The Tax Court ruled in 2021 that the estate of a man with a complicated marital history wasn’t liable for a $42.6 million estate tax bill, because his estate passed to his third wife subject to the unlimited marital deduction despite the nullification of divorce from his first wife. Semone Grossman and Hilda Matrick, who were both Jewish, were married in New York in 1955 and separated in 1965. In 1967, Semone obtained an ex parte divorce (a proceeding brought by one spouse, but the other spouse is not a party to the proceeding) in Mexico, after which he married Katia in a civil ceremony in New Jersey. Katia was not Jewish.
Semone separated from Katia in 1974, after which Hilda sued both Semone and Katia and obtained a judgment declaring that the Mexican divorce and Semone’s marriage to Katia were both invalid under New York law, and that Semone was still legally married to Hilda. Hilda and Semone did not reconcile or cohabit after that.
In 1986, Semone became engaged to Ziona, who was Jewish, had been born and raised in Israel, and who held dual United States-Israeli citizenship. Semone did not obtain a civil divorce from Hilda, but he did go before an orthodox rabbinical court in New York and obtained a religious divorce called a “get”.
Semone and Ziona then went to Israel and, upon presenting evidence of the get, were married in 1987. After they married, Semone and Ziona returned to New York and lived there for 27 years until Semone’s death in 2014. They had two children, filed joint federal income tax returns, and shared a home and finances. Semone and Ziona socialized with Hilda, who never challenged the validity of Semone and Ziona’s marriage.
Meanwhile, Hilda filed her federal income tax returns as a single individual and made no statutory claim against Semone’s estate after his death. Semone died in 2014 and was buried (alongside Ziona’s parents) in a burial plot in Israel he and Ziona had bought. The executor of Semone’s estate filed an estate tax return reporting a gross estate of $87 million and claiming a $79 million marital deduction for property left to Ziona. The IRS disallowed the deduction, contending that Semone had never been validly divorced from Hilda and, therefore, had not been validly married to Ziona.
The IRS asserted that Semone’s estate owed an additional $35.5 million in federal estate tax and an accuracy related penalty of $7.1 million. The Tax Court granted a summary judgment that Semone’s marriage to Ziona was legally valid for estate tax purposes. The court explained that identifying a decedent’s surviving spouse is determined by state law. Here, the decedent and both of the spouses in question resided in New York and the estate is being administered in New York, so the IRS contended that New York law was determinative.
In the estate’s view, the IRS was bound by 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 (Israel) without regard to the law of the state where the couple lived.
The court noted that New York has applied this principle consistently since at least 1881. This court held that the marriage in question did not fall under either of the two narrow exceptions to the place of celebration rule: (1) it did not involve incest or polygamy coming within the prohibitions of natural law; and (2) it was not prohibited by positive law.
The court rejected the IRS contention that Semone and Ziona’s marriage was prohibited by natural law because it was bigamous, noting that under New York law, the question was whether the religious divorce and marriage were valid in Israel, the place of celebration. Israel clearly viewed Semone and Hilda as validly divorced and Semone as capable of remarrying, as demonstrated by Israel’s acceptance of the letter from religious court and the issuance of a ketubah (marriage contract) to Semone and Ziona, and the later issuance of a marriage certificate.
Similarly, the court rejected the argument that Semone and Ziona’s marriage violates New York positive law that no “divorce shall be granted otherwise than by due judicial proceedings.” The court quoted what it described as “the oft-expressed concern that ‘Congress did not intend that the [IRS] Commissioner in making tax determinations around marital status, or the courts in passing upon them, should set themselves up as domestic relations tribunals.’ It noted that the parties most interested in the status of Semone and Ziona’s marriage – Semone, Ziona, and Hilda – did not challenge the marriage. No New York court (or any other court) found the marriage invalid. As a result, the marital deduction stood, and the estate did not owe the tax and penalties.
That’s some good lawyering!
©2022 Craig R. Hersch of The Sheppard Law Firm. Learn more at floridaestateplanning.com