of the Tax Court’s conclusion that the pay-

ments were not made in recognition of the petitioner's

property rights, the federal appellate court remarked that

“the Tax Court correctly observed that the question of

whether payments made in recognition of the general ob-

ligation to support or in settlement of a wife’s property

rights depends upon the facts and circumstances of each

case.” 543 F.2d at p. 598 (App. p. 408) The court noted its

conclusion that the decision of the Tax Court should be

upheld and stated in support thereof:

“Among the factors which we believe supportive

of this conclusion is the fact that the $228,000.00

awarded to Jean was obviously not paid in exchange

for tangible property owned by her at the time of

divorce.” Sxpra at 598 (App. p. 408)

and in rejecting the petitioner’s arguments the Seventh

Circuit rationalized:

“As Jean contends, the fact that the payments

were for a fixed sum, were secured and were not

contingent upon death or remarriage is indicative of

a division of property rather than payment of sup-

port. So also is the divorce court’s adoption, and in-

clusion in the divorce decree, of the findings and

conclusions submitted by Jean’s attorney. We find,

however, that these conclusions are more than coun-

terbalanced by those factors indicating that the

payments were intended for the purpose of support

rather than as a division of property.” Supra at 589

(App. p. 409)

Lastly, the federal court of appeals rejected the

petitioner’s reliance on Van Orman v. Comm'’r, supra, dis-

tinguishing that “[nJo such separate provision for the

payment of support was included in the Wright divorce

decree.’’ 543 F.2d at p. 599 (App. p. 410)

Under Wisconsin law decided prior to the case under

review, the following principles were enunciated in dis-

tinguishing an alimony award from a division of prop-

erty:

“Whereas alimony is a provision for the mainte-

nance of the wife, . . ., the division of the estate is

an adjustment of property rights and equities bet-

ween the parties.”” Johnson v Johnson, supra, at p.

310, (citation omitted.)

“Sec. 247.26, Stats., provides that alimony where

granted shall be a payment ‘to the wife ... out of

the property or income of the husband, for her sup-

port and maintenance. .. .”” Sholund v. Sholund, 34

Wis. 2d 122, 130, 148 N.W.2d 726 (1967)

“Alimony is a maintenance awarded by the court

. it is not a portion of his estate to be assigned to

her ... but a provision for her support.” Luedke v.

Luedke, 215 Wis. 303, 305, 254 N.W. 525 (1934)

“Alimony is a substitute for marital support, pro-

viding for the maintenance of the wife.” Farwell v.

Farwell, 33 Wis. 2d 324, 147 N.W.2d 289 (1967)

. the purpose of alimony is postdivorce sup-

port.” Lemm v. Lemm, 72 Wis. 2d 457, 259 N.W.2d

(1976)

Thus, regardless of whether the case is in federal court

pursuant to §71 or in state court under §§247.32 and

247.26, the issue of whether the divorce award was for

the support of the wife, rather than a property division,

is common to each proceeding. The concept of “support’’

is not unique or controlled by differing principles de-

pending on whether one is in the state or federal courts.

Nowhere in §71 of the Code or the accompanying regula-

tions does one find a distinct federal definition of the

legal concept of “support.” Support is a common sense .

determinatidn based upon the facts and circumstances of

the case. This is the analysis undertaken by the Tax

Court and affirmed by the Seventh Circuit and the same

analysis that a Wisconsin state court would undertake if

the question had initially been before it.

The contitutional provision requiring the extension of

full faith and credit in the courts of the United States is

rooted in the common law concepts of res judicata and

collateral estoppel; these doctrines being fully applicable

to tax matters, Comm’r v. Estate of Bosch, 387 U.S. 456,

462-3 (1967), Freuler v. Helvering, 291 U.S. 35, 43 (1934).

Although the concepts are similar in principle and pur-

pose, they differ in the scope of their application.

Whereas res judicata precludes the relitigation of an iden-

tical cause of action; collateral estoppel operates as a bar

on issues previously determined between the parties

when the same issues appear in a subsequent and diffe-

rent cause of action. In Comm’r v. Sunnen, 333 U.S. 591

(1948) this Court declared at pp. 601-02:

“Before a party can invoke the collateral estoppel

doctrine in these circumstances, the legal matter

raised in the second proceeding must involve the

same set of events or documents and the same bun-

dle of legal principles that contributed to the render-

ing of the first judggment.”

As has been amply illustrated herein, the same facts,

documents and “bundle of legal principles’ were before

the federal and state courts. The decisions of the Wiscon-

sin Supreme Court and the state’s Court of Appeals hold-

ing that the divorce award was unambiguously a prop-

erty division, such that the intent of the parties and trial

court were irrevelant and didn’t have to be reviewed, are

an unabashed collateral attack on the federal decisions. In

determining that the intent of the parties was to provide

support, the federal courts necessarily arrived at the con-

clusion that the wording of the judgment was not dis-

positive thus requiring an analysis of«the facts, cir-

cumstances and intent underlying the decree.

In Comm’r v. Estate of Bosch, supra this Court was

asked to decide what was the impact of a state trial

court’s decision on a question determinative of federal

tax liability. Justices Harlan and Fortas, dissenting, called

such an issue “doubly important’, a “‘difficuit and in-

tensely practical problem”, involving “basic questions of

the proper relationship in this context between state and

federal judicial systems” Supra at 471. The petitioner's

case is the mirror-image of Bosch in that it involves what

effect a federal decree in a divorce-tax matter will have

on a subsequent state action pursuant to the states’ pow-

ers over domestic relations. Perhaps the petitioner’s case

is more shocking in that it involves a state court’s refusal

to abide by the decision of a federal appellate court. The

importance of Bosch and therefore, the petitioner’s case,

is captured in the purpose behind full faith ard credit

and the concommitant doctrines of res judicata and collat-

eral estoppel. The doctrines are designed to prevent re-

petitious suits, thus fostering judicial economy and the

certainty of legal relations. Comm’r v. Sunnen, supra at

597. )

Full faith and credit, res judicata and collateral estoppel

are legal doctrines formulated to prevent the inequities

that can spring from judges of differing jurisdictions

hearing the same case, or the same set of facts, as bet-

ween the same parties. These doctrinal concepts must be

enforced in order to prevent the operation of jealous

pride wherein a judge, or a court of one system disre-

gards the decision of another court. Otherwise, the con-

cept of judicial federalism will be trampled under. This

was a concern expressed in Stoll v. Gottlieb, 305 U.S. 165

(1931) wherein a collateral attack on a federal court judg-

fl ats ee

ment was subsequently commenced in state court. The

Stoll court acknowledged that the federal court may have

erred as to its jurisdiction to hear the case but affirmed

the federal court’s substantive holding and stated:

“Courts to determine the rights of parties are an

integral part of our system of government. It is just

as important that there should be a place to end as

that there should be a place to begin litigation. After

a party has his day in court, with opportunity to

present his evidence and his view of the law, a

collateral attack upon the decision as to jurisdiction

there rendered merely retries the issue previously

determined. There is no reason to expect that the

second decision will be more satisfactory than the

first.”’ Supra at 172.

Yet, the respondent herein successfully disclaimed the

arguments he had made in federal court and argued the

exact opposite proposition in the state court proceedings

and obtained victory in both systems on diametrically

opposed findings and conclusions. The fact that a litigant

such as the petitioner can be trapped between two diffe-

rent judicial systems and ambushed by her opponent's

inconsistent arguments is contrary to public policy. In

Baldwin v. Traveling Men’s Ass'n, 283 U.S. 522 the Court

stated at 525-26:

“Public policy dictates that there be an end of liti-

gation; that those who have contested an issue shall

be bound by the result of the contest, and that mat-

ters once tried shall be considered forever settled as

between the parties. We see no reason why this doc-

trine should not apply in every case where one vol-

untarily appears, presents his case and is fully

heard, and why he should not, in the absence of

fraud, be thereafter concluded by the judgment of

the tribunal to which he has submitted his cause.”

CONCLUSION

The petitioner has been on a thirteen year journey

from court to court. In every court except the divorce

court, she has met injustice in the form of issue obfusca-

tion, litigation by economic attrition and the success of ©

the contradictory arguments made by her ex-husband’s

attorneys. Perhaps, most ludicrous’ is that even now as

she places her case before the court of last resort, her liti-

gation of this matter is not complete, as the Wisconsin

taxing authorities now must choose whether they will

adhere to the decision of its highest court or whether

they will follow the federal tax decision.‘ Although she is

weary from the fray she asks for the review of her case,

so that others similarly situated will not have to confront

the Catch-22 that she has been fighting the past thirteen

years.

Respectfully submitted,

BRUCE C. O’NEILL

JOHN C. TRITCHLER

622 North Water Street

Milwaukee, Wisconsin 53202

Counsel for Petitioner

5. Wisconsin’s definition of “gross income” is geared into the

federal determination. Wis. Stats. §71.02(2)

et TE NE eg MS

APPENDIX

Index to Appendix

Decision of Wisconsin Supreme Court

Decision of Wisconsin Court of Appeals

Memorandum Decision, Judge Robert M.

Curley

Decision of Seventh Circuit Court of

Appeals

Tax Court Decision

Findings of Fact and Conclusion of Law,

Judgement of Divorce, Judge

Leander J. Foley

Petitioner's Motion for Modification

Abridgement of Respondent's Brief in

Opposition to Motion for

Modification

Abridgement of Petitioner's Petition

to Appeal to Wisconsin Supreme

Court |

Abridgement of Petitioner's Brief on

Appeal to Wisconsin Supreme

Court

101

201

301

401

501

601

701

801

901

1001

oa | » A

' =

pie ce a 6] OFFICIAL WISCONSIN REPORTS. . 247

246 OFFICIAL WISCONSIN REPORTS. [Nov : ee green eae

| Wright v. Wright, 92 Wis. 2d 246. ; | : 4. Divorce §125*—property . stipulation—tax consequenc/s, to

" i ' ¢elient—duaty of counsel to consider.

‘Counsel when entering into divorce eae has duty to. :

case, mandamus will not be granted where the petition |

has shown a completely naked legatright. "

- °. Appellants’ contention that the trial court. considered ;

= improper facts in making its ruling is not relevant since

the issue in this case is whether the facts alleged in ,

the petition and stipulation are sufficient to support the |

consider tax consequences to client. : a

5. Divorce §123*—property siaiietinin tae mnehasiiieaiity ;

gation of court to consider—failure may be abuse of discre-

tion. —

- Trial court is’ obliged to ‘consider income tax consequences in

preperty stipulation, and failure to do i so may armen abuse

issuance of a writ of mandamus. We conclude they are of discretion.

not and affirm the order of the trial court. . 0 sy"

By the Court.—Order affirmed. .---.- 0: 73.7 -

: < . |

6. Judgments §394*—absence of ambiguity--aubjective intent of |

- partiesirrelevant. .. = So

If there is no ambiguity on face of repolation or judgment, ae

- subjective intent of parties isirrelevaut. —- _ ar Se

7. Divorce §144*—property division oward—not subject to modi-

., fication—income tax thereon. :

_ Although court had jurisdiction 4o modify aitmeny awarded for

insurance, medical and. invest/nent expenses, court could not — =

. William C. ‘Wruonr, hiiedicsk Vv. : Seas n WaicEr, hp rae |

-Respondent. award $102,840 representing amount. of federal income taxes

a -". due from former wife on mney paid to her by former husband .

Supreme Court ver Ae Mey te _pursuant to property award provision of divorce: judgment,

No. 77-688. Argued September 11, 1979— Dating. +.’ since such award was tee, division and thus not — to

. Decided November 6, cin eS a _ modification. ih cal 2 ae

ss -

ne, Te: toe *. ta ae = a Pre | be oe - .

: oh,

_ ee, J., disseita..

es - Salainint s00tt:—-sonatinettan=-tlie sacl cali: : bape pte catt ne eof 8 oF. aes ciate 3

“a ren sid pF written ene " ua onda "REVIEW of a decision of. the. ‘court, of appeals At

. same woe Cp ole 18

firmed. 4 <.

7 For'the Trpelants' ‘there ‘were briefs ‘by’ “Robert E..

Cook: and Cook & Franke, S.C.,; attorneys, and ‘Godfrey -

‘& Kahn, . 5.C.; of counsel, and oral. argument. by’ ee:

E. Coo/; and Gerald J. Kahn, all of Milwaukee. So sice

- . Ay de

a ——— f24-—conatrgion—ambisity—matina consid.

; ered. - i. es'= .. : ‘ a

ee "Jedgmet that is ‘iat on its face is or open to wiliihadies .

*.™ _-but if it is ambiguous, construction is allowed and court will _ -

"3 "2-eonsider whole record, including pleadings, — of fact a

aoe /and conclusion of law, and — canna es tbe. es | '. Fee the respondent there were. briefs by” Aaa o

Fig SF eth. ; | Weill and Fox, Carpenter, O'Neill. ‘& Shannon, S. Gyr

* 3 ge ue eroeeey ait " event income amine ? = a ot Milwaukee, “and wise perenne: by Bruce C. ONeill. Reece |

fi. Wh t that former husband pay to wife... cite

coe ‘. = $50n,000 over 10% years and ‘plaintiff complied, court had no" DAY, J. ‘This case comes to ‘the Court by petition ae

% . guthority to amend 10-year-old divorce judgment to provide | to review a decision of the Court of Appeals reversing agi a

SE eee ty Smee Seibel, of Se Saeeeting és | .

7 + SS ne ere paid

_ © See Callaghan’s Wisconsin Digest, same topic and nection mumber.

. _to her... - ‘ eae . Wis % az a we el ae . gs . . ae | 7 .

"* See Calinghan’s Wisconsin Digest, same topic and section numbex - . |

. 7 r

WASP) ms: “3

MES ooo eee # : 102

248 OFFICIAL WISCONSIN REPORTS. _ [Nov.

Wright v. Wright, 92 Wis. 2d 246.

that portion. of a divorce: judgment amended by the

Circuit Court. The Court of Appeals held that the Cir-

ct * Court. had no authority to amend a ten year old

divorce judgment to provide for payment by the former

husband to the former wife of $102,840 representing -

the amount of federal income taxes due from her on

$228,000 paid to her. by him in monthly installments

over a ten and’ one-half year period in accordance with

the terms of the divorce judgment. The Court of Appeals

rejected the wife’s argument that such additional pay-

-ment was either alimony under sec. 247.32, Stats. 1967

or an enforcement of the original j udgment under sec.

* 247.01, Stats. 1977 on the theory the $228,000 was to

be undiminished by income taxes...) 2° ». yt. =

William’ C. Wright and Jean Wright were married —

~ in 1948, In 1967 he commenced a divorce action and

she filed a counterclaim. On October 4, 1967, the matter

came on for a hearing before Honorable 'L, J. Foley, Jr.,

Circuit Judge. The parties stipulated that his complaint

be withdrawn and that she be granted a divorce on her

..*. counterclaim as a default. Testimony was taken and

- wa

‘the divorce was granted to her. The parties also entered

"into ‘an oral stipulation. in- open court providing for

lente

~_\ s;the division of real and personal property, maintenance ~

"= @-

mK ad

—-

- “ie

- -«4

_ =? 4 - assets-of the parties at ‘the time of the hearing had a:

“~~. ‘walue of $1,065,122 of which $269,018 was. the separa

--*s.-+. property of Jean Wright.

.\” guant to the stipulation. “>:

-of insurance and investments, custody of children, pay-

“ment of attorney fees and. other matters. The combined

;

; ° BOF Sees 5

“. 4

and was’ awarded to her-pur-

Se ee Ae Br l sza,

Tw ae, ees.

+.5,'"\.The stipulation was made part of the record through

-"._ “@ process of asking questions of the parties to determine . ©

whether they understood and agreed to its provisions.’ - -:

‘ Questions were first directed to Jean Wright by her

oo | Dh ke oly 103 ;

counsel. Among the questions were those relating to.

alimony and property division as follows: PES a a, eee

6] .. OFFICIAL WISCONSIN REPORTS, 249

Bs _ Supreme Court -

“Answer: (by Jean Wright) Yes. . . :

“Question: T

$228,000.00 within the next. ten and a half years or

ten years six months on. the following terms: no less

than $2,000.00 per month for the next six months after .

the entry of judgment and the sum of $1,800.00 per month

for the balance of the term of the payment of that

$228,000.00, do you understand that? oe ate

“Answer: (by Jean Wright) Yes, sir.” ~

The stipulation provided. that payment of the $228,000

would be secured by an escrow account funded with .

“Question: That. alimony be denied, you understand”

hat the defendant (sic) will pay you

stock. If Mr. Wright died, the unpaid balance of the

$228,000 would either be paid from his estate or from

the escrow account. .The payment of $228,000 was in

- addition to other property awarded to her. fans

William Wright’s attorney then questioned him and

Es ee eRe Se eh eee

“Question: You feel you fully understand the provi-

Sions thereof?: ~-°:.<, <--.-.° ede ae © a ee a

of any claim of alimony upor you by Mrs. Wright? -.

“Answer: (by Mr. Wright) Yes.”-

.- ¢ po Reet. Of.

°.% . Fa 7@

sot oe Frank

“— -o,. .

No statement was made in the stipulation respecting the.

payment of taxes. ~~. °.*

: at Se RR at Mr de, Seta ty ee ae»

- The: court on :the record granted a divorce to Jean

Wright and dismissed the complaint of William: Wright,

_. Sranted custody of the children in accordance with the -

, stipulation and stated “In all other respects the sipulation

of the parties is acceptable. The court will make it a

_ part of the record, the findings of fact, conclusions of

_ law and judgment, holding that matter open as it relates

to guardian ad litem fee.” Py eae as ge Ae

’ .

Se) A ee eee Ge

250 OFFICIAL WISCONSIN REPORTS. [Noy.

Wright v. Wright, 92 Wis. 2d 246.

. The parties next appeared before the court on De. .-

cember 8, 1967, in a dispute over the wording of the. _

_ findings of fact, conclusions of law and judgment, par- 2

ticularly with respect to the $228,000 payment to Jean -

Wright. Both counsel argued as to which of the parties

would be responsible for the income taxes on the month-

ly payments.! eae see aig oe amet es MN,

! (Counsel for Jean Wright). best mn Sct gate

“Mr. Loeb: All right, the transcript: will speak for itself then. .

I would strenuously object to any modifications of the transcript or 4

the judgment or the findings or the stipulation at this time. '

“The Court: I don’t think what we are involved in, Mr. Loeb, is

‘a modification of anything and I agree with you that the Court

would not be modifying, the question is the wording of the findings

of fact, conclusions of law and judgment. There are substantial

financial problems involved in the wording. .. we

’

; ‘olts ’

- “The Court: The Court must word that in accordance with the

judgment that was made or the findings of fact and conclusions of

_ law that were made at the time of the trial. I would never forbid

or foreclose a person to Properly prepare an argument that they

intended to make in an issue that has involved substantial rights

of parties. .... -.. rig Chie hah Me eed ee Wate eee

-“Mr. Loeb: I want to make this.record clear at this time so there

is'no doubt about this whatsoever. At is considered on behalf of

the defendan: that as far as this periodic payment is concerned

for ten and a half years is not taxable to her as alimony, period.

_* (Counset for William Wright) 9 0h eit ae ‘

-: “Mrs. Shellow: We would like the record to show as far as the |”

plaintiff is concerned that the stipulation which was entered into

; Sime for eh on Of the ten and a half years period as a period of

deductibility of such payments, bs ec twa ge ems et ee

“Mr. Loeb: My reply to that, I do want to make a reply to that

- Because the fact is that at the time the-ten and a half years was

mentioned at the two tables in this Courtroom when each of our

> s* é

105

a “=

- es

6] § \OFFICIAL WISCONSIN REPORTS, 251

- « Supreme Court

-. “Counsel for William Wright Proposed that the para-

graph relating to the $228,000 read that “alimony be and

hereby is denied and in lieu of said alimony and in full

Satisfaction of any claim therefor, and as a complete

_ division of estate and to complete the division of the

Property of ‘the parties, the plaintiff shall pay to the

defendant the sum of $228,000.00 in 104% years of entry

of judgment, said sum to be paid at the rate of $2,000.00 -

. each month for a period of six months and $1,800.00

each month thereafter for a Period of 10 years.” .- |

. The trial judge rejected the husband’s proposed find- .

ings of fact and conclusions of law and instead adopted

_ those submitted by counsel for the wife which provided

et nck ee ; ae

defendant the sum of $228,000.00 within ten and one-half

-. (1014) years of the date of this. judgment; and payable

on the following terms: No less than $2,000.00 per month

| be paid by plaintiff to the defendant for the first six

months; that thereafter the plaintiff shall pay to the

defendant no less than. the sum of $1,800.00 per month

. Clients. was ‘present, I-made it very specifically ‘clear that we

‘would not consider this as alimony or report it as alimony, that it .

' Was in truth and in-fact a division of estate, nestemar ag Mk IOS Cra

7 7 fn yee ts - «- a ‘, f re $48 Pe 4 ™ Pia oa

_ rs > oo O..

“Mrs, Shellow: In lieu of alimony, © 9° 2 * 2s 5¥: a wt SR

ss “Mr. Loeb: Even if it were in lieu or otherwise. el has, eee

“". “Mrs. Shellow: Our only contention, Mr. Loeb, is that thisisa

- division of estate in liew of alimony. dt sleet dees et eeg Bees Cia

Rie Loeb: If you-do so, we warn you now, if you take it off as

ny, you proceed at your own peril. °. |, ° ne ae Nea Ra

“Mrs. Shellow: You fail to pay tax on it that’s between youand .

your client, Mr. Loeb.” -. -* ey SS Gena ee ae a See ee eg

106

ee nel

252 OFFICIAL WISCONSIN REPORTS. [Nov. .

Wright v. Wright, 92 Wis. 2d 246,

“

°F

for the balance of the term of payment of $228,000.00

specified herein.” = -. Se at Bees ee

Findings of’ fact and conclusions of law were signed .

by the court on January 29, 1968. The judgment was .

signed and filed on February 2,1968. _. eee

Each party took the position that the other should _

bear the federal income tax consequences of-the monthly

payments to Jean Wright.. William Wright deducted

the payments on his income tax return and Jean Wright

failed to include the payments made to her as income.

She took the position that the payments were a division

of property rather than support under federal income

- 2

tax law. The Internal Revenue Service assessed de-

ficiencies against both parties, asi ;

_ The matter was litigated-in the Tax Court? which

ruled that the payments made to her grew out of his

marital obligation of support and treated the payments

as income to her for federal .income tax. purposes. The

matter was then appealed to the Seventh Circuit Court

of. Appeals? which determined’ that the payments were

Periodic payments under §71 of the Internal Revenue

Code* and includable as income to Jean Wright in the

year received and deductible by William Wright under

_ §215 of the Internal Revenue Code.® The ten and one- -

. half year payment period was a factor in‘the decision of .

the federal courts.® : cf Na * germenton Sae'e wl eo: cee de tee comune |

a , :

CLI F! Tee ELH sy ae aye -* ot 3s wae:

_ = Wright v. Commissioner, 62 T.C. 377 (1974). ae

. 3 Wright v. Commissioner Of Internal Revenue, 543 F.2d 593

OU aia A a ee VS ea oe ees

..» £26 US.C.A. (LR.C. 1954) §71. 8 Ot es ay

' ed these to be installment payments under Section 71(c)(1) rath-

' er than periodic payments under Section 71(a), they could easily

‘have provided that the principal sum of $228,000.00 must be paid

within ten years.” Wright v. Commissioner Of Internal Revenue.

_-:848 F.2d 593, 598 (7th Cir.1976), :

a .

107

6]. OFFICIAL WISCONSIN REPORTS. - 253

Supreme Court

«.. The resulting increase in taxes to Jean. Wright was

computed to be $102,840, 2p ‘,.

, Jean Wright returned to the state court to try and

recoup payment from her former husband for the tax

assessment. The family court commissioner who re-

viewed her petition to modify the divorce judgment held

that he lacked power to do so. by virtue of sec. 247.32,

Stats.,” and dismissed her petition. This occurred during

1977, approximately ten years after the divorce was

—

Jean Wright then sought a de novo review of the family

court commissioner’s determination. She requested the

judgment be modified to provide for alimony in an

amount sufficient to pay the additional taxes or that her .

.former husband. be ordered to pay on a ‘theory that the

judgment meant to give her $228,000. free of any tax

obligation and that the court was merely enforcing that

_ judgment provision.® agai ity cot et,

-. The circuit court relying primarily on its interpretation

of Rotter v. Rotter, 80 Wis.2d 56, 257 N.W.2d. 86h

(1977), amended the judgment by adding paragraph

thirty-four toprovide: «sg. sf re

:. 2>“That, in enforcement ofthis judgment and not as

‘. -alimony, support or fnaintenance, (William Wright) shall

- pay to (Jean Wright) forthwith the sum of $102,840.00,

: 7 (Seefootnote10).°- = Saar e e bs

', +8“247.01. Jurisdiction. The circuit. courts have jurisdiction

.. ‘which sum, in the intént of this court, shall not be ;

ar ss

. “all actions affecting marriage and‘of all actions under s. 52.10. (or

_. Concurrent. jurisdiction where other courts are vested with: like

-- jurisdiction), and have authority to do all acts and things neces-.

‘sary and proper in guch actions and to éarry their orders and.

.. Judgments into execution as prescribed in this chapter. All such

= actions shall be ‘commenced and ‘conducted and the orders and

‘Judgments therein enforced according to these statutes in respect

to actions in circuit court, as far as applicable, except .as provided

in this chapter and in s. 52.10.” ae mtr oat ey! Ae datas

le Out

sj ee. .io_ s - -——- «©

108

254°. OFFICIAL WISCONSIN REPORTS. [Nov..

Wright v. birt 92 Wis. 2d 246.

includable in the income of: (Jean Wright) for income.

tax purposes nor deductible from ithe i income of sida wae

Wright) for income tax purposes.” .

The amended judgment was signed by the clerk on %

’ March 8, 1978. -

_ The Wisconsin Court of ‘ieeitale held that the trial

' court was without authority to enter the order and judg- ©

ment appealed from, either under the provisions of

sec. 247.01, Stats., or under sec. 247.32, and reversed. !

. The matter is now before us on review. :

There are two principle questions on review:

1. Did the circuit court have authority under sec. |

247.01, Stats. 1977, to order payment of an additional

$102,840 to Jean Wright under the theory it was merely

enforcing the original divorce judgment?

We conclude that it did not have such authority.

2. Did the circuit court have authority under sec.

247. 32, Stats. 1967, to modify the original divorce judg-

‘ment to provide for additional alimony?

= ota uate the answer is no. hed

i. DID THE CIRCUIT COURT. HAVE AUTHORITY ,

UNDER SEC. 247.01 STATS. 1977,TO ORDER .-

‘PAYMENT OF AN ADDIZIONAL, $102,840 TO

-_ JEAN WRIGHT UNDER THE THEORY IT

“ WAS MERELY ENFORCING THE ORIGINAL

3 - ee - DIVORCE JUDGMENT?.... PSacememiicigin as |

. . e .

ene me ee ee ees Ste it To eS a —_—_"

- 1-3). open, og AE a ae Dee. 8h oes hi cscs Soe weg

_-/ ++. In the case 2 of Rotter v. Rotter, supra, relied‘o on by the "a

is trial: court, the husband had failed to comply with ex- _

. “plicit language’ of the ‘divorce judgment in which he

was ordered to cooperate in the conversion ‘of health

-insurance .coverage for his ex-wife... He assured her

‘that he would do so..As a result of her reliance on

the court order ard his promise she incurred sub-

stantial medical bills. The husband had allowed the

109

6] ‘OFFICIAL WISCONSIN REPORTS. 255

Onn

Supreme Court =

policy of insurance to lapse. The circuit court ordered

the husband to pay the medical bills and this Court

upheld its authority under sec. 247.01, Stats. This Court

- pointed out that that statute vests in the trial courts

the authority to do all things necessary and proper to

carry their orders and judgments into execution. This

Court held that the order was necessary to give effect

to the divorce judgment and to protect the wife from the’

loss occasioned by the inaction of the husband.’ The

Court pointed out that without such authority the pro-

visions of the judgment would have been of no effect.

’ But it is apparent that the present case presents an en-

tirely different set of circumstances than those con-

fronting this Court in Rotter. William Wright has

complied with the original judgment. He has made

payments over ten and one-half years totalling $228, 000.

- The judgment has been complied with. A judgment is

to be construed as of the time of its entry. Callaghan’s,

Wisconsin Pleading And Practice, sec. 37.49 (1978).

' Judgments are to be construed.in the same manner

as other written instruments. Vaccaro v. Vaccaro, 67

_ Wis.2d 477, 482, 227°N.W.2d 62 (1975). A judgment

that is clear on .its face is not open to construction

but if it is ambiguous, construction is allowed and the

court will consider the whole record, including pleadings, .

findings of fact and conclusion of law, and the judgment:

itself. See, Lally v. Lally, 152 Wis. 56, 138 N.W. 651

(1913) ; Estate of Boyd,.18 Wis.2d 379, 381, 118 N.W.2d

. 9705 (1963). But the judgment entered in 1967 is not

‘ambiguous as to its terms. The judgment provided for

the payment. of $228,000 over ten and one-half years. —

The trial ‘court adopted the wife’s findings of facts and

‘. conclusions of law and the judgment was based thereon.”

Counsel for the wife did contend at the December

8, 1967 hearing that the findings submitted in her

behalf and which the trial court adopted would have the

110

256 OFFICIAL WISCONSIN REPORTS:. ‘ [Nov.)

Wright v. Wright, 92 Wis. 2d 246.

legal effect of excluding the payments from her income

and barring a deduction for William Wright. The United.

States Court of Appeals for the Seventh Circuit, as —

cited above, disagreed.: The trial court at the time of

the findings and conclusions made no reference to in-

~ come tax liability. Counsel for the wife argues that the

trial court must be presumed to have meant that the ..

wife should not have to pay because in Wetzel v. Wetzel, . ~

35 Wis.2d 108, (110, 150 N. W.2d 482 Hei this eourk

said:

“We think in making a division of property or in

granting alimony, or both, that consideration should be

given to the tax consequences. Disregarding the effect — :

of taxes may result in an unrealistic and unjust result.

We do not. hold that the trial court oadk abi as a

solution a method which produces the least amount of

tax for the husband or for the wife, but.in arriving

at a determination of the business. side of the divorce

the tax impact is a nae which ——_ the

whole process. fe eens: sie S4

RY _ However, the duty placed: ‘on ia judge in’ Wetzel

_ involved a contested divorce in which the division. of

property, both as to the amount and the form of division,

_. was made by the trial court. In the case before us, the -

3 -_..‘ division, both as to amount and form, was made by the

were

‘

’ parties by stipulation in open court. The. findings of .

. .. fact and conclusions of law were in the form submitted .

“by Jean Wright’s counsel and the court at her Tequest

-’.. adopted those findings and conclusions.” rgke 88, #52)

M4, SY en ee sh it shee et ”

Aer Counsel -when ‘entering into’ a divorea ‘stipulation =

ae es the duty ‘to consider tax consequences to his client.

ei PRT The trial court is obliged to consider income tax conse-. . -

‘’ quences in a property stipulation. Wetzel, supra. Failure.

of a trial court to consider. tax consequences may con-

— an abuse of ee But time = — from

111

e cs

~. S902

6]. OFFICIAL WISCONSIN REPORTS. 257

Supreme Court -

- g judgment for abuse of discretion has long since expired |

in this.case.. The record here shows the trial court was

aware that taxes were a factor to be considered.

Secs. 71(a) (1) and 215 of the Internal Revenue Code

were adopted in 1942 in order to clarify the treatment

of property divisions and support payments as a conse-

quence of divorce. M. Chirelstein, Federal Income Taza-

tion, $9.03 (1977 ). The judgment was silent as to any

intended income tax consequences.® The definition of

alimony and property division under state law is not

the same or co-extensive with the provisions for periodic

and installment payments under the Internal Revenue

Code. In Seiler v. Seiler, 48 -Wis.2d 400, 180 N.W.2d

627 (1970), the, wife sought relief from a property

division which would constitute periodic payments under

sec. 71 Internal Revenue Code. Even though it was

‘a property division under Wisconsin law, and so referred

to in this Court’s.opinion, it. was also a periodic payment

under the Internal Revenue Code, inclydable i in the wife’s

. , income for federal income ine: Eurpones. ¢ Sodan

[6J 00° tue ° st

“If there is no pee on the face. of the stipulation

or *iudgment, the subjective intent of the parties is ir-

~ relevant. “Because a judgment is to be construed like

..; resort to the subjective in-. .

any other instrument, .

tent of the parties is irrelevant.” Vaccaro v. Vaccaro,

supra, at 483; Miller. v. vases 67 Wis. 2d. oo a

_ 227.N.W.2d 626 (1975). nee

-.” «Because the husband in the case iy shige us “had rully :

complied with the en. sec. Set 01, Sart did not

apply. © 3. Ce te

9 “Generally” oe ——— Scalbnaind for more than rT

- years from the date of the divorce decree or separation agreement

are considered periodic payments, even though a lump sum total is -

specified.” E. Griswold & M. _— roving Income pearing P.

833 (1976). ToS hae apna ot

112

a NS

e . . >.

258 OFFICIAL WISCONSIN REPORTS. [Nov.

Wright v. Wright, 92 Wis. 2d 246. "sf

II. DID THE CIRCUIT COURT HAVE AUTHORITY

_ | UNDER SEC. 247.82, STATS. 1967, TO MODI-

“FY THE ORIGINAL JUDGMENT TO PRO- -

“VIDE FOR ADDITIONAL ALIMONY? —

‘In : memorandum decision entered on December 20,

1977, the circuit court concluded that the original judg- +

ment did provide for certain items of alimony and thus

were modifiable. These items were: a provision requir-

ing William to pay a portion of Jean Wright’s medical

expenses; a provision requiring William Wright to main-

tain a life insurance policy on his life with Jean Wright

as the beneficiary, and a provision that William Wright

pay certain investment expenses incurred by Jean Wright.

All were to terminate on the death or remarriage of

Jean Wright. She argues these were payments in the

nature of alimony thereby leaving the divorce judgment

open to revision under the provisions of sec, 247.32.'°

- 1© Sec, 247.32, Stats., was amended in 1972 to provide that a-

judgment which fails to allow for alimony or only grants alimony —~

for a limited time may not thereafter be modified as to the ali-

mony award, but it also provided that it would only be effective

for judgments rendered or granted after the effective date of the

’ Act, April 12, 1972. $12, Chapter 220, Laws of 1971, effectjve

April 12, 1972. Since the original judgment of divorce in this case

was granted in 1968 this limitation does not Arent Pree. v.

-- Moore, 89 Wis.2d 665, 278 N.W.2d 881 (1979). Bat ies

Sec, 247.32, Stats. 1967, provides: . . -

| “947.32. Revision of judgment. After s judgment Ane ae

“2 2 oe alimony or other allowance for the wife and children, or either

> of them, or for the appointment of trustees as aforesaid the court’ ——

may, from time to time, on the petition of either of the parties

* and upon notice:to the family court commissioner, revise and alter.

such judgment respecting the amount of-such alimony or allow-

ance and the payment thereof, and also respecting the appropria-

tion and payment of the principal and income of the property so

held in trust, and may make any judgment respecting any of the |

said matters which such court might have made in the original ~

action. But when a final division of the property shall have been

. made under s. 247,26 no other an shall be thereafter made —

_ for the wife.”

] ¥ rn ee

113

6] OFFICIAL WISCONSIN REPORTS. 259

_ Supreme Court

Thus,. she argues that the circuit court’s award of

- $102,840 could be made as alimony. It was also argued

on her behalf that the definition of alimony is or should,

be. the same as.a periodic payment under 87. 1 of me

Internal Revenue Code.

However, the order amending the par SN and the

amended judgment that counsel for Jean Wright asks

this Court to uphold specifically says that the ordered

“payment of $102,840 is not alimony.

The Court of Appeals assumed without deciding, the

maintenance of a life insurance policy and the payment

of medical and investment expenses by William Wright,

which were to terminate upon the death or remarriage of

Jean Wright, were “in the nature of alimony.” The court

further found that even though these items might have

been alimony, thus modifiable, the payment of $228,000

was a fixed amount for the division of estate and by defi-

nition non-modifiable. Implicit in this finding is that the

modification of alimony, if allowed, would be limited’ to

the scope of the original award, that i is, medical, life in-

_ surance andinvestmentexpenses. . _,

. Even if it is to be assumed that the payments ned

to be made during Jean Wright’s lifetime or until remar-

_ . Yiage are “in the nature of alimony” it is clear that gen- |

_ eral alimony for the support of the wife was not given. ae

. These payments were for specific purposes and under

the terms of the judgment, the circuit court did not. re-

i: ;tain jurisdiction to make an award ‘to compensate for

~ Toss ‘incurred by’ income’ ‘taxes. ‘Jurisdiction that may

have been: retained was limited to those specific items of

“Hifi insurance, medical expenses and investment expenses.

. Jean Wright’s counsel calls.our attention to the case of

- Burg v. Burg, 1 Wis.2d 419, 85 N.W.2d 356 (1957), where

a nominal amount of alimony was held to be sufficient _

for a Jater award of general alimony. However, the nom-.

inal award:of alimony in Burg was made for the express

purpose of retaining jurisdiction over alimony so that if

: e

114

re et te eee ee

- Bewts.’«

260 OFFICIAL WISCONSIN REPORTS. [Nov. |

Wright v. Wright, 92 Wis. 2d 246.

the need arose an award could be made in the future. It

was a device designed to prevent the wife from phen en- .

tirely foreclosed from receiving alimony.

In Kronforst v. Kronforst, 21 Wis.2d 54, 65-66, 123

N.W.2da 528 (1968), this Courtsaid: = -- - :

“There is no question but that, if the juidemmeit ti is sie’

ified so as to retain jurisdiction over alimony, the county

court will have jurisdiction to award alimony in the fu-

ture to plaintiff upon an adequate showing of change of

circumstances even though no alimony is presently award-

ed. However, it should be pointed out that a trial

court should not reserve such jurisdiction to award ali-

mony without stating its reasons for so doing. . . Such

reasons may be stated in the memorandum decision, in

the findings of fact, or the judgment. . . The trial court

can effectively retain jurisdictions to award alimony in

the future without in the meantime awarding alimony in

@ nominal amount, such as one dollar per month, as was

done in Hansen v. Hansen, 259 Wis. 185, 49 N.W.2d 434

(357 Burg v. wath 1 Wis. 2d 419, 85 N. W.2d 356

~The original: us in the case at ter ae in

1968 did not reserve jurisdiction to make a general ali-

mony award as is required by Kronforst, supra. Para-

. graph twenty-second of the judgment states that alimony

_ is denied and certainly negatives an intent on the part of

_ in the future.” ase kee et ST!

tr eves = ss c wet Ratna “¢ as ~". ates 2 =

t* .

“(q~ ‘ os 8+ eer : aha ee ~ ow BE

-. Thus, to the extent that the award of i insurance, "pind £

“the court to reserve the power to ‘Taake a ‘general award

- cal and investment expenses constituted alimony, any

pod modification of the original judgment should be con-

strained to those’ specific items. - If it were held other-

wise, a very limited provision for the payment of specific”

expenses of one spouse could later become the basis of a

much larger general alimony award. This would have the

. effect of limiting the flexibility! of the parties and the

court in devising the settlement and judgment provisions. | }

> - .

6] OFFICIAL WISCONSIN REPORTS. 261..—

‘s. Supreme Court

It would be impossible to obtain the agreementofaspouse -

to pick up expenses such as these if it was known .that

gross modification could occur at’a later date. Thus, the

original judgment in this case demonstrates that the trial- .

court considered the relative positions of the parties and

decided against a reservation of jurisdiction for a general |

alimony award. The error in that judgment, if there was. .

one, is not reviewable here since the time for appeal of: .

that judgment has long since expired. Anderson v. An- ie es

derson, 8 Wis.2d 133, 98 N.W.2d°434 (1959) ;.see also,

Steinkopf v. Steinkopf, 165 Wis, 224, 161 -N.W. 757

(1917). To the extent that the circuit court had jurisdic-

tion to modify the alimony awarded for the insurance,

medical and investment expenses, it was limited to those

items and could not award He, 840 as Been cre sae

on this ground. ~ matt Oot as

Counsel for Jean ‘Wright argues that if the installment

payments are taxable under. the federal Jaw then they

are also alimony under Wisconsin law.. This argument ‘

. would equate periodic payments under the. Internal Reve-. ~

~ nue Code §71 with alimony under. state law. Although Moe

the ‘definitions and applications ‘may overlap in many .

ite Cases, | ‘they clearly: are not co-extensive for all purposes.

. and in.all events. The Internal Revenue Code addresses. - .

_ itself to: periodic and installment: -payments.'". It is not:..:...---

te, OF “SEC. 711. ALIMONY AND SEPARATE MAINTENANCE .. .:

:. PAYMENTS... [Sec. 71(a)] (a) GENERAL RULE—(1) DE-. *

-- CREE ‘OF- DIVORCE OR SEPARATE ‘MAINTENANCE—It a. *.

.. wife is divorced or legally separated from her husband under a de-. > *

-" eree of divorce or of separate maintenance, the wife’s gross income -

- Includes periodic payments (whether or not made at regular inter- -

* wals) received after such decree in discharge of (or-attributable . -

‘to property transferred, in trust or otherwise, in. discharge of) a...’

legal obligation whick because of marital or family relationship,

. is imposed on or incurred by the husband under the deéree or un-:

der a written instrument — to —_ divorce ¢ or penton. .

116

Leh

962° | OFFICIAL WISCONSIN REPORTS.

[Nov.

~ Wright v. Wright, 92 Wis. 2d 246.

the labels placed on the payments which are determina-

tive under the federal tax law. It is the structure and

_effect of the payments which control ag characterization.

As lias been stated: «20 3 eng uektT eae

~ “fa] number of cases déal with the ‘tisiinetiog aeaiein | a

alimony and‘ property settlements. In approaching the

* - issue, the [federal] ‘courts have not always adopted the *

~. to the divorce.” L. Thomas Jr., Tax Consequences Of.

characterization of the payments given by the parties or

the state court, but have considered inter alia, the nature

of the negotiations between the parties, whether: such

payments are in lump sum, whether they are in addition

to other support or maintenance payments specified in a.

decree or agreement and whether the wife has released

any interest in property or other rights held by her prior

“SEC. 71(c) PRINCIPAL SUM PAID IN INSTALLMENTS

—(1) GENERAL RULE—For purposes of subsection (a), in-

stallment payments, discharging a part of an obligation’ the prin-

cipal sumi of which is, either in terms of money or property, spec-

' ified in the decree, instrument, or agreement shall Tak be treated

as periodic payments. .

“(2) WHERE PERIOD FOR PAYMENT Is MORE THAN 10°

YEARS—lIf£, by the terms of the decree, instrument, or agreement,

* the principal sum referred to in paragraph (1) is to be paid or may © ;

be paid over.a period ending more than 10 years from the date of

- graph: (1) the installment payments: shall be treated as periodic —

nas payments for-purposes of. subsection (a), but (in the case of any- —

4 _ one taxable year of the wife). only-to the extent of 10 percent of -

‘the principal sum. For purposes of the preceding sentence, the. ~-

. part .of any principal sum which: is. allocable to a period after the: ©.

~-taxable year of the wife in which it is received shall be treated as _ -

an installment, payment for ‘the taxable year in which. it is re-_

'_—-

ceived.”. ...-... +.

“or o25tt Yes “adele Anes Wi enies

“SEC. 71(d): RULE FOR HUSBAND IN ‘CASE OF TRANS ‘

° -2. FERRED’ PROPERTY—The husband’s gross income does‘not in- -

".* ., Clude amounts received which, under subsection (a), are (1) in-

@) attributable =

ee ae a ea re eee £ Aes Ag ne

cludible in the gross income of the eee

“117

aT SSS DIE A i bE Se

- .

. .

a nr re ne ee a

6] OFFICIAL WISCONSIN REPORTS. 263

Supreme Court

Marriage, Separation And Divorce. ALI-ABA. Commit-

tee On Continuing Legal Education, pp. 118-119 (1976).

Under the terms of the divorce judgment in this case,

William Wright was required to pay his ex-wife $228,000

in installments. The payments were not to end on her

death or remarriage and the full amount was to be paid

even if he had died before all payments had been made.

The judgment called it a division of estate and division

of property. Under Wisconsin law this was a property di-

vision and as such it is not subject to modification under

our statutes. The Circuit Court lacked authority under

sec. 247.32, Stats., to modify the original judgment.

By the Court. —The decision by the Court of Appeals

is affirmed.

. COFFEY, J., took no part.

WILLIAM G. CALLOW, J . (dissenting). The major-

ity states “the judgment was silent as to any intended

income tax consequences.” Simultaneously, the majority

recognizes that trial courts are obliged to consider income

tax consequences in a property stipulation, Wetzel v. Wet-

zel, 35 Wis.2d 103, 110, 150 N.W.2d 482 (1967), and that

the trial court in this case was aware that income tax con-

7 _siderations played a significant role; yet the majority

concludes that the judgment unambiguously allocates to

Jean Wright the income tax liability for the payments

made by William to Jean. I cannot agree, and would find

: the judgment ‘ambiguous as to the tax consequences of

the payments to Jean Wright.” Accordingly, I would re-

mand this case to the circuit court for a determination

of the original intent of the judgment. ire

Judgments are to.be construed in the same manner as

other written instruments, Vaccaro v. Vaccaro, 67 Wis.2d

477, 482, 227 N.W.2d 62 (1975), and are to be construed

as of the time of entry. Childs v. Dakike, 160 Wis. 184, _

118

264 OFFICIAL WISCONSIN REPORTS. [Nov.

Wright v. Wright, 92 Wis. 2d 246, Dissent.

192, 151 N.W. 878 (1915). If reasonably or fairly suscep-

tible to different constructions,a written instrument is

ambiguous.. Lemke v. Larsen Co., 35 a 427, 432,

151 N.W.2d 17 (1967).

- Section 71(a)(1) of the. Internal a ite Code of

1954 provides that periodic payments are income to the

ex-wife if they are received after a decree of divorce and -

‘in discharge of. the husband’s “legal. obligation which,

because of the marital or family relationship, is imposed

__ on or incurred by the husband under the decree or under |

- a written instrument incident to such divorce or separa- -

tion.” This section “contemplates a payment made in

pursuance of the husband’s obligation of support and not —

in satisfaction of some property rights of the former ©

spouse,” Van Orman v. C.iR., 418 F.2d 170, q71 (re }

Cir. 1969).

- Under Section 7 1 (c) of the teeaal Si sciiasig Code of |

1954, installment payments discharging an obligation to

pay a principal sum specified in the decree are not to be

- treated as “periodic payments” within the meaning of

Section 71(a) unless the decree provides that the prin-

cipal sum “is to be paid or may: be paid over a period

eriding more than 10 years from the date of such decree,”

in which case the amount received constitutes a “periodic

payment” with the ‘meaning of Section 7 (c) (2) “to the

extent of 10 percent of the principal sum.” . .

_ ‘Therefore, to be. includable- under Section . 7 1 in the

- °° gross.income of the wife, the principal sum must be pay-

: .~* able in installments over a period in excess of ten years

_ and must be in discharge of an obligation of maintenance

_: “+ {imposed under the decree of divorce because of the mari-

-. tal relationship. If includable in the gross income of the ~

:- wife, the payments may be deducted by the arene. “wo :

Section 215. ..-- Oe, ee Sa Maes TS “xf, de Ph ser mme 1555

Admittedly, the judgment. is silent with camad ‘is its

tax consequences. But silence cannot be equated with

—

119

—

6] OFFICIAL WISCONSIN REPORTS. 265

Supreme Court

unambiguity, especially where we have stated “it seems

more proper to presume the trial court followed the hold-

ing of Wetzel v. Wetzel than that it did not.” Seiler v.

- Seiler, 48 Wis.2d 400, 406, 180 N.W.2d 627 (1970).

Fears that this analysis allows ambiguity to be found

whenever an. instrument is silent on a particular point

are exaggerated, for we can find support in the record

that the point at issue here, the income tax consequences,

was considered in the statement of the stipulation in open

court.

ferent constructions. Although installment payments

executing the “property settlement” were to be made over

a period greater than ten years, the trial court took the

specific step of denying alimony. The decree of divorce,

- at least on its face, imposes no obligation of maintenance.

Here Jean Wright had a sufficient personal estate to ac-

commodate her support, and the court recognized this in

approving that portion of the stipulation which provided

there would be no alimony. Because the parties had been

married nineteen years, Jean was entitled to the portion

of their accumulated estate in the sum of $228,000. I do

not think it unreasonable to view the judgment as intend-,

ing that Jean Wright receive $228,000 as a division of

property, free of income tax liability. Nor is it entirely

unreasonable to view the judgment as contemplating a di-

vision of property on the basis of the parties’ respective _

property ownership at the time of divorce, plus payments

for Jean’s maintenance to be made over a period of ten” : |

and one-half years. As noted by the United States Court

-of Appeals, this is “a close and difficult case.” eh sig See ane

Com’r of Int. Rev., 543 F.2d 593, 598 (1976).

Because I would find ambiguity in the original judg-—

‘ment, I would reverse the decision of the court of appeals ,

‘and remand the case to the circuit court. While normally -

the circuit court’s later judgment favoring Jean Wright

should not be disturbed if the “great weight and clear

12¢

In my view, the judgment is fairly susceptible to dif--

se ten pee

‘

eo Oa eee eee

266 OFFICIAL WISCONSIN REPORTS. [Nov. -

In Matter of Estate of Jacobs, 92 Wis. 2d 266.

preponderance of the evidence is not against the circuit :

court conclusion,” Rotter v. Rotter, 80 Wis.2d 56, 61, 257

N.W.2d 861 (1977), the circuit court’s hearing did not —

address ambiguity in the original judgment and instead

considered Jean Wright’s current. financial position, tax *

liability, and health. That is inconsistent with Childs v.

Dahlke, supra. Accordingly, I would remand this case . 3

with directions that the circuit court hear evidence as -

the — intent of the judgment. wagers aay

IN MatTeR oF Estate oF JAcons, Deceased: T1.G, Per-

' sonal Representative of the Estate, cca Vv.

aeacinnccuuael OF REVENUE, Respondent.

‘Supreme Court -

+ 4 age ‘ —"-

No. 77-168. Argued October 8,1979-— ee

. Decided November 6, 2998,

ti L “Taxation 8548*—inheritance tax—basis, and seein. of

tax.

ie " tehaitteres ‘to ‘7 tax on n right to receive | sneaiidies and. suount

-" of tax is determined according to relationship of ice ee

‘and value of each transfer OF gift from decedent. ~. :’

2. “Taxation. '8558°—inheritance tax—property subject to ‘tax— |

“need not be part of decedent’s estate.

" Property need not become part of egal 's estate in order: for :

- it to be subject to inheritance tax.. St a ee rb

2k ‘Wills 8169.5*—Joint will—disposal of aseets by survivor oe

‘ terms of contract control. .- 2 oboe

teeta of contract control right of edie ra spore of assets ;

_ acquired under joint contractual will... _ ate

‘¢. Wills §169.5*—joint will—disposal of assets i ies as

tent of parties at time of entering into will. _.

Intent of parties at time will is entered into governs ight af

survivor to dispose of assets acquired under will...

* See Caliaghan’s Wisconsin Digest, same topic and section Gehan ma

‘

121

No. 77-686

STATE OF WISCONSIN IN COURT OF APPEALS

DISTRICT I

WILLIAM C. WRIGHT,

Plaintiff-Appellant,

Vv.

JEAN WRIGHT, Defendant-Respondent.

APPEAL from an order and judgment of

the circuit court for Milwaukee county:

ROBERT M. CURLEY, Circuit Judge. Reversed

and remanded with directions.

Before Decker, C.J., Cannon, P.J., and R.W.

Hansen, Reserve Judge. DECKER, C.J.

William and Jean Wright were divorced

in October, 1967. The divorce judgment pro-

vided in pertinent parts:

Twenty-first. That alimony be and

hereby is denied.

° 201

Twenty-fourth. That as and for a complete

division of estate and to complete the

division of property of the parties, the

plaintiff be and he hereby shall pay to

defendant the sum of $228,000.00 within ten

and one-half (10-1/2) years of the date of

this judgment; and payable on the following

terms: No less than $2,000.00 per month be

paid by plaintiff to the defendant for the

first six months; that thereafter the plain-

tiff shall pay to the defendant no less than

the sum of ST” 800.00 per month for the bal-

ance of the term of payment of $228,000.00

specified herein.

The payment provisions had been orally

stipulated by the parties. Difficulty arose,

however, as to the language to be utilized

in the judgment because of the income tax

consequences of the judgment provisions.

Both parties submitted proposed findings

of fact and conclusions of law and the trial

court (Judge L. J. Foley, Ir.) adopted those

submitted by the wife as set out above.

The husband's proposed findings stated

that the property division payments were to

be made "in lieu of alimony."" In proposing

202

‘such language the husband meant to bring

the payments within the provisions of Section

71, T.R.C.. C1994). Under the provisions of

that code section, alimony payments or pay-

ments "in lieu of alimony" are periodic

payments which constitute taxable income

for the person receiving them and a deduc-

tion for the person making such payments.

As noted above, the trial court, without

explanation, rejected the "in lieu of ali-

mony" language and specifically provided the

payments were to complete the division of

property.

Jean Wright did not report the payments

made as taxable income in 1968, 1969 and

1970. William Wright claimed the payments

as deductions against his taxable income in

those years. The Commissioner of Internal

1see Marion R. Hesse (1973), 60 T.C. 685.

203

Revenue made deficiency determinations as

to both parties and sought a determination

whether the payments were actually "periodic

payments ... in discharge of ... a legal |

obligation which, because of the marital or

family relationship is imposed on or in-

curred by the husband under the decree ...

Section 71, I.R.C. (1954). In William C.

Wright (1974), 62 T.C. 377, aff'd, Wright

v. Com‘'r. of Int. Rev., 543 F.2d 593 (7th

Cir. 1976), the court held that it was not

bound by the label placed on the payments

byi the state decree and that the payments

were periodic payments. As a result, Jean

Wright was found to be delinquent in her

income tax payments in.the amount of

$102,840.

Jean Wright subsequently filed a peti-

tion to modify the divorce judgment by the

allowance of additional alimony. The family

: | 204

court commissioner determined that he was

without jurisdiction to make such an order

by virtue of sec. 247.32, Stats. (1975)

and dismissed the petition. Petitioner

then applied to the circuit court for a de

noyo review of the court commissioner's

determination, requesting that the circuit

court modify the judgment to provide for

additional alimony or, in the alternative,

enforce the original judgment "to wit:

the receipt of $288 ,000. without any dim-

inution by income taxes."

On review, Judge Curley determined that

the circuit court had jurisdiction to en-

tertain the motion for modification of judg-

ment and ordered William Wright to pay Jean

Wright $102,840 within sixty days of entry

2tnfra, n. 5. Note: All subsequent statu-

atory references are to the provisions of

Wis. Stats. (1975).

. 205

of the order. Although it is clear that the

court found that certain provisions of the

original decree were for alimony and the

judgment could therefore be modified under

sec. 247.32, Stats., the court stated it re-

lied upon the power "inherent in this court

under the authority recently propounded in

Rotter v. Rotter, 80 Wis.2d 56."

We hold that the court was without

| jurisdiction to enter the order appealed

from either under the provisions of sec.

246.01; Stats., or sec. 247.32, Stats., and

reverse.

3tn Rotter v. Rotter, 80 Wis. 2d 56, 62, 257

N.W.2d 861. (1977), the Wisconsin Supreme Court

distinguished between an order modifying a

judgment of divorce under sec. 247.32, Stats.

(1975), and an "order ... properly entered

for the enforcement of the divorce judgment"

under sec. 247.01, Stats. (1975). Sec. 247.01,

Stats., provides that the trial courts have

authority to "do all ... things necessary and

proper ... to carry their orders and judg-

ments into execution ..."

206

. ee ee ee eT eT

as. falls tac vn ng Pay ate eee —

Power to Enforce Judgment

The trial court concluded that the

order it entered was justified by virtue

of the provisions of sec. 247.01, Stats.

The statute, however, presupposses a con-

dition precedent to the exercise of the

inherent power set out therein: that

the provision of the order or judgment of

the court has not been executed.

The trial court was not faced with that

circumstance. The provision of the original

divorce judgment for payment of $228,000 ap

fulfilled by the appellant and there was

no need for a subsequent order or amended

judgment to execute the original judgment.

_ The defendant maintains that the cir-

cumstances surrounding the ikke as the

original judgment demonstrate the clear in-

tent of the trial court to provide her with

the net amount of $228,000 from the husband's

estate. The heart of the argument is that

207 2

the judgment would have provided an additional

sien if the trial court had been aware at the

time of judgment that the property division

payments would be found to be taxable income.

Since the amount received was taxed, Jean

Wright claims the judgment was not executed.

The default divorce hearing in this

case was based upon an oral stipulation

of the parties. After the divorce judgment

was granted, the attorneys for the parties

were unable to agree upon proposed findings

of fact and conclusions of law because they

disagreed upon the income tax consequences

of the stipulation. That disagreement was

made known to Judge Foley and differently

worded proposed findings and conclusions

were submitted to him. The trial court ex-

ecuted the findings and conclusions pre-

pared by the attorney for Jean Wright which

were in conformity with the oral stipulation.

208

od hea was,

"Judgments are to be construed like

other written instruments." R.B. General

Trucking v. Auto Parts & Services, 3 Wis.2d

91, 98, 87 N.W.2d 863 (1958).

(T)he office of judicial construc-

tion is not to make contracts or to

reform them, but to determine what

the parties contracted to do; not

necessarily what they intended to

agree to, as evidenced by the lan-

guage they saw fit to use. Wiscon-

sin Marine & Fire Ins. Co. Bank v.

Wilkin, 95 Wis. LII, 115, 69 N-W.

354 (1897) quoted in Miller v. Miller,

67 Wis.2d 435, 442, 227 N.W.2d 626

(1975).

The language of the original divorce judg-

ment obligated the plaintiff to pay $228,000

to the defendant to complete the division

of property between the parties. The

Plaintiff complied with that provision of

the judgment and there was no basis for a

further order to carry into execution a

fully executed provision of the judgment.

209

Power to Modify Judgment

In its memorandum decision the trial

court adopted the position of the defendant

that because some of the provisions of the

original judgment were in the nature of ali-

mony ,* the judgment, in its entirety, was

subject to modification under the provisions

of sec. 247.32, Stats., ? although it did

“Plaintiff was required to pay a portion of

respondent's medical expenses and investment

expenses until her remarriage or death and

maintain a poiicy of insurance upon his life

- where in defendant was named as beneficiary.

Ssec. 247.32, Stats. (1975), provides:

Revision of judgment. After a judgment

providing for alimony or other allowance

for the wife and children, or either of

them, or for the appointment of trustees

as aforesaid the court may, from time to

time, on the petition of either of the

parties and upon notice to the family court

commissioner, revise and alter such judg-

ment respecting the amount of such alimony

or allowance and the payment thereof, and

also respecting the appropriation and pay-

ment of the principal and income of the

property so held in trust, and may make

any judgment respecting any of the said

matters which such court might have made

in the original action. But when a final

division of the property shall have been

made under Sec. DAT 26 no other provisions

shall be thereafter made for the wife.

210

™ — pe

not rely upon that statute in making its

decision.

Section 247.32, Stats., kia time

modification of provisions for alimony

contained in a judgment of divorce. As che

Wisconsin Supreme Court stated in Gray v.

Gray, 240 Wis. 285, 287, 3 N.W.2d 376 (1942):

"The provision for alimony may be revised

from time to time but the division of the

estate is fixed for all time. Sec. 247.32,

Stats.""6

The judgment provision for payment

of $228,000 in monthly installments specified

that it was "as and for a complete division

of estate and to complete the division of

property between the parties." The order

appealed from invalidly modified the pro-

vision. Assuming the medical, investment

and life insurance costs were in the nature

6 °

abe.07° SeacseP seaiacrs ts Serehis one MSE

211

4 they were subject to mod-

of alimony,

ification under sec. 247.32, Stats. Payments

to complete the division of property ers

not.

By the Court:--Judgment and order

modifying the original divorce judgment

reversed. Cause remanded for proceedings

consistent with this opinion.

Recommendation: No publication.

7s question we need not reach.

Gee}

STATE OF WISCONSIN : CIRCUIT COURT : MILWAUKEE COUNTY

WILLIAM C. WRIGHT,

Plaintiff,

vs.

JEAN WRIGHT,

Defendant.

MEMORANDUM DECISION

This matter is before the Circuit Court on

the defendant wife's motion to modify the judg-

ment to provide for additional alimony, or, in

the alternative, to eni ~“e the judgment.

The original judgment was entered by the Hon.

Leander J. Foley, Jr., Judge of the Circuit Court

of Milwaukee County, on October 4, 1967. On

February 10, 1977, the defendant, Jean Wright, ob-

tained an Order to Show Cause, signed by the Hon.

Glen W. Ploetz, Assistant Family Court Commissioner

of Milwaukee County, Wisconsin. This order directed

the plaintiff and petitioner, William C. Wright,

to show cause why the judgment should not be

301

modified to provide for "additional alimony” payable

by the plaintiff to the defendant. This order was

returnable April 27, 1977. On July 1, 1977, the

matter was heard before the Hon. William F. Seales

Assistant Family Court Camissioner. Assistant

Fanily Court Commissioner Duski, after consideration

of the briefs and arguments presented by counsel

for the respective parties, denied the defendant's

motion for additional alimony and held that a

judgment of divorce cannot be revised if that

judgment makes no provision for alimony. He

concluded ti:at the judgment of divorce in the

original action here provided for only property

settlement and not alimony; consequently, that

judgment could not be disturbed. This matter is

_ now before this court because the defendant wife

moved for a review of the Family Court Commissioner's

decision.

This court has had the benefit of perusing the

original judgment, the transcript and findings of

302

a SEN

fact and conclusions of law. Testimony and oral

argument was had before this court on September 12,

1977, wherein the defendant, Jean W. Wright,

testified. 20 exhibits were offered and received.

Oral argument was presented by Mr. Bruce C. O'Neill

on behalf of the defendant wife, and by Mr. Robert

E. Cook on behalf of the plaintiff husband. Mr.

Gerald J. Kahn also argued on behalf of the plain-

tiff Imsband. The defendant wife testified at the

hearing, held before this court on September 12, 1977,

as to her claimed changed circumstances; namely,

that the income tax liability changed her circun-

stances because her assets were the same as they

were at the time of the divorce, which consisted

primarily of a farm she owned and certain modest-

yield securities with the incame from such assets,

in all respects, being modest.

This court has also had the benefit of the

inspection of Circuit Court Case No. 435-823, which

was a later divorce action between this plaintiff

and his second wife, Ellen Wright, in which the

303 |

plaintiff's financial declaration showed that he

had a net worth of approximately $3,000,000.00, and

an annual incame of approximately $100,000.00. 3

Further, this court has had the benefit of perusing

the decisions from the U.S. Tax Court controversy

which ultimately led to the parties being back

before this court.

The contentions of the defendant wife are that

a Wisconsin judgment of divorce can provide for

both alimony and property division; that both

Wisconsin and Federal Income Tax Laws define

alimony payments as support payments; that this

court would have made the payments "in lieu of

alimony" if it had intended that the payments be

taxable to the wife; that since the court, that

is to say, Judge Leander J. Foley, Jr., in his

decision, chose not to use the phrase "in lieu of

alimony" as to the payments in paragraph 26 of the

judgment and adopted the conclusion of law proposed

by the attorney for the wife, therefore, there can

be no doubt that it was the intent of the Circuit

304

Court back in 1967, at the time of the granting

of the judgment of divorce, that the payments

required under that judgment were not to be

taxable to the wife and that the wife finds herself

in the predicament of now owing approximately

$102,840.00 in additional taxes because of the

skill of the plaintiff in the Federal Courts where

he was able to convince those courts, despite the

Divorce Court having stated that "Alimony be and

hereby is denied," despite the Divorce Court having

stated that the payments were "for a complete

division of estate and to complete the division

of property of the parties," and despite the Divorce

Court having refused to use the term "in lieu of

alimony’' as to such payments, that such payments

were really support payments.

It is further contended by the defendant wife

that since this is a court of equity it can remedy

the injustice being imposed by the plaintiff on his

ex-wife by this court finding that it intended the

payments under paragraph 26 of the judement to be

305

tax free to the wife and requiring the husband

to provide the wife with money so that she can

offset her tax liability on such payments by either

of the following means: (a) Finding that this 3

court has jurisdiction to modify the judgment

on the basis that the payments under paragraph 26

of the judgment are for alimony and then modifying

the judgment to provide the wife with additional

alimony so that she can pay her taxes; or (b).

Enforcing the judgment by ordering the husband

to pay additional money so that she will have

received $228,000.00 after taxes; in other words,

a net to her of $228,000.00.

It is further contended by the defendant wife

that this court does in fact have jurisdiction

to enforce this judgment regardless of whether

or not it contains any provision for alimony.

The plaintiff husband, on the other hand, con-

tends, among other things, that this court lacks

jurisdiction to now make such amendment as is

proposed by the defendant wife's counsel, and that,

306

because of Section 247.23 of the Wisconsin Statutes,

which directs that a judgment of divorce providing

only for division of property and not for alimony

may not thereafter be revised or modified, that :

this court is tone less to make any such modificiations

as requested by the defendant wife; and that the

| court, therefore, lacks statutory jurisdiction to

reopen such judgment. Great emphasis is placed

upon the actions taken in the Federal Tax Court.

This court can only say in this regard that it is not

bound by any decisions made by the Federal Tax Court

any more than that court would be bound by decisions

made by this court, and that this court will cmsider

those actions insofar as they have operated to reduce

the defendant wife's settlement of $228,000.00 by

a sizable sum; to-wit, $102,840.00.

This court finds Assistant Family Court

Commissioner Duski, in making his decision of July

1, 1977, did in fact abuse his discretion by making

such decision. This court finds that Section 247.32,

Wis. Stats., is not controlling inasmuch as the

307

judgment provides, among other things, at paragraph

Twenty-first: "That the plaintiff shall be liable

for all health, medical, and reasonably related

expenses that the defendant may incur except for

the first $250.00 per year and for said first

$250.00 of said expense the defendant shall be

liable; said liability shall terminate upon de-

fendant's renarriage." While it is true this my

have been a final division of estate, and it would

appear that perhaps it was a prima facie property

settlement, here the added factor that the payment

of health, iedical, and reasonably related expenses

ane be terminated upon the defendant wife's re-

marriage is more a characteristic of alimony and not

of a property settlement, according to the rationale

in Fritschler v. Fritschler, 60 Wis. (2d) 283, 291.

! This court also concludes that the provisions

in paragraph Twenty-third of the judgment, providing

that the plaintiff, William C. Wight, shall maintain —

the present $200,000.00 of life insurance, being with

the Northwestern Mutual Life Insurance Company,

308

Policy No. 5 531 595, date of issuance, August

22, 1963, of witch the defendent ts omer tn full

force and effect and shall maintain the defendant

as beneficiary thereon for as long as said policy

shall provide and at least to age 65 and shall

keep the defendant as beneficiary of all the

proceeds of said policy until she dies or remarries,

also has the characteristics of alimony and not a

property division.

The court also finds that those provisions under

paragraph Twenty-fifth of the judgment that Say with

respect to financial counsel, which is named

"Fiduciary Cosel, Inc." which manages the defendant

wife's investment portfolio, and that the expenses

thereof exceeding $100.00 per year shall hereby be

paid by the plaintiff husband, and that this

management shall terminate upon the defendant's

death or remarriage, has the characteristics of

alimony. |

Therefore, it is the order of this court

that the judgment shall be amended to provide

309

that the plaintiff husband pay to the defendant

wife, within sixty days of this order, the sum

of $102,840.00, which will have the net effect

of restoring to her the exact amount lost by her

because of the rulings of the United States Courts.

The authority to make this order is, in the court's

opinion, inherent in this court under the authority

recently propounded in Rotter v. Rotter, 80 Wis.

(2d) 56.

it is intended that the $102,840.00 not be taxable

For the sake of this Circuit Court case,

to the defendant wife; otherwise, she would not be

restored to the position that it is this court's

opinion she was intended to be in by the original |

judgment entered by the Hon. Leander J. Foley, Jr.

on October 4, 1967.

Dated, at Milwaukee, Wisconsin, this 20th_

day of December, 1977.

BY THE COURT

Robert M. Curley

Circuit Judge

310

In the

— For the Seventh Cirenit

Nos. 75-1170 through 75-117

JEAN W. WRIGHT, . -

% ‘ . ‘ f . WW. a

COMMISSIONER OF INTERNAL REVENUE

WILLIAM C. WRIGHT and ELLEN W. Wricur,

: & .

COMMISSIONER OF INTERNAL REVENUE

- . » 4 ,

*%,

Appeal from the Tax Court of the U 3

a ited St

Nos. 830-72, 1356-72, 1991-72 wan

401

Gniten States Court of Bo

1 A

Respondent-Appellant

_ (Cross-Appelles).

neals :

: sik ; Petitioner-Appellant, |

ee a “ (Cross-Appellee),

Re ondent-Appellee,

Cross-Appellant).

Petitioners-Appellees,

asi: SEPTEMBER 9, 1975—DeEcED OcToBER 08, 1976 : :

2 eae Nos. 75-1170 - 75-1176

Before STEVENS, Circuit Justice,* FAIRCHILD, Chief

Judge and CAMPBELL, Senior District Judge.**

CAMPBELL, Senior District Judge. These — are

taken from a single decision of the United States Tax

Court rendered in four consolidated cases' wherein

petitioners challenged certain federal income tax

deficiency determinations made by the Commissioner of

Internal Revenue.? The issues on appeal are those which

were before the Tax Court: :

* Mr. Justice Stevens partici ated initially as Circuit

Judge; on and after December 19, 1975, he participated as

Circuit Justice.

** Senior District Judge William J. Campbell of the United

States District Court for the Northern District of Illinois is

sitting by designation.

1 William C. Wright and Ellen W. Wright v. Commissioner

(No. 830-72); Wiliiam C. wrest and Ellen W. Wright v. Com-

missioner (No. ng Jean W. Wright v. Commissioner (No.

1356-72) and Jean W. Wright v. Commissioner (No. 1991-72).

2 The Commissioner took inconsistent positions in his

deficiency determinations against petitioners, thus insuring

the recovery of back taxes from whichever taxpayer was

determined by the Court to be liable. Thus, he determined

deficiencies against William C. and Ellen W. Wright for the

one 1968, 1969 and 1970 in the amounts of $8,603.13, $14,- _

63.76 and $14,267.14, wg gg er. while also determining

deficiencies against Jean W. Wright, :

the amounts of $6,667.59, $7,330.41 and $7,093.34, respective-

ly. The inconsistency arises from the fact that, in each in-

_stance, the correctness of the Commissioner’s ruling rests on

whether or not certain payments made by William were in-

- come to Jean under peak 71 (a) and therefore deductible by .

William under section 215. To the extent that they are, the

deficiency against Jean is correct and that against William is

incorrect. On the other hand, to the extent that such payments

are not income to Jean, neither are they deductible by

William, in which event the Commissioner’s deficiency deter-

mination is correct as to William and incorrect with respect to

Jean.

_As the Commissioner’s brief indicates, his cross-appeals to

this Court “are for protective purposes only.

402

for the same years, in -

Nos. 75-1170 - 75-1176 3

“(1) Whether the cash payments made by William

C. Wright during the calendar years 1968, 1969,

and 1970 to his former wife, Jean W. Wright, are

includable in her gross income for such years as

alimony under the provisions of section 71, I.R.C.

1954,3 and consequently deductible for such ‘years

by William C. and Ellen W. Wright under the

provisions of section 215; and ;

2) Whether annual premiums paid by William C.

right during the calendar years 1968, 1969, and

1970 on a term life insurance policy owned by his |

former wife, Jean W. Wright, are includable in her —'

gross income for such years as alimony under the

provisions of section 71 and consequently deductible

for such years by William C. and Ellen W. Wright

under the provisions of section 215.”

In the Tax Court, the parties stipulated to all facts

relevant to a determination of the foregoing issues.

Those facts have been set forth in the Tax Court’s opin-

ion, and may be summarized as follows:

William C. Wright (William) and Jean W. Wright

Jean) were married in Milwaukee, Wisconsin on

anuary 31, 1948. In 1967, William filed for divorce and

for custody of their minor children. Jean filed a counter-

claim seeking a divorce, alimony, a division of property,

attorneys’ fees, costs, and custody of the children. On Oc-

' tober 4, 1967, the action for divorce came to trial, the - :

parties having elected to proceed on Jean’s counterclaim.

Ihe parties entered into a stipulation in open court with

regard to the disposition of property owned by each of |

them, custody of their children, alimony, attorneys’ fees ~ |

‘and court costs. In all pertinent respects, the stipulation

of the parties was accepted and adopted by Judge L. J.

Foley, Jr. of the Circuit Court for Milwaukee County,

Wisconsin .in his findings of fact,.conclusions of law and

judgment orally made at the hearing and included as_

‘soph of the transcript thereof. The court found, on the ~ :

asis of her counterclaim, that Jean was “entitled to an-

absolute divorce.” . !

* All references are to the Internal Revenue Code of 1954.

The parties stipulated that their combined net worth

was $1.065,122.00. Of this amount, assets worth $227,-

752.00, consisting of property which was either inheri-

ted from her mother or purchased with the proceeds of

that inheritance, were owned by Jean. The remainin

assets, valued at $837,370.00, had been purchased an

a were owned by William. Sse

At the divorce hearing, Jean acknowledged under oath |

that she understood alimony was to be denied; William

acknowledged that he understood there was to be a full

and complete division of estate in lieu of any claim upon

him by Jean for alimony.

Subsequent to the hearing, Jean’s attorney submitted

proposed findings of fact and conclusions of law, in-

cluding the following: |

“Twenty-first. That alimony be and hereby is

. denied.

zx *

Twenty-fifth. (a) That as and fora complete divi-

sion of estate and to complete the division of proper- -

of the parties, the plaintiff shall pay to the defen-

7 po the sum of $228,000.00 within ten and one-half _

(10-1/2) years of October 4, 1967, .. .”.

- William subsequently objected to these proposed find-

ings of fact and conclusions of law, contending that they

did not conform with his understanding of the parties’

stipulation. His attorney submitted an alternate conclu-

sion of law which stated: _ ? !

“25a That alimony be and hereby is denied and in

- Jieu of said alimony and in full satisfaction of any —

claim therefore, and as a compleve division of estate

and to complete the division of property of the par-.

- ties, the plaintiff shall pay to the defendant the sum

of $228,000.00 in 10-1/2 years of entry of ju ent,

said sum to be paid at the rate of $2,000.00 each

month for a period of six months and $1,800.00 each

month thereafter for a period of 10 years.”

404

ee AT CES On

Nos. 75-1170 - 75-1176" 5

Jean’s attorney argued that the lump sum payment of

$228,000.00 constituted a division of the estate, not

alimony, and that at the time the 10-1/2 year period was

agreed upon, she did not consider the Ba nar as

alimony and would not report it as such. William’s at-

torney argued that the 10-1/2 year period provided for

in the stipulation was designed to permit William an in-

come tax deduction for the payments made over that |

period of time. 7

On January 29, 1968, the court entered its findings of |

fact and conclusions of law, including the following:

“Twenty-second. That alimony be and hereby is

denied.

Twent-third. [sic] That the plaintiff, William C.

Wright, shall maintain the present $200,000.00 of

life insurance, being with the Northwestern Mutual

Life Insurance Company. Policy No. 5 553 595, date

of issuance, August 22, 1963 [sic], of which the

defendant is owner in full force and effect and shall

maintain the defendant as beneficiary thereon for -

as long as said policy shall provide and at least to

age 65 and shall keep the defendant as beneficiary

of all the proceeds of said policy until she dies or -

remarries; that if there are any proceeds of this in-

surance that the defendant collects, whatever is not

_ used by the defendant in her lifetime shall be left at

the time of her death to the children of the parties,

either by her will or by trust or by separate trusts

-in her will. .

a * + +

a (a) That as and for a complete divi-

sion of estate and to complete the division of proper-

of the parties, the plaintiff ... shall pay the

efendant the sum of $228,000.00 within ten and

one-half (10-1/2) years of October 4, 1967; . . .”.

The decree then set forth the terms under which the

$228,000.00 was to be paid, requiring that William

make payments of not less than $2,000.00 per month for

the first six months, and no less than $1800.00 per

month over a 10% year period, until the full $228,000

4cs

—_—i- = = —- =

6 | ‘Nos. 75-1170 - 75-1176

has been paid. The divorce decree further provided that

payment of this sum was to be secured by sufficient

marketable securities in the investment portfolio

awarded to William, and that said securities were to be

placed in escrow under terms and conditions suitable to

secure the payment of the money awarded to Jean. In

the event of William’s death prior to full payment of the

$228,000.00, Jean was to be paid on — ony wae

right or from |

due, either from the estate of William C.

the escrow account, unless the estate “is not liquid or is

insolvent, or impaired in any manner,” in which event

the balance due was to be paid from the escrow ac- .

count.

The value of the assets awarded to Jean under the

divorce decree, including the present value of the

$228,000.00 lump sum payment, was determined to be

$459,018.00. The value of the assets awarded to William

was determined to be $606,104.00. In May of 1968, the

hen executed a mutual release which, in part, stated:

HEREAS, said judgment of divorce which was en-

tered February 2, 1968 provided for, among other

things, a property settlement between the parties in lieu

of alimony; .. .”. |

During the calendar years 1968, 1969 and 1970, Wil-

liam paid Jean $22,200.00, $21,600.00, and $21,600.00,

respectively, as installments on the principal sum of

$228,000.00. He also paid in those years, respectively,

$1,505.50, $1,459.50, and $1,415.50 to Northwestern Mu-

tual Life Insurance Company as premiums on the

$200,000.00 term life insurance policy referred to in the -

twenty-third paragraph of the decree. |

The Tax Court determined that the installment pay-

ments made by William to Jean should have been in-

cluded in Jean’s gross income for the years 1968, 1969

and 1970, pursuant to section 71, and that William was

_ entitled to deduct the amounts of said — for

those years pursuant to section 215(a). The court fur-

ther held “that Jean did not constructively receive an

economic benefit under the [insurance] policy and ino

amount is includable in her income because of the pay-

ments of the premium on this policy by William.” Ac-

cordingly, the premiums paid were held not to be in-

come to Jean, and not deductible by William.

Nos. ‘75-1170 - 75-1176 7

On appeal, Jean contends that the Tax Court erred in

construing the installment payments as “periodic pay-

ments” within the meaning of section 71(a), and there-

fore taxable income to her. William contends that the

court erred in holding that no part of the insurance pre-

miums constituted income to Jean, thus disallowing his

claim to deductions under section 215. Nee

Section 71 provides that where “periodic payments” —

are received by a divorced wife from her former hus-

discharge. . . of a legal obligation which, because of the -

marital or family relationship, is imposed on or incurred

by the husband under the decree. . .”, such payments

are included in the wife’s gross income.

Under Section 71(c), installment payments discharg-

ing an obligation to pay a principal sum specified in the

decree are not to be treated as “periodic payments”

within the meaning of Section 71(a) unless the decree

provides that the Fhe sy sun “is to be paid or may be

paid over a period ending more than ten years from the

date of such decree. . .”, in which event the amount re-

ceived constitutes a “periodic payment” within the

meaning of Section 7(a)

the principal sum.” Under Section 215, the husband may

deduct “amounts includable under Section 71 in the

gross income of his wife... .” :

. Thus, to be includable under Section 71 in the gross

income of the wife, the principal sum must be payable

in installments over a period in excess of ten years (Sec-

tion 71 (c)(2) ) and must be in discharge of an obligation |

imposed under the decree because of the marital rela- |

‘tionship (Section 71(a) ). This latter requirement “con- .

templates a payment made in pursuance of the hus- .

band’s obligation of support and not in satisfaction of .

some property rights of the former spouse.” Van Orman

v. Commissioner, 418 F. 2d 170 (7th Cir. 1969). -

The Tax Court held that the principal sum —

($228,000.00) could be paid in installments over a period

of 10% years and that these installments therefore con- |

stituted “periodic payments” for the purposes of Section

71(a). The Court further held that illam’s obligation

to so compensate Jean was due to “their marital and ~

“to the extent of 10 percent of -

| as P

8 Nos. 75-1170 - 75-1176

family relationship”, ie. pursuant to William’s obliga-—

tion of support rather than in satisfaction of Jean’s prop-

erty rights. |

On appeal, Jean challenges both of these findings. She

argues that the record is silent as to her need for sup-

port, that she had substantial property of her own and

that the divorce court’s decree reflects an intention that

the payments be part of a property setilement, not

contributions toward her support. She also notes that the

payments were not subject to the contingencies of death

or remarriage, and were secured. The Tax Court’s deci-

sion, she contends, also ignores two decisions of this

Court, Van Orman v. Commissioner, supra, and Houston

v. Commissioner, 442 F.2d 40 (7th Cir. 1970).

In holding that the: payments “were intended by the

parties to be payments in discharge of a legal obligation

which was imposed on her former husband, William, be-

cause of the marital relationship”, the Tax Court cor-

rectly observed that the question of whether payments

‘are made in recognition of the general obligation to su

port or in settlement of a wife’s property rights depends.

upon the facts and circumstances of each case’ The use

of a particular label in the divorce decree or settlement .

agreement is not conclusive;nor is any other factor irre-

buttable proof of the parties’ intentions. While we con-

sider this a close and difficult case, we have concluded

that the Tax Court’s determination should be upheld.

Among the factors which we believe supportive of this _

conclusion is the fact that the $228,000.00 awarded to

Jean was obviously not paid in exchange for tangible

property owned by her at the time of divorce. That prop- —

erty, valued at $227,752.00, was separately awarded to

her under the decree. In addition, she received property

owned by William consisting of furnishings valued at

$20,000.00, two automobiles and the discharge of her |

liabilities in the amount of $41,266.00. |

was paid in exchange for her inchoate rights to her hus-

band’s property, the Tax Court held that such rights do

not establish co-ownership of the property held in the -

husband’s name, and from this premise seems to have -

408

In response to Jean’s contention that the $228,000.00

Nos. 75-1170 - 75-1176 | oe

concluded that the loss of inchoate rights through di- |

vorce cannot support a division of property. Thus, the

Court concluded that “Jean did not surrender any prop- |

erty interests or give up anything that is recognized as

supporting a division of property in exchange for the

disputed payments other than her right of alimony.”

inchoate rights cannot support a division of property, we

disagree. Where the record clearly shows that the par- |

ties so intended the payments for this purpose, surren- |

der of a wife’s inchoate rights in exchange for a lump |

sum payment, to be made in installments over a number

of years, might well preclude a finding that the pay-

ments were made in pursuance of the husband's obliga- |

tion of support. The intention of the parties is the princi-

al determinant. But here, the record is not clear and,

in fact, is silent respecting the surrender of inchoate

rights and the payment of a lump sum in exchange

therefor/It appears, rather, that the parties contem-

plated a division of property on the basis of their respec-

tive ownership at the time of divorce, plus payments for

Jean’s support to be made over a period of 10% years,

Further supportive of this finding is the use of a 10%

year payment period. Had the parties intended these to

be installment payments under Section 71 (c)(1), rather

than periodic payments under Section 71(a), they could

easily have provided that the principal sum of

$228,000.00 must be paid within ten years. In addition,

we. note that the release signed by the parties following

issuance of the decree referred to “a property settlement

between the parties in lieu of alimony”, which Jean had

sought in her counterclaim for divorce.

As Jean contends, the fact that the payments were for :

a fixed sum, were secured and were not contingent upon |

death or remarriage is indicative of a division of pro

erty rather than payment of tsa So also is the

divorce .court’s adoption, and inc

usion in the divorce

decree, of the findings and conclusions submitted by |

Jean’s attorney. We find, however, that these conclusions |

are more than counterbalanced by those factors indicat- |

ing that the payments were intended for the purpose of

409

| :

10 | . Nos. 75-1170 - 75-1176

support rather than as a division of property. As the

Tax Court noted, a payment of a fixed and secured sum ~

over a definite period of time may nevertheless be in-

tended to discharge the general obligation of support. It

is not uncommon for the parties to provide for such pay- —

ments, in lieu of alimony, where they wish to insure that

the decree of divorce will not be subject to later modifi- :

cation by the Court.

Contrary to Jean’s contention, we do not consider the: :

result in this case to be inconsistent with our previous |

decision in Van Orman and Houston, supra. In Van Or-

man, the “Property Settlement Agreement” obliged the

taxpayer to purchase a home for his former wife. The .

home was to be selected by her and was to cost not more »

than $40,000.00. The a te was required to deliver |

ome to his former wife within |

free and clear title to the

ten years.

In early 1962, he paid $7700.00 down on the purchase |

rice of a home and

$37,500.00 urchase price, secured by a mortgage. For

the years 1962 and 1963, he attempted to deduct the

borrowed the remainder of the |

_ mort a. and home insurance payments under Section _

sioner’s disallowance of these deductions was affirmed

by this Co

urt. As Jean argues, we held that Section.71 |

(a)(1) “contemplates a payment made in pursuance of the |

hhusband’s obligation of support and not satisfaction of |

some property. rights of the former spouse.” While we ,

identified certain factors which are also present in thi

this |

case ag indicating the satisfaction of a property a

we also

rather than the payment of periodic support,* w

pointed out that title to the home was to be delivered

within the ten year limitation period of Section 71(c).

More important, unlike the instant case, the Agreement

- provided for gg payments, requiring “alimony of

$1300.00 to $900.00 per month for a period of ten years

and one month, the specific amount ae on tax-

payer’s income during that period.” 418 F.2d at 171. No

such separate provision for the payment of support was

included in the Wright divorce decree. je.

‘ @ “(Tjhe payments made by reason of the absolute obligation

bey as remarriage or change in economic status.” 418 F’. 2d at

410

‘

to purchase the new home would not be affected by such fac: |

Nos. 75-1170 - 75-1176 3 Lott

_Contrary to Jean’s contention, we find Houston s |

tive of the Tax Court’s decision. In that case, Bomaten

(husband) was obliged under the settlement agreement

to transfer assets worth $505,699.44 to Schwab (wife).

He was to convey non-cash assets worth $90,699.14 and

$415,000.00 in cash, the latter to be paid through the im-

mediate transfer of $115,000.00 and the annual payment |

of $25,000.00 per year for the next twelve years.

In 1959, Houston deducted $50,569.94 as “ten percen

of the total of thirteen periodic payments favahle. pete :

eriod of thirteen years to former spouse .. .”. The

ommissioner disallowed the deduction and the Tax

Court upheld the Commissioner’s ruling. We affirmed,

holding that the $90,699.14 in non-cash assets and the

as es in cash represented a division of property. :

Ve reasoned that “[w]here there is a substantial pay-

ment, such as this, which comes soon after the entry of

the divorce decree, we think it is not unreasonable to

oe a property settlement was intended.” 442

In the instant case however the question at i -

cerns whether the annual ayments—not a lump sum

transferred immediately after the divorce—were in-

tended as support or as a division of assets. These pay--

ments are more closely akin to the $25,000.00 annual

payment in Houston, which this Court impliedly consid-

ered deductible by Houston and income to Schwab. Our

opinion states: “[w]e think that the Tax Court correctly

noted that the 1959 payment was distinguished from the

later [$25,000.00 amounts both by its size and time of

ayment.” 442 F.2d at 42. It is clear that both the Tax

urt and this Court considered the fixed annual pay-

‘ments to have been intended as support.

Jean also challenges the Tax Court’s finding that th |

payments were “periodic payments” within the nie

of Section 71(a) and Section 71(c). She contends that the

decree of divorce, entered October 4, 1967, did not be-

come final under Wisconsin law until October 4; 1968.

Since the last ent will be due April 4, 1978, she.

argues that full payment of the principal sum will be

paid over a period ending less than ten years from the

411

12 , "Nos. 75-1170 - 75-1176 |

date of the decree, and that, therefore, the payments re-

ceived constitute “installment payments” under Section

7 hea rather than “periodic payments” under Section

71(a). eae

Under Wisconsin law, the parties to a divorce may not

remarry for a "ais of one year subsequent to issuance .

of the decree. On this basis, Jean characterizes the de-

cree as “interlocutory” until one year following its issu-

ance, at which point it becomes

either party may appeal, and the court may vacate or

the parties.

For the purposes of Section 71, we find that the decree

is final at the time of its issuance. The fact that either

party may appeal is indicative of its finality, as is the

act that the court may vacate the judgment within that

one year slg and “restore the parties to the marital

relation that existed before the granting of such judg-

ment.” Wis. Stats. of 1967, Sec. 247.87(2). Moreover,

obligations imposed upon the parties under the decree

become effective at the time it is granted.

For the foregoing reasons, we hold that the Tax Court.

‘correctly construed the payments as “periodic payments

received ... in discharge of ... a legal obligation

which, because of the marital or family relationship, is

imposed on or incurred by the husband under the decree

.. .. Accordingly, they constitute gross income to Jean

and are deductible under Section 215(a) by William. |

We further agree with the Tax Court’s finding that

the premiums paid by William on the term life insur-

ance policy should not be included in Jean’s gross in-

come and therefore are not deductible by William. That

the premium payments oat, the requirements of Sec-

tion 71(a) is undisputed in all

these premium payments are not payments made in discharge

of a legal obligation whjch because of the material |

relationship is incurred by . The premium payments

are

under a decree. . . . The payments are periodic

(Footnote continued on following page) |

412

inal”, During the per- -

iod of one year following the issuance of the decree,

but one respect’: whether |

the payments were constructively received by Jean, i.e. |

® As the Tax Court noted, the “parties do not contend that :

‘.

Nos. 75-1170 - 75-1176 ce

whether she received in any of the years under consid-

eration an ascertainable economic benefit through the .

payment by William of premiums. ,

The divorce decree requires William to purchase term

insurance which, unlike whole insurance, entitles the

_owner-beneficiary, Jean, to no ascertainable benefits

other than the proceeds of the policy upon William’s |

death. Furthermore, her entitlement to the proceeds ‘is

defeasible by her remarriage, death or attainment of

age 65 prior to William’s death.

We find that the benefits derived by Jean through the

payment of premiums by William are no greater than

the benefits received by the wife in Seligmann v. Com-

missioner, 207 F.2d 489 (7th Cir. 1953). Under Selig- -

| d for the reasons set forth in the opinion of the

Tax ‘Guat hevaih 62 T. C. 377, 395-400, we find that the

premiums paid by William on the term life insurance —

policy are not includable in the gross income of Jean and ,

are not deductible by William.

For the foregoing reasons, the decision of the Tax —

Court is affirmed.

A true Copy:

Bee: Teste:

Clerk of the United States Court of

_. Appeals for the Seventh Circuit

Jean did not actually receive the premiums paid and the dis-

pute centers on whether the premium payments were con-

structively received by Jean within the meaning of Section

71(a).” 62 T. C. at 396. etry et

USCA 4216—Midwest Law Printing Co., Inc, Chicago—10-28-76—275

413

- AFFIRMED. .

a ae t

Continued | . | ;

illiam is obliged to pay them over the lesser of his or |

Seas lien Pa ht nariee or 1987. The parties recognize -

be |

(367) WILLIAM C. WRIGHT a. Oe

- SO ee Oe ee ee ee oe ee

ae ET ‘aL. ae

RESPONDENT

“Wiuasx S Ww RIGHT AND Ens

pv. COMMISSIONER. OF tpenticeat REVENCE,

Docket Nos. $30-72, 1350-72, 1991-72, 4201-72, Filed June 23, 1974

In 2n oral agreement stipulated to at their eivorce trial petitioner =

William C. Wright and his forumer wife, petitioner Jean W. Witghs, |

+... agreed that cll property owned by Jean would Le granted io her and

> in addition she would be granted certain property of Wiiliata’s, that s°

“>; William would pay certain of ber expenses, and that William would

‘pay to Jean $228,003 over a period of 1034 years, the payment to

. ~+ be secured by stocks placed in escrow, and that Willism would pay .

. ~~. * the premiums on a $200,060 term life insurance policy owned by

5°. Jean on his life and keep Jean as the beneficiary until she died or

--. gomarried or reached age 63. The judgment rendered on Oct. 4, 1967,

Dy. ’ adopted the stipulation of the parties and granted a divorce to

_ Jean which prohibited cither party from remarrying uatil 1 year

_ thereafter. The stipulation was trauscribed by the court reporter as

was tLe juésment of the court. A written decree was entcred by the

’ 2 Cases of the fuliewing petitioners are consolidated herewith : Jean W. Wright. docket

’ No. 1356-72 ; Jean W. Wright, éocket No. 1601-72; and Wilham C. Wright and oe. WwW.

Wright, docket No. 4104-72, i“ . age

> 1 e a ; : | ‘ . j i e

. i be iti ii in leer

378 62 UNITED STATES TAX COURT REPORTS ~ 77)

court on Feb. 2, 1968, incorporating the stipulation of the parties.

dicta:

1. The $225,000 to be paid bs William to Jean was a payaoient

because of the marital relationship and ia discharge of his cuty of

support to her and not a divisiou of property of the parties. It

was 2 periodic payment under see. T1(c)(2) since the judsgurent

entercd on Oct. 4, 1967, approving Wiiliam’s agreement with Jean

which was reduced to writing and reconfirmed in the written decree

entered Feb. 2, 196S, required him to make these payments over a

period of over 10 years froia Oct. 4, 1967. Therefore, the payments

made in 196S, 1969, and 1970 as installments on the $225,CC) are

includabie in Jean's income and deductitle by Wiiliam.

- 2 Lhe premiums paid by William on the term insurance poiiey

- did not bestow such a benefit on.Jean as to result in her construc-

tive receipt of income tierefrom. Therefore. the amount of the

premiums paid by William in 1965, 1969, and 1970 are not includcalie.

in Jean's income or deductible by William. eee

Gerald J. Kakn and John 3f. Byers, for the petitioners in docket

Nos. 830-72 and 4104-72.

Bruce C. O'Neill, for the petitioner in docket Nos. 1356-72 and

1991-72.

Michacl W. Ford, ops the respondent.

OPINION

Scorr, Judge: Kespondent determined deficiencies in the Federal

income tax of petitioners William C. and Ellen W. Wright in the

amounts of $5,603.15, $14,965.76, and $14,567.14 for the calendar years

1968, 1969, and 1970, respectively. Respondent determined deficien-

cies in the Federal income tax of petitioner Jean W. Wright in the

amounts of $6,667.59, $7,530.41, and $7,093.34 for ees calendar years

1968, 1969, and 1970, respectively.? ‘a

The parties have disposed of some of the i issues by agreement, Teav-

ing for decision the following:

(1) Whether the cash payments made by w illiem C. v right dutins

the calendar years 1968, 1969, and 1970 to his former wife, Jean v.

Wright, are includable in her gross income for such years as alimony

under tho provisions of section 71, I.R.C. 19542 and consequently .

deductible for such years by William C. and Ellen W. Wright under :

the provisions of section 215; and . PS

(2) Whether annual premiums paid by William C. Wright dasa tes

the calendar years 1968, 1900, and 1970 on a term life insurance policy

® Respondent has taken an inconsistent position with respect to his deficiency eters

minations against petitioners William C. and Ellen W. Wright and petitioner Jean W.

_ Weight

® All references ere to the Internal Revenue Code of 1034.

(377) WILLIASL C. WIGHT ; 379

owned by his former wife, Jean W. Wright, are inchidable in her

gross income for such years as alimony under the provisions of section

ZL and consequently deductible for such years hy Wiliam C. and

Ellen W. Wright uniler the provisions of section 215.

Allthe facts have been stipulated and are found accordingly.

Petitioners William C. Wright (William) and Ellen W. Wright,

‘husband and wife, were residents of Milwaukce, Wis., at the time of

the filing of their petitions in this case. They filed their joint Federal

income tax returns for the calendar years 1968, 1969, and’ 1970 at —

tho Internal Revenue Service Center, Kansas City, Mo. :

Petitioner Jean W. Wright (Jean) was a resident of Cedarburg,

Wis., at the time of the filing of her petitions in this case. She filed her

Federal income tax returns for thé calendar years 1968, 1969, and 1970

at the Internal Revenue Service Center, Kansas City, Mo. |

Jean and William filed a joint Federal income tax return for the

calendar year 1907. oe yee ee

Jean was born on January 22, 1922, and William was born on Feb-

ruary 10, 1921. On January 41, 1948, Jean and William were married

in Milwaukee, Wis. Two children were born of their marriage, one on

July 22, 1950, and the other on March 25, 1952.

’ On April 28, 1967, William commenced an actidn in the Circuit |

Court for Milwaukee County secking an absolute divorce from Jean

and the custody of their minor children. On August 17, 1967, Jean

filed an answer seeking dismissal of William’s complaint and asking

for support and maintenance of herself and the minor children. On

— October 4, 1967, Jean filed a counterclaim asking for an absolute

divorce from William, alimony and support moncy, 2 division of

‘property, attorneys’ fees, costs, and custody of the minor children.

- On October 4, 1967, the action for divorce came ‘to trial before

Judeo L. J. Foley, Jr., of the Circuit Court for Milwaukee County,

Wis. At that time, William’s attorney informed the court that no

evidence would be introduced in support of the complaint and that.

- the parties would proceed on Jean’s counterclaim. pte

.° At the trial William and Jean, relying on a-statement of assets

entered into a stipulation in open court with regard to disposition of

property owned by cach of them, custody of the minor children, ali-

_ mony, attorncys’ fees, and court costs. The stipulation was taken by

ee a Py. court reporter and later transcribed, the

nscript being certified as true and correct by the rter under

dato of October 13, 1967. The stipulation of thes ato with cite

amplificaiiun as to Jean’s rights of visitation to the children, was ac-

cepted and adopted by the court in its findings of fact, conclusions

503

380 62 UNITED STATRS TAX COURT REPORTS (377)

of law, and judgment orally made by the judge at the hearing and

included in the transcript of the hearing. This oral statement in-

cluded the conclusion of Izw by the court that based on her counter-

claim Jean “is entitled to an absotute divorce.” It was stipulated

that William and Jean had a net worth in the amount of $1,065,122

which consisted-of the following: .

Estate or Wituiaxs C. anp Jean Wricut : . ee

Asses Sue 3 ik >

Farm and improvements.....------------------------ $121, 500

Farm furnishings-...-.----------; PE PE reper 20, 090

ie nonin aeneninns 141, 500

Encumbrances: :

Mortgage—Ilillmann. ...------------------ $S, 500

Mortgate-—P. Jennings..------------------- 5, 500

Mortgage—J.ucders....-.------------------ 3, 265 17, 206

Net asset nN i aeeenmae anaes $124, 234

Residence and rear parcel (per appraisal 6/10/57)-.-.----- 135,090 —

Contents, furnishings, and jewelry (per sppzeisal 1050).... §0, 0&0

Total... ccccncqaceccccccccccccccwen nono cones enncceccee= 215, 000

Investments (per report 5/1/67):

William C. Wright portfolio...-...------------------ _ 616, 470 “+.

Jean W. Wright.s.....------------- RICERCA 139, 518

: Total investments---- Bs eS apie Saceaanemamnnan 735, 988

Automobiles—antique end othcr..,-----------------++ee---e eee" 24, 960

Livestock and animals_..-.-..-.----------2--- ee ener n nee ncene= 4S, 600

Notes receivable... --------- --- - -- oe nnn ne ee ene nen ran eenneen= ' . 4,060

Total assets...--.---------- +--+ oo oo onan nnn nn enn eeee- 1, 169, 122

| ———==

; Licdilities %

First Wisconsin National Bank (Jean Wright maker; cosigned by

William Wright)_.-...-----------------22-e coreg ese terrn 24, C30

First Wisconsin National Bank (William Wright maker).--------- 20, 009

Fall River Foundry—duce from William Wright, officer.-..-.------ 60, 000

Total liabilitics......-..- aie celamnaeine isdlnsihianaavein ainsi 104, 000

. Such assets wero owned by William and Jean as follows: en

ae = am nag tee ghee, |

- Farm and improvements me $121,500 -

- Contents, furnishings, and jewels. 8,090 -

Investments—Jean Wright 139, 51S

“ Skee : 1§ 269, 018

Less: Mortgages $17,266 * ae

_ Note- 24,000 41,266.

Net assets 27,732

504 :

WILLIAM C. WRIGHT 3Sl

(377)

Willicm

Farm furnishings de ws . §20, 0m

Residence and rear parccl . ee

Contents, jewelry, and furnishings ie 72, om

Investments oo one .~ 616,470

« Automobiles - ~ 24, 900

Livestuck and animals... ' " <5, 060

Notes receivable 1,000

-917, 370

Less: Notes payable $20,009 —

60,000 $0,000

$37, 370

Net assets. % ~

The aforementioned assets owned by Jean were either personal prop- *

erty inherited from her mother or purchased with portions of $120,000

inherited from her mother.

The aforementioned assets owned by William were purchesed by

At the hearing on October 4, 1967, William and Jean were each

represented by counsel. No reference was made ai the hearing to VWil-

linm’s income or to Jean’s need for support. Jean answered afirma-

tively under oath when asked by her attorney whether she und lerstood

that alimony w

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