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63 Cornell L. Rev. 1022 (1977-78)


Using a trust to satisfy a husband's' obligation to support his wife after divorce can be an appealing option. However, a trust in connection with divorce generates taxation problems, such as whether the husband or the wife should be taxed for trust income. Three fundamental questions arise from this problem: (1) Should a wife who receives trust payments meeting the requirements of section 71 be taxed in full on those payments, or taxed only on payments characterized as distributions of trust income under the trust conduit rules? (2) Should the husband or the wife be taxed on the income of a trust created as part of a divorce settlement but not complying with the conditions of section 71? (3) Is the transfer of property to an alimony trust a taxable event, requiring the transferor to pay tax on accumulated gain? A series of Supreme Court decisions, beginning in 1935 with Douglas v. Willcuts, taxed whichever spouse the court felt had "benefited" from that income. This line of case law proved unsatisfactory and was overruled by Congress in 1942. Acceptance of a sensitive view taken by Congress in 1942, which recognized that creation of such a trust is merely a secure way of providing for alimony payments and taxes the wife if a transfer of interest gives her full ownership of the trust would put an end to the unfortunate doctrine of Douglas v. Willcuts. It would also bring resolution to problems caused by Congress's careless draftsmanship when it overruled that case.


Reprinted with permission of Cornell Law Review.

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