## Facts

- Cornelia B. Harris and her husband, Reginald Wright, executed a written property settlement agreement while a Nevada divorce action was pending.
- The agreement was expressly conditioned on entry of a divorce decree and stated it would remain effective regardless of the decree’s form and would survive the decree.
- Under the agreement and resulting distribution, Wright received property exceeding the value of what Harris received by roughly $107,000, reflecting (among other things) his relinquishment of claims to Harris’s remaining property.
- The Nevada divorce court entered a decree approving the agreement and incorporating most, but not all, of its terms.
- The Commissioner assessed a 1943 federal gift tax deficiency, treating the excess value transferred to Wright as a taxable gift on the theory that release of marital rights is not “adequate and full consideration in money or money’s worth.”
- The Tax Court rejected the deficiency; the Second Circuit reversed; the Supreme Court granted review on the gift-tax questions.

## Issues

1. Whether property transferred to a spouse pursuant to a divorce decree that approves and incorporates a pre-decree settlement agreement constitutes a taxable gift under the federal gift tax.
2. Whether such transfers are deemed made for less than “adequate and full consideration in money or money’s worth” so that the excess must be treated as a gift.

## Decision

- The Supreme Court reversed the Second Circuit and reinstated the Tax Court’s result, holding the federal gift tax inapplicable.
- The Court treated the transfers as made in satisfaction of obligations arising from a divorce proceeding subject to judicial approval, rather than as voluntary donative transfers.
- Because the taxpayer died after submission and no estate representative had been appointed, judgment was entered as of the submission date.

## Legal Principles

- The federal gift tax and estate tax are construed in pari materia; analysis of “adequate and full consideration in money or money’s worth” in one context informs the other.
- A transfer made pursuant to a divorce decree that reflects judicial scrutiny and settlement of marital and property rights may be treated as satisfying an enforceable obligation supported by adequate consideration, and thus not a taxable gift.
- Prior rules treating releases of marital rights as not constituting “money or money’s worth” do not control where the transfer occurs as part of a court-approved divorce property allocation.

## Conclusion

Transfers of property made pursuant to a divorce decree approving a property settlement were not taxable gifts because they satisfied court-recognized obligations arising from the divorce process, rather than constituting gratuitous transfers for inadequate consideration.


Harris v. Comm’r, 340 U.S. 106 (1950)