930 N.W.2d 589
N.D.2019Background
- Steve and Kathy Wolt divorced in 2009; Kathy has primary residential responsibility for three children and Steve was ordered to pay child support.
- After the second-oldest child turned 18, Steve moved to modify support for the remaining minor child.
- Steve is president and sole shareholder of Wolt Transport, Inc., an S corporation; his federal tax returns and W-2 wages were central to the income calculation.
- Steve argued his W-2 wages from the S corporation should be treated as self-employment income under the Child Support Guidelines, producing a lower net monthly income and lower support.
- The State argued W-2 wages are separate regular earnings and not part of net self-employment income under the Guidelines, yielding a higher support amount.
- The district court adopted the State’s interpretation, set monthly support at $923, and denied Steve’s Rule 11 sanctions motion; the Supreme Court affirmed.
Issues
| Issue | Wolt's Argument | State's Argument | Held |
|---|---|---|---|
| Whether W-2 wages from an S corporation constitute self-employment net income under the Child Support Guidelines | W-2 wages should be included as self-employment income under the definition of “self-employment” | W-2 wages are separate wages and must be added after calculating net self-employment income; they cannot be included in net self-employment income | W-2 wages are not self-employment net income and must be treated separately as regular earnings |
| Proper method to calculate net income from self-employment for child support | Use the definition of self-employment to include S-corp wage payments as self-employment income | Start with total income for IRS purposes, compute net self-employment income per § 75-02-04.1-05, then add wages separately | Calculation is governed by § 75-02-04.1-05; net self-employment excludes wages, which are added afterward |
| Whether the district court erred in applying a five-year average of self-employment activity | Five-year averaging was acceptable but Wolt disputed treatment of wages | Five-year averaging of tax returns was proper and uncontested; wages still treated separately | Five-year averaging was proper; dispute over wages resolved for State’s method |
| Whether sanctions or recusal were warranted against the State/attorney/judge | Sanctions and recusal were warranted for allegedly frivolous positions and judge’s agreement with State | State’s positions were legally reasonable; no basis for sanctions or recusal | Court denied sanctions and found no merit to recusal claim |
Key Cases Cited
- Knudson v. Knudson, 916 N.W.2d 793 (N.D. 2018) (standards of review and guidelines govern child support determinations)
- Halberg v. Halberg, 777 N.W.2d 872 (N.D. 2010) (other income must be added to net self-employment to calculate gross income)
- Gunia v. Gunia, 763 N.W.2d 455 (N.D. 2009) (S-corporation pass-through income attributable to shareholder)
- Raap v. Lenton, 885 N.W.2d 777 (N.D. 2016) (correct finding of obligor’s net income is essential)
- Thompson v. Johnson, 912 N.W.2d 315 (N.D. 2018) (requirements for documenting income and applying self-employment calculations)
- Wolt v. Wolt, 778 N.W.2d 786 (N.D. 2010) (prior appeals in the underlying family law matter)
- Wolt v. Wolt, 803 N.W.2d 534 (N.D. 2011) (prior appeal regarding residential responsibility)