Appeal from Circuit Court, Multnomah County. Clifford B. Olsen, Judge.
Richard A. Uffelman, Portland, argued the cause for appellant. With him on the briefs were Jones, Brown, Hansen & Steenson, Portland.
Gerald R. Pullen, Portland, argued the cause for respondents Kallstrom. With him on the brief was Garr M. King, Portland.
Bryson, Justice. O'Connell, Chief Justice, and Denecke, Holman, Tongue and Howell, Justices.
Plaintiff commenced this suit to obtain reformation of a trust instrument which formed a portion of the property settlement agreement in plaintiff's divorce from defendant Harriet M. Kallstrom. Plaintiff sought payment of certain pre-divorce tax deficiencies from the trust corpus, alleging that a provision for payment of these deficiencies had not been included in the trust due to the mutual mistake of the Kallstroms, the co-settlors of the trust. The trial court found that plaintiff alone was responsible for the tax deficiencies and denied the relief requested. Plaintiff appeals.
It appears from the record that John and Harriet Kallstrom were divorced on May 23, 1967. Under the terms of a negotiated property settlement agreement, which was made a part of the divorce decree, their assets were placed in trust to pay the income to the parties for life with remainder to the parties' two children. The divorce decree contained a provision, paragraph 15, which stated:
"* * * The defendant [John E. Kallstrom] shall pay * * * any and all obligations incurred by or on behalf of the parties prior to February 1, 1967 * * *."
Following the divorce, the Internal Revenue Service audited the Kallstroms' joint income tax returns for 1965 and 1966 and determined that they owed an additional $6,280.37 in personal income taxes. Plaintiff retained legal counsel who succeeded in reducing this liability to $4,635.70 plus interest. The attorney fees for this service amounted to $583.32.
Plaintiff sought reformation to allow the trustee to disburse funds to discharge the tax liabilities and pay the attorney's fees, or in the alternative, to modify the divorce decree to achieve this result. At trial, there was a conflict in the testimony concerning whether the Kallstroms had intended the property settlement to shift full responsibility for unknown tax liabilities to Mr. Kallstrom. Mr. Kallstrom testified:
"Q. If you had known of the taxes, the federal tax deficiencies billed against the returns of you and Mrs. Kallstrom, that you had filed, would you have settled without providing for payment of the federal taxes?