#24618-rev & rem-JKM 

2008 SD 74 

IN THE SUPREME COURT 

OF THE 

STATE OF SOUTH DAKOTA 

* * * * 

APRIL K. NACE, Plaintiff and Appellee, 

v. 

DANIEL A. NACE, Defendant and Appellant. 

* * * * 

APPEAL FROM THE CIRCUIT COURT OF 

THE SECOND JUDICIAL CIRCUIT 

MINNEHAHA COUNTY, SOUTH DAKOTA 

* * * * 

HONORABLE STUART L. TIEDE 

Judge 

* * * * 

MARCENE J. SMITH of 

Wilkinson & Wilkinson Attorneys for plaintiff 

DeSmet, South Dakota and appellee. 

MICHAEL M. BILLION 

AARON J. EMERSON of 

Myers & Billion, LLP Attorneys for defendant 

Sioux Falls, South Dakota and appellant. 

* * * * 

 CONSIDERED ON BRIEFS 

 ON MAY 19, 2008 

 OPINION FILED 07/30/08 
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MEIERHENRY, Justice 

[¶1.] Daniel Nace appeals a circuit court’s acceptance of a referee’s child 

support recommendation. 

FACTS 

[¶2.] April and Daniel Nace divorced in January 2006. Daniel, the 

noncustodial parent of the parties’ two minor children, was ordered to pay April 

$574 per month in child support. April later petitioned to modify child support 

alleging a change in her employment and an increase in daycare costs. April also 

requested deviations, pursuant to SDCL 25-7-10(2) and (6), for the “financial 

condition of either party” and the “voluntary act reducing either parent’s income.” 

[¶3.] Daniel and four other family members own Murray Construction, LLC 

(the company). Daniel personally owns 18.16 percent of the company. The 

managing members of the company are Daniel’s mother, Teresa Nace, and his aunt, 

Bonnie Murray. Initially, 11 percent of the company was gifted to Daniel. In 2006, 

Daniel purchased approximately 7 percent more of the company from his uncle for 

$432,700. The company loaned him the funds for the purchase and added the same 

amount to an account receivable in his name. Daniel provided no out-of-pocket 

money for the purchase. The account receivable also contained other loans for 

Daniel’s personal expenses and for his federal tax liability that had been paid by the 

company on his behalf. The loans were interest free with no promissory notes or 

payment schedules. All other members of the company, even the managing 

members, had similar debt to the company for hundreds of thousands of dollars. At 

the time of the petition, Daniel’s account receivable totaled $567,549.13. Daniel had 
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personally made no payments on the account receivable debt in all of his years as a 

member. The only reduction of Daniel’s account receivable was an offset of his 

share of the company’s 2006 bonus against the account balance. Daniel’s net share 

of the company was valued at $742,296.23. 

[¶4.] Although a substantial portion of the company’s income was retained, 

the company paid Daniel $23,400 in compensation plus a bonus of $25,000 and paid 

his federal income taxes of $18,521. The referee recognized that the bonus was not 

directly paid to Daniel but concluded that Daniel “received” the payment because it 

reduced his debt to the company. The referee made the determination without a 

finding that Daniel had control over the distribution of the bonus. Relying on 

Roberts v. Roberts, the referee also concluded that Daniel’s federal income tax 

liability paid by the company was part of Daniel’s “gross income because the 

amount of the tax will eventually be deducted from [Daniel’s] capital account as a 

distribution and applied to the balance due on his loan.” Citing, 2003 SD 75, ¶26, 

666 NW2d 477, 484. Ultimately, the referee recommended an increase in Daniel’s 

child support obligation to $1,194 per month. 

[¶5.] Daniel objected to several of the referee’s findings. The circuit court 

accepted the referee’s findings, conclusions and recommendation. Daniel now 

appeals from the circuit court’s order. He contends that the referee erroneously 

included in his gross income, his bonus and his company-paid federal taxes. He 

claims that he did not receive the money, therefore the amounts should not have 

been included in his gross income. 
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ISSUES 

1. Whether Daniel’s bonus income was properly included in 

his gross income for child support purposes. 

2. Whether money paid on Daniel’s behalf for tax liability 

should be used to calculate his gross income for child 

support purposes. 

STANDARD OF REVIEW 

[¶6.] We review findings of fact under the clearly erroneous standard. 

Roberts, 2003 SD 75, ¶8, 666 NW2d at 480 (citation omitted). We review questions 

of law de novo. Id. “An award of child support will not be disturbed unless the trial 

court clearly abused its discretion.” Id. (citation omitted).

1. Whether Daniel’s bonus income was properly included in 

his gross income for child support purposes. 

[¶7.] Child support obligations are based on the parents’ “means” or ability 

to pay. Id. ¶11, 666 NW2d at 480 (citing SDCL 25-7-6.1). In order for Daniel’s 

“bonus” and the amount paid in taxes on his behalf to be considered gross income 

for child support purposes, the amounts must first be received by Daniel and then 

fit within a category listed under SDCL 25-7-6.3.1 Roberts, 2003 SD 75, ¶19, 666 

 (continued . . .) 

1. SDCL 25-7-6.3 provides as follows: 

The monthly net income of each parent shall be determined by 

the parent’s gross income less allowable deductions, as set forth 

herein. The monthly gross income of each parent includes 

amounts received from the following sources: 

(1) Compensation paid to an employee for personal services, 

whether salary, wages, commissions, bonus, or otherwise 

designated; 

(2) Self-employment income including gain, profit, or loss from a 

business, farm, or profession; 

(3) Periodic payments from pensions or retirement programs, 

including social security or veteran’s benefits, disability 

payments, or insurance contracts; 
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___________________ 

(. . . continued) 

NW2d at 481-82. A parent “receives” income when the allotted amount could be 

used by the parent to “support himself/herself and, thus, his child.” Id. ¶¶14-15, 

666 NW2d at 482. If the income derives “from a business, profession or farming or 

from rentals, royalties, estates, trusts or other sources, then it must be treated as 

provided by SDCL 25-7-6.6.” Id. ¶19, 666 NW2d at 482. 

[¶8.] Daniel presented evidence that he did not have access to the bonus to 

support himself because it was applied directly to offset his loan from the company. 

Normally, before including such a bonus as income, the referee/court would need to 

determine if the shareholder had the ability to control its distribution. See id. ¶21, 

666 NW2d at 483 (holding that if a shareholder has the ability to control a 

distribution we deem it constructively received for child support purposes). A 

shareholder may be considered to have control over and to have received retained 

company income if the shareholder has the ability to direct distributions. Id. 

Whether a person can control distributions is a fact specific inquiry. See id.

(4) Interest, dividends, rentals, royalties, or other gain derived 

from investment of capital assets; 

(5) Gain or loss from the sale, trade, or conversion of capital 

assets; 

(6) Unemployment insurance benefits; 

(7) Worker’s compensation benefits; and 

(8) Benefits in lieu of compensation including military pay 

allowances. 

If the income of the parents is derived from seasonal 

employment, or received in payments other than regular, 

recurring payments, such income shall be annualized to 

determine a monthly average income. 
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[¶9.] In determining whether a parent/obligor has control over a company’s 

distributions, other courts have considered a variety of factors. The factors include 

the following: 1) comparison of the amount of retained income versus the 

parent/obligor’s gross income and percent of ownership; 2) a history or pattern of 

past retained income; 3) the company’s need to retain income to “maintain or 

increase past or current levels of income production as opposed to unnecessary, 

premature, unrelated or overly aggressive expansion of business,” Reed v. Reed, 

1997 WL 34960, at *2 (OhioCtApp 1997); 4) whether the retained income is 

acquired from the current year’s profits or out of past year(s)’ savings; 5) 

comparison of the ordinary rate of return for a similar investment, Clark v. Clark, 

779 A2d 42, 53-54 (Vt 2001); 6) the ability to receive favorable or fictitious loans 

(constructive distributions) from the company, see West v. West, 891 So2d 203, 217-

18 (Miss 2004); and 7) “any other factor that bears on the issue of whether the 

obligor is manipulating his or her income in an effort to avoid the proper payment of 

child support.” Taylor v. Fezell, 158 SW3d 352, 359 (Tenn 2005); see also Walker v. 

Grow, 907 A2d 255, 270-71 (MdCtSpecApp 2006) (noting that minority status is not 

dispositive on control issues stating “nature of the business, the governing 

documents, and the business and non-business relationship among the shareholders 

would also have to be considered”). Furthermore, whenever company income is 

imputed to a parent the circuit court or referee “should consider the totality of the 

circumstances.” See Kestner v. Clark, 182 P3d 1117, 1122 (Alaska 2008); see also 

Reed, 1997 WL 34960, at *2 (noting that a court must analyze the “totality of the 

financial circumstances” in each case). Although these factors are neither 
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mandatory nor exhaustive, they provide guidance in analyzing whether income 

retained by a company should be considered when calculating gross income for child 

support purposes. 

[¶10.] If the parent is avoiding obligations by cloaking a distribution in 

debtor/creditor language, the referee may consider it as a distribution of income 

notwithstanding the language of SDCL 25-7-6.5, which requires a finding of 

insufficient support before considering a parent’s ability to borrow. See Ochs v. 

Nelson, 538 NW2d 527, 529 (SD 1995) (noting that although the testimony stated 

the company must retain its income, the evidence of a shareholder borrowing money 

without making any repayment on the loan for three years conflicted with this 

testimony); see also West, 891 So2d at 217-18 (listing factors to consider). A “loan” 

may increase a parent’s paper debt; however, if the loan proves to be fictitious the 

money should be considered a distribution. See Ochs, 538 NW2d at 529. 

[¶11.] In this case, the referee failed to make any specific finding regarding 

Daniel’s control over the bonus’ distribution. Thus, we remand to the circuit court 

for the determination of whether Daniel had control over the distribution of the 

$25,000 bonus amount. 

2. Whether money paid on Daniel’s behalf for tax liability 

should be used to calculate his gross income for child 

support purposes. 

[¶12.] Daniel next claims that his tax liability paid by the company should 

not have been considered in calculating his child support obligation. He contends 

that he never received this money because the company added the amount of tax 

liability paid on his behalf to his account receivable total. He also argues that if it 
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is included in his gross income, the referee must consider possible deductions or 

deviations available under SDCL 25-7-6.7 and SDCL 25-7-6.10. Based on our 

holding in Roberts, the referee and circuit court did not err by including the tax 

amount in Daniel’s gross income. Nevertheless, as in Roberts, on remand the 

referee should consider whether the gross income may be reduced by a deduction 

under SDCL 25-7-6.7 or whether the set schedule amount may be deviated from 

under SDCL 25-7-6.10.2 See Roberts, 2003 SD 75, ¶26, 666 NW2d at 484. 

[¶13.] We reverse and remand. 

[¶14.] GILBERTSON, Chief Justice and KONENKAMP, and ZINTER, 

Justices, concur. 

[¶15.] SABERS, Justice, concurs specially. 

SABERS, Justice (concurring specially). 

[¶16.] I write specially to point out that upon proper application, the referee 

can consider alternatively the value of the obligor’s interest in this family owned 

business for the purpose of support payments. See SDCL 25-7-6.5 (providing that 

“[i]f a child’s needs are not being met through the income of the parents, assets 

shall be considered. If the parents have savings, life insurance, or other assets in 

2. Daniel alternatively argued that if the $25,000 bonus is included in his gross 

income, it should be offset by the increase in his account’s receivable for the 

company’s payment of his tax obligation. Daniel did not make this argument 

to the referee or circuit court, and we will not consider it on appeal. See 

SDCL 25-7A-6 (noting that the circuit court’s “hearing [is] to be solely on the 

record established before the referee”). 
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amounts unrelated to income, these holdings shall be considered. The parents’ 

ability to borrow may be used to determine financial ability.”).