APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION
Nancy S. White, Third-Party Defendant-Appellee)
516 N.E.2d 509, 163 Ill. App. 3d 94, 114 Ill. Dec. 354 1987.IL.1593
Appeal from the Circuit Court of Cook County; the Hon. Willard J. Lassers, Judge, presiding.
PRESIDING JUSTICE SCARIANO delivered the opinion of the court. STAMOS and HARTMAN, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE SCARIANO
The plaintiff Robert White brought this action against defendant accountants Touche Ross & Company and William Schwanbeck (hereinafter Touche Ross), and defendant attorneys Allen Gerrard, Michael Gerrard, and Gerrard and Gerrard (hereinafter Gerrard), for alleged negligence in connection with the negotiation of a property settlement agreement entered into by the plaintiff and his ex-wife Nancy White. Touche Ross brought a third-party action against Nancy White for contribution, indemnity and equitable apportionment, alleging fraud in the inducement of the agreement. The circuit court entered an order dismissing the third-party complaint and certifying the order for immediate appeal pursuant to Supreme Court Rule 304. (107 Ill. 2d R. 304.) Robert White and Gerrard are not parties to the action before this court. Nancy White did not appeal the circuit court's dismissal of the equitable apportionment count.
In his complaint, Robert White alleges that he hired Gerrard and the certified public accounting firm of Touche Ross, including its former partner William Schwanbeck, to render legal and accounting services, respectively, to him in connection with the White's divorce action. Mr. White contends that the defendants reviewed the memorandum of agreement (hereinafter agreement), which was signed after protracted negotiations, and allegedly advised him that he would be able to deduct for tax purposes all of the alimony payments provided for in paragraph 5 of that agreement.
In Mrs. White's initial settlement proposal she sought the marital home and a $150,000 payment from Mr. White upon the entry of a judgment of divorce. She also requested support payments totaling $960,000, payable at the rate of "$4000.00 per month for 240 months, defeasible upon the death of the wife or the making of 240 such monthly payments, whichever shall first occur," with a reduction to $2,000 per month if Mrs. White remarried.
Following further negotiations, Nancy White made a second proposal in which she asked for a payment of a total of $175,000 "in consideration of her waiver, remission and relinquishment of any and all claims" which she might have to property of Mr. White, $75,000 payable upon the entry of a judgment of divorce and $100,000 upon the sale of the marital home or August 1, 1969, whichever occurred first. Mrs. White also sought payments totaling $540,000 "as alimony in gross . . . in equal monthly installments of Two Thousand Two Hundred Fifty Dollars ($2,250) each," until the earlier of the death of Mrs. White or the making of 240 payments, subject to a reduction if she remarried. Mr. White objected that the property settlement proposed by Mrs. White did not effect an equal division of property; accordingly, the maximum amount he would pay in settlement of his wife's property interests was $100,000. Thus, negotiations reached an impasse.
Mr. White thereupon retained Touche Ross for the purpose of reviewing and commenting upon Mrs. White's second proposal. Touche Ross concluded that due to a marked difference in their tax brackets, both parties could retain greater after-tax income if the proposal were restructured to provide for a property settlement of $100,000 and deductible alimony payments to Mrs. White greater than those that she had demanded in her second draft. The Internal Revenue Code provides that periodic payments made pursuant to a decree of divorce or of separate maintenance are income to the recipient (I.R.C. sec. 71(a) (1982)), and deductible by the payor. I.R.C. sec. 215 (1982).
On February 14, 1969, the parties' attorneys and Touche Ross met to discuss restructuring the second proposal to take advantage of the difference in the parties' tax brackets. At the meetings, Mr. White's representatives proposed: (a) a lump-sum property settlement of $100,000; and (b) a $180,000 increase in the amount of the alimony payments previously requested by Mrs. White, bringing the total alimony payments to $720,000, payable at the rate of $57,000 per year for the first six years and $27,000 per year for the remaining 14 years. Mr. White thus offered Mrs. White $180,000 in taxable payments in exchange for $75,000 in nontaxable payments. Mrs. White's attorney agreed to study the proposal further.
Touche Ross then prepared an "Analysis of Net Available Funds" in which it computed the after-tax funds that Mr. and Mrs. White each would have available during the 10-year period beginning in 1969, assuming that Mr. White made payments of deductible alimony in the amount of $57,000 per year during the first six years and $27,000 per year thereafter. A critical assumption underlying the analysis was Touche Ross' belief that Mrs. White would include in her taxable income the full amount of all support payments made by Mr. White.
Mrs. White approved the proposal discussed at the February 14 meeting and her attorney prepared a revised agreement, wherein the proposed payments were of the amounts and timed in accordance with the "Analysis of Net Available Funds." In paragraph 6 of the agreement, the parties stipulated that all the payments under paragraph 5 would be deemed "made by the husband to the wife in discharge of a legal obligation to support and maintain the wife, and to be made in connection with an agreement incident to a judgment for divorce within the meaning and purview of Sections 71 and 215 of the United States Internal Revenue Code of 1954, as amended." The agreement then stated that the alimony payments ...