## Facts

- Betty Richwhite Kulchar and Dr. George Victor Kulchar divorced; an interlocutory decree (July 3, 1964) disposed of their property and included a tax indemnity clause requiring George to indemnify Betty for taxes due for calendar years before 1964.
- Before and during the marriage, Betty owned 49% of a New Zealand corporation’s stock, received certain dividends, and left management to her father under a power of attorney.
- The parties filed joint federal returns during the marriage and did not report the New Zealand dividend-related income on those returns.
- After a post-divorce IRS audit, the government asserted additional federal tax liability for years 1958–1963 on the theory that dividends earned by the New Zealand stock should have been reported, including amounts retained abroad.
- In 1966, George received an assessment of about $22,000 for federal income taxes arising from that undisclosed income.
- Betty claimed the decree’s indemnity clause made George responsible (as between the parties) for the additional taxes; George sought relief from the clause, asserting extrinsic fraud and/or extrinsic mistake.

## Issues

1. Whether a court may modify a final divorce decree to strike a tax indemnity provision based on “mutual mistake” when both parties knew of the foreign asset and had an opportunity to address its tax consequences during the dissolution proceedings.
2. Whether the asserted mistake was “extrinsic” (warranting equitable relief) or merely “intrinsic” (insufficient to reopen or modify the judgment).

## Decision

- The Supreme Court of California reversed the order modifying the decree.
- The court held the circumstances did not amount to extrinsic fraud or extrinsic mistake sufficient to justify equitable relief from a final judgment.
- The tax indemnity clause remained effective; the trial court lacked power to reallocate the tax risk on the stated grounds.

## Legal Principles

- Equitable relief from a valid final judgment is narrowly available and must be consistent with the strong policy favoring finality of judgments.
- Relief generally requires extrinsic fraud or extrinsic mistake—circumstances that prevent a party from presenting a case or obtaining a fair adversary hearing.
- Intrinsic mistakes, including failures to investigate, misjudgments about evidence, or misapprehensions of legal or tax consequences of known facts, do not justify setting aside or modifying a final judgment.
- When parties knowingly allocate the risk of unknown liabilities in a judgment, later-discovered unfavorable consequences ordinarily do not permit judicial reallocation absent a showing of extrinsic fraud or mistake.

## Conclusion

The court reinstated the decree’s tax indemnity allocation, ruling that a post-judgment attempt to avoid an agreed tax obligation based on later-realized tax consequences of known assets presents, at most, an intrinsic mistake and does not warrant equitable modification of a final decree.


Kulchar v. Kulchar, 1 Cal. 3d 467 (Cal. 1969)