941 N.W.2d 769
Neb. Ct. App.2020Background:
- Jennifer and Matthew Bornhorst married in 2010, separated December 2016, and have two young children (born 2013 and 2014).
- Temporary orders (June 2017) awarded joint legal custody and primary physical care to Jennifer; trial occurred April 2018.
- District court entered decree awarding joint legal and physical custody on a 50/50 parenting schedule; Jennifer ordered to pay $283/month child support.
- Jennifer owned an 8.30565% gifted, premarital interest in her family’s S corporation (Eriksen Construction); the court awarded her the stock as separate property but found the stock appreciated during the marriage by at least $102,310 (retained earnings) and classified that growth as marital property for division.
- The court excluded Jennifer’s K-1 distributions from income for child support, finding they were intended to cover her personal tax liability on S-corp pass-through income and inclusion would be speculative and unjust.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Expert testimony admissibility | Jennifer: opposing experts exceeded scope (parenting evaluation vs. custody opining) and CPA improperly opined on law | Matthew: testimony was relevant and admissible | Court: no reversible error; judge presumed to disregard any improper evidence; affirmed |
| Custody (joint legal & physical) | Jennifer: parties cannot communicate; joint custody contrary to children's best interests; sought sole physical custody or joint with tiebreaker to her | Matthew: joint legal/physical appropriate; parents love children and can coparent; proposed 50/50 plan | Court: awarded joint legal and physical custody with limited tiebreaker for nonemergency medical issues; no abuse of discretion |
| Active appreciation (growth of gifted nonmarital S-corp shares) | Jennifer: appreciation was nonmarital/passive and traceable to premarital groundwork or nonmarital forces | Matthew: retained earnings and Jennifer’s role (VP) supported active appreciation; valuation expert tied retained earnings to minimum increase | Court: applied active-appreciation rule; concluded stock value rose at least by retained earnings ($102,310) and that growth was marital; no abuse of discretion |
| Inclusion of K-1 distributions in child support income | Matthew: distributions are income and should be included | Jennifer: distributions were made to cover her share of S-corp tax liability (not available discretionary income) | Court: affirmed exclusion of distributions to the extent they were intended to pay shareholder’s tax liability; excess distributions may be included if shown not tied to tax obligations |
Key Cases Cited
- Donald v. Donald, 296 Neb. 123 (de novo review of custody/property issues but trial court discretion)
- Stephens v. Stephens, 297 Neb. 188 (active-appreciation rule; accrued earnings of nonmarital assets presumed marital unless owning spouse proves otherwise)
- White v. White, 304 Neb. 945 (application of active/appreciation principles)
- Kashyap v. Kashyap, 26 Neb. App. 511 (best-interest factors for custody)
- Coffey v. Coffey, 11 Neb. App. 788 (treatment of closely held entity distributions in child support context)
- Diez v. Davey, 307 Mich. App. 366 (S-corp distributions to cover shareholder tax liability not includable as income for child support)
- Trojan v. Trojan, 208 A.3d 221 (S-corp retained earnings/distributions intended for tax liability may be excluded from income for child support)