949 N.W.2d 369
Neb. Ct. App.2020Background
- Dennis and Cantrell Harrison were married with two children; during the marriage they each owned 50% of Custom Pumping Solutions, LLC (CPS) and C & D Leasing, LLC; CPS elected S-corp status and C & D was a partnership.
- Cantrell filed for dissolution; parties entered a mediated property/alimony agreement awarding CPS and C & D Leasing to Dennis and certain equalization/alimony payments to Cantrell; custody remained with Cantrell and child-support issues proceeded to trial.
- At trial the district court calculated Dennis’ child-support income by averaging 2015–2017 and including his W-2 wages, his K-1 ordinary business income (net profits) from the companies, and adding back one-half of the companies’ depreciation deductions, producing a monthly income used to set support at $2,553.
- The court earlier appointed a receiver for CPS and C & D and ordered CPS to deposit $7,500 for receiver expenses; it also awarded Cantrell $5,000 in temporary attorney fees and continued payment of her CPS salary per the parties’ stipulation.
- Dennis appealed, challenging (inter alia) the inclusion of net profits and depreciation in his income for child support, denial of his motion to reopen evidence, and orders re: temporary alimony continuation, receivership fees, and temporary attorney fees.
Issues
| Issue | Cantrell's Argument | Dennis' Argument | Held |
|---|---|---|---|
| Temporary alimony continuation of Cantrell’s CPS salary | Salary continuation was part of negotiated temporary relief and later terminated by final decree as agreed | Court erred by continuing temporary alimony/salary beyond appropriate time | No reversible error; Cantrell withdrew her temporary-alimony claim in exchange for continued salary and Dennis did not specifically assign the issue on appeal |
| Receivership fees ($7,500 deposit) | Fee was reasonable given receiver duties and bond premium; CPS (jointly owned) could bear cost | Fee improper; Cantrell requested receivership so she should bear costs and expected costs were not proven | Affirmed; trial court did not abuse discretion and fee allocation to the jointly owned company was reasonable |
| Temporary attorney fees ($5,000) | Fee supported by record of extensive litigation and filings | Fee unsupported by affidavit of services and time | Affirmed; amount was not unreasonable under the record and trial-court discretion |
| Child support calculation (inclusion of S-corp K-1 net profits and added-back depreciation) | Court could attribute corporate net profits and add back depreciation to reach parental income | Improper to attribute undistributed S-corp net profits and depreciation where retained earnings and depreciation were not shown to be excessive or artificial; only wages and actual distributions (less tax-related distributions) should be income | Reversed and remanded: wages and appropriate portion of distributions may be used; cannot attribute retained earnings absent evidence they are excessive/inappropriate; depreciation from jointly owned businesses should not have been added back under these facts |
Key Cases Cited
- Marshall v. Marshall, 298 Neb. 1, 902 N.W.2d 223 (2017) (income for child support is fact-specific and not strictly taxable income).
- Guthard v. Guthard, 942 N.W.2d 792 (Neb. App. 2020) (retained S-corp earnings may be income only if excessive/inappropriate; distributions tied to tax liabilities should not be treated as income).
- Bornhorst v. Bornhorst, 941 N.W.2d 769 (Neb. App. 2020) (S-corp distributions intended to cover shareholder tax liabilities are not includable as income; excess distributions may be includable).
- Gress v. Gress, 271 Neb. 122, 710 N.W.2d 318 (2006) (party claiming depreciation must prove ordinary/necessary assets and use straight-line method; once proven, calculations are mathematical).
- Hotz v. Hotz, 301 Neb. 102, 917 N.W.2d 467 (2018) (burden and procedures for claiming depreciation under the guidelines; district court did not abuse discretion in denying unproven depreciation deduction).
- Gase v. Gase, 266 Neb. 975, 671 N.W.2d 223 (2003) (owner of wholly owned S-corp deemed self-employed for depreciation treatment under the guidelines).
- Gammel v. Gammel, 259 Neb. 738, 612 N.W.2d 207 (2000) (depreciation, including §179 deductions, should be added back when appropriate under prior rule for self-employed parents).
- Sayer v. Bowley, 243 Neb. 801, 503 N.W.2d 166 (1993) (trial court’s allocation of receivership expenses reviewed for abuse of discretion).
- Garza v. Garza, 288 Neb. 213, 846 N.W.2d 626 (2014) (factors for awarding attorney fees in dissolution actions).