‘Place of Celebration’ Rule Determines Surviving Spouse

July 7, 2021, 8:00 AM

Semone Grossman’s estate wasn’t liable for a $35.5 million tax bill (plus $7.1 million in penalties), after the bulk of his estate passed to his third wife, despite the nullification of his divorce from his first wife.

The U.S. Tax Court decided that the “place of celebration” rule determined who was the surviving spouse for the purpose of estate tax (Estate of Semone Grossman v. Commissioner, T.C. Memo. 2021-65, 5/27/21).

Semone and Hilda Grossman were married in New York City in 1955 and subsequently had two children together. In 1965, they entered into a separation agreement. From that point on, Semone and Hilda never reconciled or co-habited. Semone traveled to Mexico to obtain a divorce from Hilda. Divorce was granted by the Second Civil Court on or about Aug. 24, 1967. After the divorce was granted, Semone and Katia Equale participated in a civil marriage ceremony in New Jersey and subsequently had two children.

By 1974, Semone and Katia’s relationship had ended. In that year, Hilda filed suit seeking a declaratory judgment that the Mexican divorce was null and void and that Hilda remained Semone’s lawful wife. The court ultimately found in Hilda’s favor.

By 1986, Semone was engaged to Ziona. Before his marriage to Ziona, Semone asked Hilda to cooperate with him in the giving of a get, which is a religious divorce under rabbinical law. On Nov. 12, 1986, Semone gave Hilda a get.

On Jan. 14, 1987, Semone and Ziona were married in Israel. After their marriage ceremony in Israel, Semone and Ziona returned to New York and continued to live there until Semone’s death in 2014. During those 27 years, Semone and Ziona lived together as husband and wife. Hilda continued to live in New York until her own death in 2014. When Semone died in New York in 2014, Hilda made no statutory claim against his estate as a surviving spouse.

Semone had a large estate at the time of his death, valued at approximately $87 million on a gross basis. The bulk of the estate, valued at approximately $79 million, was bequeathed to Ziona. The estate filed its Form 706 with the IRS. On the return, the estate claimed a marital deduction under Section 2056(a) with respect to the assets bequeathed to Ziona.

The IRS mailed the estate a notice of deficiency of $35.5 million. The notice also determined an accuracy-related penalty under Section 6662 of $7.1 million. Most of the adjustments in the notice were attributable to the IRS’s determination that Semone and Ziona were not married to each other for federal estate tax purposes and thus Ziona did not qualify as Semone’s surviving spouse within the meaning of tax code Section 2056(a).

Surviving Spouse

Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the U.S. Section 2056(a) provides that, “for purposes of the tax imposed by Section 2001, the value of the taxable estate shall...be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse.”

“The identification of a decedent’s surviving spouse is a Federal issue that should be determined by applying State law—typically, the law of the State where the decedent’s estate is administered. Here, the estate is being administered in New York,” the court said.

The IRS argued that because Semone, Ziona, and Hilda were all New York residents at the time of Semone’s death and during all other relevant times, the court must look to New York law to identify Hilda’s surviving spouse.

The estate, by contrast, contended that an analysis of New York law was unnecessary. In the estate’s view, the IRS was bound by certain revenue rulings that establish a “place of celebration” test to assess the validity of a marriage for federal tax purposes. Under this approach, Semone’s marriage to Ziona would be valid so long as it was valid in the place of celebration, i.e., Israel, without regard to the law of the state where the parties lived.

Marriages Celebrated Outside New York

This case turned on the identity of Semone’s surviving spouse for federal estate tax purposes, a question to be decided based on New York law. The IRS argued that Hilda was the surviving spouse because she and Semone never validly divorced under New York law. Accordingly, no subsequent marriage, including Semone’s marriage to Ziona, would be respected in New York. The estate maintained that Ziona was Semone’s surviving spouse because New York applied a “place of celebration” rule, and there was no dispute that the marriage was valid in Israel, the place of celebration.

Place of Celebration

Since at least 1881, the New York Court of Appeals, the highest court in New York, has recognized the “general rule of law that a contract entered into in another state or country, if valid according to the law of that place, is valid everywhere,” the court said. The rule recognizes as valid a marriage considered valid in the place where celebrated.

There was no dispute that Semone and Ziona celebrated their marriage in Israel in 1987 and that Israel considered Semone and Ziona validly married. The court concluded “New York would respect Semone and Ziona’s marriage unless one of two exceptions applies.”

The IRS contended that Semone and Ziona’s marriage was contrary to public policy because it was bigamous. Because the get was insufficient to dissolve Semone and Hilda’s marriage for purposes of New York law, Semone and Hilda were not validly divorced and any subsequent marriage by Semone would be bigamous, according to the IRS.

Under Section 2056(a), the court had to determine whether Ziona was Semone’s “surviving spouse” for federal estate tax purposes. Accordingly, “the proper starting question is whether Semone and Ziona were validly married.” To answer that question, the court looked to New York law. New York law, in turn, required the court to consider the rules of the place of the celebration of the marriage, here Israel.

The court found there was no dispute that Israel—the place of Ziona’s marriage celebration—viewed Semone and Hilda as validly divorced and Semone as capable of remarrying. “Under Israeli law, religious divorces, i.e., gets, are fully recognized,” the court said. Since New York law required the court to look to the law of the place of the marriage celebration to determine the parties’ capacity to marry, New York law also required the court to defer to the place of celebration and its determination on whether one of those parties was validly divorced and therefore capable to remarry.

“We would expect the New York Court of Appeals to accept Israel’s determination that Semone’s and Hilda’s marriage had ended, leaving Semone free to marry Ziona,” the court said. The court concluded that the New York Court of Appeals would recognize Semone’s and Ziona’s Israeli marriage and would treat Ziona as Semone’s surviving spouse.

Second Marriage

The court’s conclusion was “buttressed by New York’s presumption in favor of the validity of a second marriage.” The IRS’s motion, the court noted, asked it to find that Semone and Hilda were never divorced for purposes of New York law, with the result that Semone and Ziona could not validly marry. But by focusing on the divorce and its validity in New York, the IRS asked the wrong question and got the wrong answer.

By contrast, the estate properly focused on Semone’s and Ziona’s marriage and asked the court to conclude that it was lawful based on New York’s place of celebration rule, which made Ziona the “surviving spouse” for purposes of Section 2056(a). The court agreed with the estate’s approach.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Robert Willens is president of the tax and consulting firm Robert Willens LLC in New York and an adjunct professor of finance at Columbia University Graduate School of Business.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.

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