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petitioner concludes that the claim of the Edwards children is
imposed by law and deductible under section 2053(a)(3).
Petitioner's argument in this regard does not carry the day.
The fact that the 1984 PSA was merged, or incorporated, into the
final judgment is not dispositive of the critical issue before
us. Our inquiry must focus on the extent of the California
divorce court's power to modify the terms of the 1984 PSA before
incorporating it into the final judgment.
In this regard, our examination of California law indicates
that, absent exceptional circumstances, a California divorce
court lacks the power to modify a property settlement agreement
before incorporating it into a divorce decree. See Flynn v.
Flynn, 265 P.2d 865 (Cal. 1954); Adams v. Adams, 177 P.2d 265
(Cal. 1947). The Court of Appeals for the Ninth Circuit has
addressed this question in Gray v. United States, 541 F.2d 228
(9th Cir. 1976). In Gray, the decedent husband and his wife had
entered into a property settlement agreement, whereby the husband
agreed to maintain an insurance policy on his life, designating
his wife as the beneficiary. Id. at 230. The husband died in a
plane crash shortly after the divorce court had entered a divorce
decree, wherein the court approved the property settlement
agreement and ordered the parties to carry out its provisions.
Id. The proceeds of the policy were paid directly to the wife;
the executor included the proceeds in the gross estate and
claimed a deduction for that same amount. Id. at 231. The
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