Marriage of Haefele v. Haefele
2013 Minn. LEXIS 276
| Minn. | 2013Background
- Douglas Haefele and Kathy Haefele divorced in 2000; judgment required Douglas to pay child support and maintain insurance.
- In 2010, Douglas sought to modify child support arguing Dura-Supreme S-corp distributions to Kathy should be included in her gross income.
- Dura-Supreme is a closely-held S-corp jointly owned by Kathy and her brothers; Kathy has 20% ownership and limited control.
- Distributions in 2007–2009 totaled $4,949,449; funds funded TK Investments and some were used to pay Kathy’s taxes.
- District court included all distributions as gross income; court of appeals reversed, excluding TK Transfers and tax payments.
- Supreme Court reverses, holds 518A.30 governs and remands for recalculation consistent with the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| How to compute gross income for a closely-held corporation | Douglas—518A.30 applies; include distributions | Kathy—distributions not available, not gross income | 518A.30 applies; include at least proportional share of gross receipts |
| Are distributions to fund TK Investments gross income regardless of availability | Distributions should be income under the statutory formula | Distributions not available to Kathy; not income | Distributions are income under 518A.30; availability irrelevant; must calculate from gross receipts |
| Should tax payments by the corporation on Kathy’s behalf be deductible as ordinary and necessary expenses | Taxes paid reduce income; should not be deducted | The district court has discretion to treat such payments as ordinary and necessary expenses | Tax payments may be included; not automatically excluded; remand to apply 518A.30 correctly |
| Whether Hubbard County Health & Human Services v. Zacher governs this case | Zacher applies to undistributed earnings | Zacher controls the analysis | Zacher is inapposite under current law; must apply 518A.30 under plain text |
| Need to remand for proper calculation under 518A.30 | Court already found wrong framework | Remand unnecessary if proper formula applied | Remand required to identify gross receipts, cost of goods sold, and applicable expenses under 518A.30 |
Key Cases Cited
- Hubbard County Health & Human Services v. Zacher, 742 N.W.2d 223 (Minn.App.2007) (undistributed S-corp earnings analysis; case-like factors considered)
- Lee v. Lee, 775 N.W.2d 631 (Minn.2009) (periodic payments interpretation in gross income context)
- Hans Hagen Homes, Inc. v. City of Minnetrista, 728 N.W.2d 536 (Minn.2007) (statutory interpretation in public-law tax context)