The Minnesota Court of Appeals issued an interested case of first impression.
In accordance with the 2007 child support amendment, the Minnesota Court of Appeals, in the case of Marriage of Haefele, held that distributions from a Subchapter S corporation to a shareholder, which are to be transferred by the shareholder to another business entity, are not the shareholder’s income for calculation of Minnesota child support laws.
In the case, the former-husband and child support obligor, petitioned the court for modification of his child support based on the 2007 child support guidelines. When reviewing his motion, the district court calculated the former wife’s income and included the shareholder distributions in question. “The district court relied on the “widely encompassing” definition of gross income found in Minnesota Statutes section 518A.29(a) (2010) and held that the definition undoubtedly included all the distributions from [the former wife’s interest in a corporation].”
The court found that when the distributions and transfer occurred only to further a corporation’s legitimate business purposes, and those distributions were not to be used by the shareholder, then such transfers are not income for purposes of calculating gross income of an obligor as it relates to payment of child support in Minnesota. “Her part as to the distributed funds was only to follow through with her committed role in the corporation’s decision to move some of its retained earnings to TK Investments” Id.
The court supported its finding by stating that the former wife did receive distributions from the S corporation, but that she immediately tranfered them to another business entity solely to cover the his share of the tax liability on the corporation’s retained earnings. Therefore under Minnesota Statute 518A.29(a), such earnings were are business expenses that should not be utilized by the court as child support income.
The appeals court reversed the district court and remanded the case.
As a child support lawyer in Minnesota, I found this case very interesting. I would have had absolutely no problem arguing that the former wife’s receipt of distributions should be included as “gross income” for purposes of child support calculation. Apparently, the former husband’s attorney thought in the same way. Kudos to the former wife’s attorneys for making a convincing and complicated argument to the court of appeals.
