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Cite as 28 Neb. App. 156

Joel Guthard, appellee, v. 

Jennifer Guthard, appellant.

___ N.W.2d ___

Filed April 14, 2020. No. A-18-498.

1. Modification of Decree: Child Support: Appeal and Error.

Modification of child support is entrusted to the discretion of the trial 

court. An appellate court reviews proceedings for modification of child 

support de novo on the record and will affirm the judgment of the trial 

court absent an abuse of discretion.

2. Evidence: Appeal and Error. In a review de novo on the record, an 

appellate court reappraises the evidence as presented by the record and 

reaches its own independent conclusions with respect to the matters 

at issue.

3. Judgments: Words and Phrases. A judicial abuse of discretion 

requires that the reasons or rulings of the trial court be clearly untenable insofar as they unfairly deprive a litigant of a substantial right and 

a just result.

4. Child Support: Rules of the Supreme Court. Interpretation of the 

Nebraska Child Support Guidelines presents a question of law.

5. Judgments: Appeal and Error. When reviewing questions of law, 

an appellate court resolves the questions independently of the lower 

court’s conclusions.

6. Modification of Decree: Child Support: Proof. A party seeking to 

modify a child support order must show a material change in circumstances which (1) occurred subsequent to the entry of the original decree 

or previous modification and (2) was not contemplated when the decree 

was entered.

7. Child Support: Rules of the Supreme Court: Words and Phrases.

The Nebraska Child Support Guidelines provide that in calculating 

the amount of child support to be paid, a court must consider the total 

monthly income, which is defined as income of both parties derived 

from all sources, except all means-tested public assistance benefits 

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www.nebraska.gov/apps-courts-epub/

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which includes any earned income tax credit and payments received for 

children of prior marriages and includes income that could be acquired 

by the parties through reasonable efforts.

8. Child Support: Rules of the Supreme Court. The Nebraska Supreme 

Court has not set forth a rigid definition of what constitutes income, but 

instead has relied upon a flexible, fact-specific inquiry that recognizes 

the wide variety of circumstances that may be present in child support cases.

9. Child Support: Taxation: Equity: Rules of the Supreme Court.

Income for the purposes of calculating child support is not necessarily 

synonymous with taxable income. A flexible approach is taken in determining a person’s income for purposes of child support, because child 

support proceedings are, despite the child support guidelines, equitable 

in nature.

10. Child Support: Employer and Employee. Income for the purposes of 

calculating child support should not be based on income that is speculative in nature and over which the employee has little or no control.

11. Taxation: Corporations: Words and Phrases. Subchapter S is a tax 

status designed to tax corporate income on a pass-through basis to shareholders of a small business corporation.

12. Taxation: Corporations. Since a subchapter S corporation is not taxed 

on its earnings, the various income, expense, loss, credit, and other tax 

items pass through and are taxable to or deductible by shareholders in a 

manner analogous to that which is applicable to partners.

13. Child Support: Corporations. Any determination whether and to 

what extent the undistributed earnings of an S corporation should be 

deemed available income to a parent-shareholder for child support 

purposes must be based on the particular circumstances presented in 

each case.

14. ____: ____. A fact-specific inquiry is necessary to balance considerations that a well-managed corporation may be required to retain a 

portion of its earnings to maintain corporate operations and survive 

fluctuations in income, but corporate structures should not be used to 

shield available income that could and should serve as available sources 

of child support funds.

15. ____: ____. Relevant factors to weigh in determining what portion of 

undistributed corporate earnings may be available to a shareholder for 

child support purposes should include the following considerations: (1) 

the shareholder’s level of control over the corporation’s distributions—

as measured by the shareholder’s ownership interest, (2) the legitimate 

business interests justifying the retained corporate earnings, and (3) the 

corporation’s history of retained earnings and distributions to determine 
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whether there is any affirmative evidence of an attempt to shield income 

by means of retained earnings.

16. Child Support: Rules of the Supreme Court: Presumptions: Proof.

If the moving party shows that the nonmoving party earns or can reasonably expect to earn a certain amount of income on a regular basis, 

a rebuttable presumption of including such income arises under the 

Nebraska Child Support Guidelines. After the moving party has met its 

burden of proof, the nonmoving party must produce sufficient evidence 

to rebut the presumption that the application of the guidelines will 

result in a fair and equitable child support order before deviation from 

the guidelines is appropriate. If the nonmoving party can show that the 

included income is speculative in nature and over which the person has 

little or no control, the presumption of including the income is rebutted 

and it shall be excluded from the calculation.

17. Child Support: Corporations: Taxes: Evidence: Proof. Distributions 

made to a shareholder of a subchapter S corporation, as reported on a 

schedule K-1, should not be included as income for purposes of calculating child support for those portions of the distribution intended to offset 

the shareholder’s personal tax liability on his or her proportionate share 

of the S corporation’s pass-through earnings. However, if the evidence 

establishes that the total distribution exceeds the shareholder’s tax liability on his or her proportionate share of the S corporation’s pass-through 

earnings, such excess portions of the distribution may be included as 

income for child support purposes unless the evidence demonstrates that 

such excess amounts are reasonably expected to be applied to future 

tax liabilities.

Appeal from the District Court for Buffalo County: William 

T. Wright, Judge. Affirmed.

Nathan P. Husak and Loralea L. Frank, of Bruner Frank, 

L.L.C., for appellant.

Elizabeth J. Klingelhoefer, of Jacobsen, Orr, Lindstrom & 

Holbrook, P.C., L.L.O., for appellee.

Moore, Chief Judge, and Pirtle and Bishop, Judges.

Bishop, Judge.

Jennifer Guthard appeals from the decision of the Buffalo 

County District Court denying her request for an upward 

modification of Joel Guthard’s child support obligation. To 
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determine Joel’s income for child support purposes, Jennifer 

sought inclusion of his salary; nonpassive income, distributions, and “in-kind” benefits from Joel’s 50-percent ownership 

in an S corporation; and rental income from another business. 

Limited by the evidence presented to it, the district court 

declined to include income beyond Joel’s salary for child support purposes. Finding no abuse of discretion, we affirm.

BACKGROUND

Jennifer and Joel were divorced in December 2004. Pursuant 

to the decree, Jennifer was awarded custody of the parties’ two 

children, born in 2002 and 2004, subject to Joel’s specified 

parenting time. Joel was ordered to pay child support in the 

amount of $1,137 per month; this was based on his earning 

capacity of $69,000 per year and Jennifer’s earning capacity of 

$19,968 per year.

Joel filed a complaint to modify in March 2016 and, subsequently, an amended complaint in May, seeking to modify his 

parenting time schedule and establish a procedure for reimbursement of noncovered medical expenses. Jennifer filed a 

“counter complaint” alleging that Joel’s income had increased, 

thus warranting an upward modification of his child support obligation.

At the modification trial in March 2018, the district court 

was informed that the parties had, for the most part, agreed on 

a modification of the parenting plan. The only issue addressed 

at trial which is relevant to this appeal is the modification of 

child support. Jennifer asked the court to include Joel’s 2016 

schedule K-1 (K-1) of “approximately $300,000” from his 

50-percent ownership in a corporation when determining his 

income for purposes of child support. Joel and the accountant 

who prepared his personal tax returns testified, and numerous exhibits, including Joel’s tax returns and K-1’s, were also 

received into evidence.

Joel testified that he and Brad Snyder are each 50-percent 

owners of GAS Electrical Services, Inc. (GAS Electrical), 
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which is a subchapter S corporation. The corporation was 

originally started by Snyder in 2005. GAS Electrical is an 

industrial electrical contractor that works on ethanol plants; the 

corporation is based out of Iowa and “would be an Iowa corporation with a Nebraska corporation, along with being licensed 

in South Dakota, Kansas, Missouri, [and] Colorado.” Joel said 

that Snyder is “the paperwork guy” for the corporation and 

that Joel is “the work guy.” Joel said that he is “more a field 

guy going from job site to job site” and that he is “on the road 

more often than not” because “everything is on the road.” Joel 

does “all the electrical aspects in the field” and supervises 

employees. At the time of trial, the corporation had 9 to 12 

employees, but has had up to 32 employees.

Joel denied that he kept track of the business and its 

finances. When asked if he reviewed business expenses and 

financial statements, Joel responded, “We go through [sic] 

maybe once every year.” When asked if he had any control in 

deciding when assets are bought or sold by GAS Electrical, 

Joel said “my co-partner buys his parts, I buy my parts and 

things on that order”; he agreed he had a 50-percent say in 

the assets of the company. Joel also agreed that he and Snyder 

decide together how income is going to be distributed and 

how much money is going to be retained in the business. They 

also determine the compensation of all employees of GAS 

Electrical, including their own; Joel and Snyder get the same 

salary. Joel’s salary was $50,000 in 2015 and was $65,000 in 

2016 and 2017 (he did not give himself a raise in 2017 despite 

stating that 2016 was an “exceptional year” for the business). 

Joel said that the business pays a percentage of insurance 

premiums, he drives a company-owned vehicle (the company 

pays for the fuel, tires, and all vehicle expenses), he has a 

company credit card (“[f]or road expenses on fuel only and 

whatever material [he] might have to do”), and the company 

pays for his cell phone. And as will be explained below, Joel 

also receives distributions from GAS Electrical to pay his personal income taxes.
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Joel testified that he and Snyder also formed SnyGut LLC 

in 2016 or 2017; they are each 50-percent owners. SnyGut 

owns a bar, which the company leases out to another individual for $1,200 per month. Joel acknowledged that his annual 

percentage of the rental income is $7,200, “[m]inus whatever 

maintenance and all that [sic] other fees would be.” However, 

on cross-examination, he said that the rent is paid to SnyGut 

and that the $7,200 was not paid to him.

Errol Coslor, a certified public accountant, testified that 

he has prepared individual tax returns for Joel since 2005; 

Coslor is not the accountant for GAS Electrical. Coslor 

explained that the election to be taxed as an S corporation is 

basically an election to have the shareholders pay the income 

tax, rather than having the corporation pay the income tax. 

He also explained that a K-1 is issued by an S corporation 

showing income items and deductions that are to be included 

on the individual shareholder’s tax return. Joel agreed that the 

business income reported on his K-1 represents half of the 

business income for that year; he also believed that amount 

was after his salary and taxes were paid. Further, Coslor 

indicated that the K-1 does not need to be attached to the 

tax return, but, rather, the income just needs to be reported. 

When asked if there was a common practice year after year 

to estimate how much K-1 income there would be from the 

corporation, followed by a real distribution of funds to make 

the estimated tax payments, Coslor responded, “I believe so, 

yes.” Joel testified that in 2017, he prepaid $108,000 for taxes 

to the federal government and $12,000 for taxes to Nebraska; 

when asked how he could make those payments when he 

takes a $65,000 salary, Joel responded that the money for 

the tax payments comes from distributions from the business. He acknowledged that the distributions are based on the 

estimated taxes and that the company has “never” hit it right 

on the exact number of the actual tax liability; for example 

in 2016, he received distributions of $137,625 to pay taxes 

of $133,143.
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While Coslor was being questioned about Joel’s 2016 personal tax return, it was pointed out by Jennifer’s counsel that 

on the schedule E tax form there was a box that said nonpassive income from the K-1; counsel asked Coslor what the difference was between passive income and nonpassive income. 

Coslor responded that “nonpassive income means that the 

individual’s active in the business, passive means that he’s not 

active in the business.” When asked if he knew for sure how 

much Joel actually received in distributions in 2016, Coslor 

stated, “The K-1 should be a good indication of how much he 

received . . . .”

Coslor explained that, with respect to non-S corporations, 

the Internal Revenue Service (IRS) has rules that allow it to 

assess a tax if the retained earnings exceed a certain amount. 

If a corporation’s retained earnings exceed $250,000, the IRS 

can assess an additional tax, or penalty, for excessive earnings, 

but there are several exceptions (e.g., if the corporation needs 

to accumulate earnings for expansion, purchases of buildings, 

purchases of land, or a potential downturn in its cyclical business). Coslor confirmed that those rules do not apply to a corporation that has made a subchapter S election.

According to the evidence, Joel received wages, tips, and 

other compensation directly from GAS Electrical as follows: 

$75,000.11 in 2011, $46,250.12 in 2012, $50,000.09 in 2013, 

$50,961.62 in 2014, $50,000.07 in 2015, and $65,000.04 in 

2016. Joel also testified that his salary did not increase from 

2016 to 2017.

Joel’s K-1’s reflect the following amounts of his proportionate share of the S corporation’s pass-through ordinary 

business income and distributions: 2011 income of $21,723, 

distribution of $13,150; 2012 income of $15,936, distribution 

of $46,633; 2013 income of $114,362, distribution of $61,375; 

and 2016 income of $399,649, distribution of $137,625. There 

were no K-1’s offered or received with regard to 2014 or 

2015, but Joel’s schedule E shows $96,256 in nonpassive 

income (and “Section 179” expense of $2,350) from GAS 
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Electrical in 2014 and $195,902 in nonpassive income (and 

“Section 179” expense of $6,300) in 2015.

No corporate tax returns or financial statements of GAS 

Electrical were offered by either party.

In its order filed on April 20, 2018, and as relevant to this 

appeal, the district court had to determine what should be 

attributed to Joel as income for child support purposes. The 

court found that Jennifer did not meet her burden to prove 

that the retained earnings in GAS Electrical were “excessive 

or inappropriate” so as to be considered income for purposes of child support. The court stated, “Without evidence to 

what was reasonable for a Sub S corporation such [as] GAS 

Electrical . . . to retain under the circumstances, it is extremely 

difficult for the Court to determine that any earnings retained 

were excessive or inappropriate.” The court noted case law 

that concluded it was appropriate to include in the obligor parent’s income the distributions made to the parent to assist the 

parent in making estimated income tax payments; however, the 

district court presumed that was to allow averaging of income 

for a 3-year period, and in the instant case, there were no K-1’s 

received into evidence for 2014 or 2015. The district court 

also found there was no evidence of the “in kind” value of the 

benefits Joel received from the company. Further, there was 

no evidence of the net monthly income received from SnyGut. 

The district court denied Jennifer’s request for an upward 

modification of Joel’s child support obligation.

Jennifer appeals.

ASSIGNMENT OF ERROR

Jennifer assigns that the district court erred by denying her 

request to modify Joel’s child support obligation.

STANDARD OF REVIEW

[1] Modification of child support is entrusted to the discretion of the trial court. Hotz v. Hotz, 301 Neb. 102, 917 

N.W.2d 467 (2018). An appellate court reviews proceedings 

for modification of child support de novo on the record and 
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will affirm the judgment of the trial court absent an abuse of 

discretion. Id.

[2,3] In a review de novo on the record, an appellate 

court reappraises the evidence as presented by the record and 

reaches its own independent conclusions with respect to the 

matters at issue. Id. A judicial abuse of discretion requires that 

the reasons or rulings of the trial court be clearly untenable 

insofar as they unfairly deprive a litigant of a substantial right 

and a just result. Id.

[4,5] Interpretation of the Nebraska Child Support Guidelines 

presents a question of law. Hotz v. Hotz, supra. When reviewing questions of law, an appellate court resolves the questions 

independently of the lower court’s conclusions. Id.

ANALYSIS

General Principles of Law

[6] A party seeking to modify a child support order must 

show a material change in circumstances which (1) occurred 

subsequent to the entry of the original decree or previous 

modification and (2) was not contemplated when the decree 

was entered. Fetherkile v. Fetherkile, 299 Neb. 76, 907 N.W.2d 

275 (2018). The Nebraska Child Support Guidelines establish 

a rebuttable presumption of a material change in circumstances 

when application of the guidelines “would result in a variation by 10 percent or more, but not less than $25, upward or 

downward, of the current child support obligation . . . due to 

financial circumstances which have lasted 3 months and can 

reasonably be expected to last for an additional 6 months.” 

Neb. Ct. R. § 4-217.

[7] The Nebraska Child Support Guidelines provide that 

in calculating the amount of support to be paid, a court must 

consider the total monthly income. Gangwish v. Gangwish, 267 

Neb. 901, 678 N.W.2d 503 (2004). See Neb. Ct. R. § 4-204 

(rev. 2020). Total monthly income is defined as the

income of both parties derived from all sources, except 

all means-tested public assistance benefits which includes 
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any earned income tax credit and payments received for 

children of prior marriages. This would include income 

that could be acquired by the parties through reasonable 

efforts. For instance, a court may consider as income the 

retained earnings in a closely-held corporation of which 

a party is a shareholder if the earnings appear excessive 

or inappropriate.

§ 4-204 (emphasis supplied).

[8,9] The Nebraska Supreme Court has not set forth a rigid 

definition of what constitutes income, but instead has relied 

upon a flexible, fact-specific inquiry that recognizes the wide 

variety of circumstances that may be present in child support 

cases. Marshall v. Marshall, 298 Neb. 1, 902 N.W.2d 223 

(2017). Thus, income for the purposes of calculating child 

support is not necessarily synonymous with taxable income. 

Id. We take this flexible approach in determining a person’s 

“income” for purposes of child support, because child support 

proceedings are, despite the child support guidelines, equitable in nature. Marshall v. Marshall, supra. Thus, a court is 

allowed, for example, to add “in-kind” benefits, derived from 

an employer or other third party, to a party’s income. Id.

[10] “[T]he level of income should not be based on income 

that is ‘speculative in nature and over which the employee has 

little or no control.’” Noonan v. Noonan, 261 Neb. 552, 560, 

624 N.W.2d 314, 322 (2001) (quoting Stuczynski v. Stuczynski, 

238 Neb. 368, 471 N.W.2d 122 (1991) (addressing overtime wages)). It is logical to extend the principles stated in 

Stuczynski to encompass forms of income other than overtime wages. Noonan v. Noonan, supra. Consequently, if the 

evidence shows that a party actually earns or can reasonably 

expect to earn a certain amount of income on a regular basis, 

it is appropriate to consider such income in calculating child 

support. Id.

[11,12] A small business corporation may elect to be an 

S corporation so long as it meets eligibility and other requirements as set forth in the Internal Revenue Code. See I.R.C. 
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§ 1361 et seq. (2018). Subchapter S is a tax status designed 

to tax corporate income on a pass-through basis to shareholders of a small business corporation. Bortolotti v. Universal 

Terrazzo & Tile Co., 304 Neb. 219, 933 N.W.2d 851 (2019). 

Since a subchapter S corporation is not taxed on its earnings, 

the various income, expense, loss, credit, and other tax items 

pass through and are taxable to or deductible by shareholders 

in a manner analogous to that which is applicable to partners. 

Schnackel v. Schnackel, 27 Neb. App. 789, 937 N.W.2d 234 

(2019). The tax treatment of subchapter S corporations has 

been outlined as follows:

“Although a [s]ubchapter S corporation may distribute 

income, it is not required to do so. [Citation omitted.] 

Earnings are owned by the corporation, not by the shareholders. [Citation omitted.] Subchapter S corporations 

may accumulate profits, referred to as ‘retained earnings.’ 

Retained earnings are the net sum of a corporation’s 

yearly profits and losses. [Citation omitted.]

“Subchapter S status provides an alternate method of 

taxing a corporation’s income. [Citation omitted.] In a 

[s]ubchapter S corporation, income tax is paid by the 

shareholders rather than by the corporation itself. [Citation 

omitted.] When the tax is paid by the individual, the corporation avoids income tax liability. [Citation omitted.]

“A [s]ubchapter S corporation allocates various items 

of income to shareholders based upon the shareholder’s proportionate ownership of stock. [Citation omitted.] Allocations are itemized on an individual shareholder’s . . . K-1. [Citation omitted.]”

Coffey v. Coffey, 11 Neb. App. 788, 806-07, 661 N.W.2d 327, 

345 (2003) (quoting In re Marriage of Brand, 273 Kan. 346, 

44 P.3d 321 (2002)).

Overview of Alleged Errors

At the time of the divorce decree in 2004, Joel was attributed an earning capacity of $69,000 for purposes of calculating 
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child support. His salary in the years leading up to the modification trial was as follows: $75,000 (2011), $46,250 (2012), 

$50,000 (2013), $50,961 (2014), $50,000 (2015), $65,000 

(2016), $65,000 (2017). At the time of trial in March 2018, 

Joel’s salary from GAS Electrical was still $65,000 per year. 

Thus, there was no material change in circumstances warranting a modification of child support based upon Joel’s salary alone.

However, GAS Electrical was created after the parties’ 

divorce, and therefore in addition to earning a salary, Joel 

had the ability to also benefit from the corporation’s earnings. 

Based on Joel’s federal income tax returns, his 50-percent 

share of the pass-through taxable income from GAS Electrical 

was as follows: $21,106 (2011), $15,936 (2012), $114,362 

(2013), $93,906 (2014), $189,602 (2015), and $381,182 

(2016). These figures are taken from Joel’s federal tax returns, 

specifically the S corporation income reported on form 1040 

at line 17 and the associated schedule E. The tax returns show 

a significant increase in GAS Electrical’s ordinary business 

income after 2012, some of which the corporation distributed 

to its shareholders, but some of which it retained. The district court concluded the evidence did not support attributing 

to Joel for child support purposes any income beyond his 

salary. Jennifer claims the district court erred by not factoring into Joel’s income the nonpassive income/retained earnings, distributions, and “in-kind” benefits Joel received from 

GAS Electrical, as well as the rental income he received 

from SnyGut.

Nonpassive Income/Retained Earnings

Jennifer contends the district court “abused its discretion by not considering Joel’s nonpassive income.” Brief for 

appellant at 6. As explained by Coslor, nonpassive income 

means that the individual is active in the business and passive 

income means the individual is not active in the business. In 

this case, Joel was actively involved in GAS Electrical, and 
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thus, the S corporation’s pass-through income was characterized as nonpassive income on schedule E of Joel’s personal federal tax returns. Jennifer acknowledges that “the 

evidence indicated Joel’s nonpassive income was retained by 

the [c]orporation and not actually received,” but “the retained 

earnings were nevertheless excessive and inappropriate,” brief 

for appellant at 8, and the district court should have considered such retained earnings which Jennifer claims Joel “sheltered in the [c]orporation,” id. at 12.

We view Jennifer’s argument to be focused on the inclusion of earnings retained by the S corporation when determining Joel’s income for child support purposes. Although 

Jennifer suggests we do so, we find it unnecessary to consider any distinction between nonpassive income and passive income for child support purposes in this instance, other 

than noting that the nonpassive nature of the income at issue 

here indicates active involvement by Joel in producing that 

income. The issue in this case is not whether S corporation 

pass-through income is characterized as nonpassive or passive, but, rather, the issue is how much of that pass-through 

income is actually distributed to the shareholder and whether 

any income not distributed by the corporation is retained for 

legitimate business purposes. As set forth in the Nebraska 

Child Support Guidelines, “a court may consider as income 

the retained earnings in a closely-held corporation of which 

a party is a shareholder if the earnings appear excessive or 

inappropriate.” § 4-204. Whether retained earnings are excessive or inappropriate necessarily implies that such earnings 

are not being retained for legitimate business purposes and 

could otherwise reasonably be expected to be distributed to a 

parent-shareholder for inclusion as income for child support 

purposes. Important to this issue is consideration of how much 

control Joel has over the income distribution and retention 

decisions as an equal owner of the S corporation, as well as 

whether the evidence supports that any retained earnings were 

excessive or inappropriate.
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Jennifer points out that in Coffey v. Coffey, 11 Neb. App. 

788, 661 N.W.2d 327 (2003), this court addressed passive 

earnings from a subchapter S corporation for purposes of 

calculating child support. The mother in that case had a 

1.093874-percent ownership interest in a subchapter S corporation and had an ownership interest in a family partnership 

of approximately 20 percent for profit-and-loss sharing and 1 

percent for her ownership of capital. She testified that her tax 

returns reflected subchapter S corporation income that she did 

not receive; she did receive money from the corporation to 

pay her quarterly tax estimates. The mother did not have any 

control over distributions from the corporation or the family 

partnership, she never knew if she was getting a distribution, 

and sometimes she did not receive a distribution. This court 

held that it was error to include passive income from the 

closely held corporation and family partnership in computing 

the mother’s income where the passive income did not represent income that the mother earned or could reasonably expect 

to earn and where there was no evidence of retained earnings 

or that any retained earnings were excessive or inappropriate. 

See, also, Pickrel v. Pickrel, 14 Neb. App. 792, 717 N.W.2d 

479 (2006) (father incorporated his farming operation and was 

president, as well as sole shareholder and employee of corporation; because there was no evidence from which to conclude 

retained earnings of closely held corporation were excessive 

or inappropriate, it was abuse of discretion to include retained 

earnings in calculation of father’s income).

Because there is limited guidance on this issue within 

Nebraska’s jurisprudence, we find it helpful to consider how 

other courts have handled similar situations. In J.S. v. C.C., 

454 Mass. 652, 912 N.E.2d 933 (2009), the Massachusetts 

Supreme Judicial Court addressed, as a matter of first impression, how to treat undistributed earnings from an S corporation 

for purposes of determining a parent’s child support obligation; 

the father in that case was a 65-percent owner of an S corporation. The court stated:
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Neither this court nor the Appeals Court has directly 

addressed how to treat, for purposes of determining a 

parent’s child support obligation, undistributed earnings 

of an S corporation that for income tax purposes are 

attributable to the parent-shareholder. . . .

Courts in a number of other jurisdictions have considered how to treat the retained earnings of an S corporation 

that are passed through to a shareholder for purposes of 

measuring and imposing a child support obligation. In 

our view, the better reasoned decisions require a casespecific, factual inquiry and determination . . . .

We follow the lead of these cases, and similarly conclude that a determination whether and to what extent 

the undistributed earnings of an S corporation should be 

deemed available income to meet a child support obligation must be made based on the particular circumstances 

presented in each case. Such a fact-based inquiry is 

necessary to balance, inter alia, the considerations that 

a well-managed corporation may be required to retain a 

portion of its earnings to maintain corporate operations 

and survive fluctuations in income, but corporate structures should not be used to shield available income that 

could and should serve as available sources of child support funds. . . .

Without undertaking to provide an exhaustive list, we 

note some relevant factors that the judge should weigh 

in determining what portion of undistributed corporate 

earnings may be available to a shareholder for a child 

support obligation. First, a shareholder’s level of control 

over corporate distributions—as measured by the shareholder’s ownership interest—is a factor of substantial 

importance. . . .

Second, the judge should evaluate the legitimate business interests justifying retained corporate earnings. . . .

Third, the judge should weigh affirmative evidence 

of an attempt to shield income by means of retained 
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earnings. . . . In that regard, the corporation’s history of 

retained earnings and distributions may be relevant.

J.S. v. C.C., 454 Mass. at 661-64, 912 N.E.2d at 941-43.

[13] We agree that any determination whether and to what 

extent the undistributed earnings of an S corporation should 

be deemed available income to a parent-shareholder for child 

support purposes must be based on the particular circumstances 

presented in each case. In Nebraska, there is no presumptive 

rule that retained earnings should be included as income, nor 

is there a blanket rule that precludes retained earnings from 

being considered for child support purposes. Rather than a 

“rigid definition of what constitutes income” in child support 

cases, “we have relied upon a flexible, fact-specific inquiry 

that recognizes the wide variety of circumstances that may be 

present.” Marshall v. Marshall, 298 Neb. 1, 23, 902 N.W.2d 

223, 240 (2017).

[14] Other jurisdictions likewise avoid a blanket rule when 

considering whether to include retained earnings from S corporations for child support purposes. See In re Marriage of 

Brand, 273 Kan. 346, 44 P.3d 321 (2002) (courts reluctant 

for policy reasons to have blanket rule that subchapter S corporation retained earnings are not income when calculating 

child support because it would encourage shareholders to 

retain earnings in favor of their own long-term financial interests without regard for child support). Thus, as held by the 

Massachusetts Supreme Judicial Court, and as is consistent 

with Nebraska’s jurisprudence on determining income in child 

support cases, we conclude that a fact-specific inquiry is necessary to balance considerations that a well-managed corporation 

may be required to retain a portion of its earnings to maintain 

corporate operations and survive fluctuations in income, but 

that corporate structures should not be used to shield available 

income that could and should serve as available sources of 

child support funds.

[15] Further, we agree that relevant factors to weigh in 

determining what portion of undistributed corporate earnings 
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may be available to a shareholder for child support purposes 

should include the following considerations: (1) the shareholder’s level of control over the corporation’s distributions—

as measured by the shareholder’s ownership interest, (2) the 

legitimate business interests justifying the retained corporate 

earnings, and (3) the corporation’s history of retained earnings 

and distributions to determine whether there is any affirmative 

evidence of an attempt to shield income by means of retained 

earnings. See J.S. v. C.C., 454 Mass. 652, 912 N.E.2d 933 

(2009). A significant amount of retained earnings does not by 

itself establish an attempt to shield income. See, e.g., Trojan v. 

Trojan, 208 A.3d 221 (R.I. 2019) (father was sole shareholder 

of S corporation drywall business; income of approximately 

$1 million retained for working capital and equity necessary 

for bonding purposes determined to be legitimate business 

purpose and not to shield or manipulate father’s income in 

effort to reduce or avoid child support obligation; and neither 

retained earnings nor distributions used to pay taxes on passthrough income considered for child support purposes).

[16] The district court in this case, citing to Noonan v. 

Noonan, 261 Neb. 552, 624 N.W.2d 314 (2001), concluded 

that it was Jennifer’s burden to prove what earnings were actually retained and whether any retained earnings were excessive and inappropriate. In Noonan, which was also a child 

support modification action, the Nebraska Supreme Court 

held that “if the evidence shows that a party actually earns or 

can reasonably expect to earn a certain amount of income on 

a regular basis, it is appropriate to consider such income in 

calculating child support.” 261 Neb. at 560-61, 624 N.W.2d 

at 322. “Therefore, if the moving party shows that the nonmoving party earns or can reasonably expect to earn a certain 

amount of income on a regular basis, a rebuttable presumption of including such income arises under the Guidelines.” 

Noonan v. Noonan, 261 Neb. at 561, 624 N.W.2d at 322-23. 

At that point, “the nonmoving party must produce sufficient 

evidence to rebut the presumption that the application of the 
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Guidelines will result in a fair and equitable child support 

order before deviation from the Guidelines is appropriate.” 

Noonan v. Noonan, 261 Neb. at 561, 624 N.W.2d at 323. 

“Thus, if the nonmoving party can show that the included 

income is speculative in nature and over which the person 

has little or no control, [citation omitted], the presumption of 

including the income is rebutted and it shall be excluded from 

the calculation.” Id.

The evidence established that in addition to Joel’s salary, 

which was $65,000 at the time of trial, Joel’s 50-percent share 

of the pass-through income and his distributions from GAS 

Electrical were as follows:

 S corporation Distribution to Joel

Year pass-through income (per K-1’s)

2011 $21,106 $13,150

2012 $15,936 $46,663

2013 $114,362 $61,375

2014 $93,906 Unknown (no K-1 

or testimony)

2015 $189,602 Unknown (no K-1 

or testimony)

2016 $381,182 $137,625

According to Joel, the distributions were estimated to cover 

his personal tax liability associated with the corporation’s 

pass-through income. Using the 2016 distribution as an example, the record supports that most of that $137,625 distribution would have been necessary to cover Joel’s federal and 

state tax liabilities (totaling $133,143, but which we note 

included personal taxes owed related to noncorporate income 

as well). The distribution of $137,625 indicates that approximately $243,557 ($381,182 income − $137,625 distribution) 

of Joel’s share of the pass-through income was not distributed to Joel and was therefore retained by the corporation. 

However, minimal evidence was offered to establish whether 

retaining such a substantial amount of earnings was excessive or inappropriate, and that as such, Joel could therefore 
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reasonably expect to receive a certain amount of those earnings on a regular basis.

Coslor attempted to provide some guidance on the issue. 

When asked how one would determine whether retained 

earnings were excessive or inappropriate, Coslor explained 

that with respect to non-S corporations, the IRS has rules 

that allow it to assess a tax if the retained earnings exceed 

a certain amount. If a corporation’s retained earnings exceed 

$250,000, the IRS can assess an additional tax, or penalty, 

for excessive earnings, but there are several exceptions (e.g., 

if the corporation needs to accumulate earnings for expansion, purchases of buildings, purchases of land, or a potential 

downturn in its cyclical business). Coslor confirmed that 

those rules do not apply to a corporation that has made a subchapter S election.

Joel testified that he and Snyder, the other 50-percent 

shareholder of GAS Electrical, determine their salaries (both 

receive the same salary) and that both decide how much 

income will be retained in the business. There is no question 

that although Joel’s control is equal with that of Snyder, Joel 

nevertheless has the ability to exercise significant control over 

the undistributed corporate earnings. As noted previously, this 

is an important factor when considering whether some of those 

undistributed earnings should be attributed to Joel for child 

support purposes. However, Joel testified that 2016 was an 

“exceptional year” and was the “best year [they] had in business.” Joel acknowledged that he did not give himself a raise 

from 2016 to 2017 despite having that “exceptional year.” No 

questions were asked of Joel regarding what, if any, legitimate business reasons he and Snyder had to justify retaining 

a large portion of the 2016 corporate earnings. Additionally, 

no evidence was presented to provide the corporation’s history of retained earnings and distributions to consider whether 

Joel was attempting to shield income from being considered for child support purposes by means of retaining corporate earnings.
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The district court found that “[t]he balance of GAS 

Electrical[’s] ordinary business income, after equal distributions to the owners to pay their estimated income taxes, 

remained with the corporation for purposes not identified.” 

The district court further found, however, that it was “unclear 

how much in the way of ordinary business income was actually retained by GAS Electrical . . . on its books in each of the 

. . . tax years.” Citing to Coffey v. Coffey, 11 Neb. App. 788, 

661 N.W.2d 327 (2003), the district court noted that many factors need to be considered when determining what amounts of 

an S corporation’s income should be included for child support 

purposes, such as the past earnings history of the corporation, 

ownership share, and the shareholder’s ability to control the 

distribution. And as this court stated in Coffey, “heightened 

scrutiny [should be] given to cases where income can be 

manipulated due to the ability to control distributions.” 11 Neb. 

App. at 807, 661 N.W.2d at 346.

The district court noted that the burden of proof in an action 

for child support modification lies with the party seeking the 

modification and that Jennifer had the initial burden to establish the retained earnings were excessive or inappropriate. The 

court concluded, “There was nothing in the evidence to establish that . . . it was the regular practice of this corporation to 

retain excessive and inappropriate earnings, for such purposes 

as sheltering those retained earnings from consideration in 

Joel’s income for determination of child support.”

Jennifer acknowledges that Coffey v. Coffey, supra, and 

Pickrel v. Pickrel, 14 Neb. App. 792, 717 N.W.2d 479 (2006), 

suggest that she has the burden to prove the retained earnings 

are excessive or inappropriate, but that this court “should clarify the rule.” Brief for appellant at 8. She asserts that “once the 

moving party establishes the retained earnings are presumptively excessive or inappropriate, a rebuttable presumption 

of including such income arises,” and the burden then shifts 

to the “nonmoving party to prove the retained earnings were 

necessary and not excessive.” Id. There is no need for rule 
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clarification, as Jennifer correctly sets forth the burden shifting noted in Noonan v. Noonan, 261 Neb. 552, 624 N.W.2d 

314 (2001), that if a moving party shows that the nonmoving 

party earns or can reasonably expect to earn a certain amount 

of income on a regular basis, it is a rebuttable presumption that 

such income should be considered for child support purposes. 

However, the evidence in this case was insufficient to establish 

the initial rebuttable presumption that the retained earnings 

were excessive or inappropriate, and that as such, Joel could 

reasonably expect to receive a certain amount of those undistributed earnings on a regular basis.

In order to establish a rebuttable presumption that a corporation’s retained earnings are excessive or inappropriate, the 

evidence must include more than simply submitting personal 

tax returns and a portion of the shareholder’s K-1’s. Although 

the evidence demonstrated that 2016 was an “exceptional year” 

and that a substantial portion of GAS Electrical’s earnings 

were retained, there was no evidence regarding why such earnings were retained, much less any suggestion that they were 

necessarily excessive or inappropriate. As previously noted, a 

well-managed corporation may be required to retain a portion 

of its earnings to maintain corporate operations and survive 

fluctuations in income. In this case, there was evidence that 

GAS Electrical had 9 to 12 employees at the time of trial, but 

has had up to 32 employees. No inquiry was made of Joel 

about such fluctuations or potential future growth or needs of 

the corporation. There were no corporate tax returns, no financial statements, an incomplete set of K-1’s, and no testimony 

from either Joel, the corporation’s accountant, or an expert 

witness. In other words, there was no evidence to provide 

insight on the corporation’s natural financial cycles or on the 

actual retained earnings from year-to-year and for what legitimate business purposes the corporation retained those earnings. 

The lack of such evidence precluded the type of fact-specific 

inquiry necessary to determine whether such retained earnings 

were presumptively excessive or inappropriate, and that as 
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such, Joel could therefore reasonably expect to receive a certain amount of those earnings on a regular basis.

Nevertheless, Jennifer contends that the retained earnings 

should be considered regardless of whether they were excessive or inappropriate. She relies on Gangwish v. Gangwish, 

267 Neb. 901, 678 N.W.2d 503 (2004). The court in Gangwish 

did not specifically address retained earnings of the corporation, but, rather, it talked only of the income or earnings of the 

corporation and the appropriateness of considering corporate 

income in setting child support. According to Gangwish, under 

the appropriate factual circumstances, equity may require a 

trial court to calculate a party’s income by looking through 

the legal structure of a closely held corporation of which the 

party is a shareholder. An example of such a case may be when 

the shareholder takes a depressed salary, but the corporation 

pays the day-to-day living expenses of the shareholder. See id.

(father in Gangwish took $6,000-per-year salary from his farm 

corporation, but corporation owned parties’ home and paid parties’ living expenses).

Unlike the circumstances in Gangwish, there is no evidence 

that Joel took a depressed salary. However, we do note that 

given the substantial retained earnings in 2016, and depending 

on the corporation’s earnings since that time, Joel’s unwillingness to increase his salary despite corporate earnings continuing on an upward trend may support a different outcome 

in the future. This is especially a concern given Joel’s equal 

control with Snyder over such matters. Further, there was no 

evidence that the corporation paid Joel’s day-to-day living 

expenses, as in Gangwish. We will discuss Joel’s “in-kind” 

benefits later.

In sum, Jennifer did not meet her burden to prove the 

retained earnings of GAS Electrical were presumptively excessive or inappropriate, and that as such, Joel could therefore 

reasonably expect to receive a certain amount of those earnings 

on a regular basis. Accordingly, the district court did not abuse 
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its discretion by declining to include the corporation’s retained 

earnings in the calculation of Joel’s income.

Distributions to Pay Taxes

Jennifer argues that the district court erred by not considering the distributions Joel receives from GAS Electrical. See 

Coffey v. Coffey, 11 Neb. App. 788, 661 N.W.2d 327 (2003) 

(funds used by mother to pay estimated tax liability for S corporation and family partnership for 3 years came from corporation and family partnership, and it was appropriate to include 

such in mother’s income; because income amounts varied 

significantly, it was appropriate to average; and no petition for 

further review filed). She contends that “[t]he facts in this case 

are synonymous with the facts in Coffey.” Brief for appellant 

at 16.

However, since this court’s opinion in Coffey, several other 

jurisdictions have addressed distributions made to shareholders 

in order to offset the shareholder’s proportionate share of the 

taxes on the S corporation’s earnings. Those jurisdictions have 

determined that distributions to cover corporate tax liability 

should not be included as income for purposes of calculating 

child support. A list of those cases can be found in Bornhorst 

v. Bornhorst, post p. 182, ___ N.W.2d ___ (2020), released the 

same day as this opinion.

[17] In Bornhorst v. Bornhorst, supra, we held that distributions made to a shareholder of a subchapter S corporation, 

as reported on a K-1, should not be included as income for 

purposes of calculating child support for those portions of the 

distribution intended to offset the shareholder’s personal tax 

liability on his or her proportionate share of the S corporation’s pass-through earnings. However, if the evidence establishes that the total distribution exceeds the shareholder’s 

tax liability on his or her proportionate share of the S corporation’s pass-through earnings, such excess portions of the 

distribution may be included as income for child support 

purposes unless the evidence demonstrates that such excess 
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amounts are reasonably expected to be applied to future tax 

liabilities. Id. We added that an analysis correlating a shareholder’s distributions to his or her tax liabilities over a longer 

period of time may reveal a regular pattern of excess distributions which cannot be solely tied to the tax liabilities associated with the S corporation’s pass-through income. Id. In 

such cases, the amount of a shareholder’s distribution which 

exceeds the correlated tax liability for an S corporation’s 

pass-through income may be subject to inclusion as income 

for child support purposes. Id.

In the present case, Joel testified that he received distributions from GAS Electrical to pay his estimated tax liability 

for his share of the S corporation’s pass-through income. The 

distributions are reflected on his K-1’s. Joel acknowledged 

that the distributions are based on the estimated taxes and that 

the estimates have “never” equaled the actual tax liability; for 

example in 2016, he received distributions of $137,625 to pay 

taxes of $133,143. The record does not contain K-1’s for 2014 

or 2015 showing what distributions were made to Joel. Jennifer 

did not ask Joel or call another witness from GAS Electrical to 

inquire about Joel’s distributions for 2014 and 2015.

Jennifer argues that the 2014 and 2015 distributions would 

equal at least what the taxes were on Joel’s tax returns for 

those years. Assuming this to be true—that his distribution 

equaled his proportionate share of the corporate tax liability—there would still be no excess distribution amount that 

could be counted as income for 2014 or 2015. As for 2016, 

the testimony at trial was that Joel received distributions of 

$137,625 to pay taxes of $133,143. (We note that $133,143 

represents Joel’s total tax liability and is not solely reflective of 

his tax liability on the corporation’s pass-through income. The 

total tax liability also included the personal tax liability of Joel 

and his current wife for their wages or other income.) In her 

brief, Jennifer stated that in 2016, Joel received a distribution 

of $137,625 and his “total federal and state tax liability was 

$93,051.00.” Brief for appellant at 16. However, we note that 
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the $93,051 was not Joel’s total tax, but, instead, it reflected 

the outstanding amount owed, i.e., the amount of federal and 

state taxes underpaid that year and thus still due and owing to 

the government entity; furthermore, that amount was not solely 

reflective of the corporate tax liability as it also included the 

personal tax liability of Joel and his current wife.

Neither party provided direct testimony or other evidence 

as to what portion of Joel’s 2016 total personal tax liability 

was related specifically to his share of the S corporation’s 

pass-through income. Because evidence was not produced 

distinguishing Joel’s tax liability associated with his share of 

the S corporation’s pass-through income from his tax liability 

stemming from other sources of income, the determination 

of what might constitute an excess amount of distribution in 

2016 was not possible on this record. Further, because of the 

fluctuating nature of a corporation’s income and the resulting 

tax liabilities and estimated distributions being made from year 

to year, averaging of any proven excess distributions would 

be appropriate. In this case, averaging would not have been 

possible, because the K-1’s for 2014 and 2015 were not produced, and therefore confirmation of actual distributions made 

in those years was not possible. Accordingly, the district court 

did not abuse its discretion when it did not include the distributions in the calculation of Joel’s income.

Other Benefits to Joel

Joel said that GAS Electrical pays a percentage of insurance premiums and provides him a company vehicle (and 

pays for fuel, tires, and all vehicle expenses), a company 

credit card (“[f]or road expenses on fuel only and whatever 

material [he] might have to do”), and a cell phone. There was 

no evidence offered on the value of any of these benefits, 

aside from the insurance premiums; and it is not unusual for a 

company to pay a portion of an employee’s premiums. While 

a court is allowed to add “in-kind” benefits derived from an 

employer or other third party to a party’s income, a “‘“court’s 
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findings regarding [an individual’s] level of income should 

not be based on the inclusion of income that is entirely 

speculative in nature.”’” Armknecht v. Armknecht, 300 Neb. 

870, 879, 916 N.W.2d 581, 589 (2018). Given the speculative nature of the nonwage benefits, we cannot say that the 

district court erred in excluding those items in the calculation 

of Joel’s income.

SnyGut

Jennifer claims that Joel earns $600 per month in rental 

income from SnyGut which should have been considered in 

determining Joel’s income for child support purposes. Joel 

acknowledged that his annual percentage of the rental income 

is $7,200, “[m]inus whatever maintenance and all that [sic] 

other fees would be.” However, on cross-examination, he said 

that the rent is paid to SnyGut and that the $7,200 was not paid 

to him. Because there is no evidence as to what Joel’s actual 

rental income is after maintenance and other fees, his income 

from SnyGut is speculative. Accordingly, the district court did 

not abuse its discretion by not including the rental income in 

the calculation of Joel’s income.

Joel’s Total Income

Based on the evidence presented at trial, Joel’s salary of 

$65,000 per year is the only amount that can properly be 

included in the calculation of his income. Because this is less 

than the $69,000 earning capacity attributed to him at the time 

of the decree, Jennifer has failed to prove a material change 

in circumstances warranting an upward modification of Joel’s 

child support obligation.

CONCLUSION

For the reasons stated above, we affirm the decision of the 

district court denying Jennifer’s request for an upward modification of Joel’s child support obligation.

Affirmed.