Opinion
No. A-07-1186.
Filed February 3, 2009.
Appeal from the District Court for Buffalo County: JOHN P. ICENOGLE, Judge. Affirmed.
Nathan T. Bruner, of Yeagley, Swanson Murray, L.L.C., for appellant.
Cathleen H. Allen, of Leininger, Smith, Johnson, Baack, Placzek Allen, for appellee.
INBODY, Chief Judge, and SIEVERS and MOORE, Judges.
NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. APP. P. § 2-102(E).
MEMORANDUM OPINION AND JUDGMENT ON APPEAL
I. INTRODUCTION
Paul Allen Gangwish appeals the decision of the Buffalo County District Court increasing his child support obligation. Kimberley Faye Gangwish cross-appeals, alleging that the court erred in calculating the in-kind benefits Paul receives from the closely held corporations of which Paul is the sole shareholder. For the reasons set forth herein, we affirm.
II. STATEMENT OF FACTS
Following the entry of the original dissolution decree in this case in January 2002, Kimberley appealed, among other things, the amount of child support that Paul was required to pay for the parties' three minor children. The Nebraska Supreme Court considered the case and determined, inter alia, that the district court had erred in determining Paul's income and thus remanded to the district court for that determination which would in turn affect Paul's child support obligation. See Gangwish v. Gangwish, 267 Neb. 901, 678 N.W.2d 503 (2004) (Gangwish I). However, on July 13, 2005, following the order of remand, the parties stipulated to Paul's child support obligation being set at $1,567 for three children, $1,309 for two children, and $897 for one child.
In September 2006, Paul filed a complaint to modify his child support obligation downward and Kimberley filed a cross-complaint to modify Paul's obligation upward. Kimberley also requested attorney fees and costs. A trial was held on August 16, 2007, to determine the income of each of the parties. The evidence was undisputed that Kimberley earns $7,896.96 per month and contributes $315.87 toward her retirement. Paul's income was disputed, and the evidence relating to his income consumed the majority of the trial.
Paul is self-employed as a farmer and is the sole shareholder in two Nebraska corporations: PG Farms, Inc., a subchapter C corporation, and ZBD Land Company, Inc. (ZBD), a subchapter S corporation. PG Farms is a farm operations company and ZBD owns farmland. As part of its farm operations, PG Farms conducts farming, trucking, and commercial harvesting activities.
For the past several years, Paul, individually and through his various entities, has farmed about 3,800 acres. Of this farmland, ZBD owns 145 to 150 acres, PG Farms owns 4 1/2 acres, and Paul owns 320 acres individually. The remaining farmland Paul leases from several unrelated landlords.
PG Farms employs six full-time employees and up to six additional seasonal employees during harvest. Full-time PG Farms employees receive in-kind benefits, including health insurance, bonuses, employee meals, and the use of company vehicles. As a full-time employee of PG Farms, Paul receives an annual salary of $6,500 and various in-kind benefits from PG Farms.
Among the in-kind benefits provided to Paul by PG Farms are use of a home with a fair rental value of $1,100 per month, maintenance of the home and surrounding property, including maintenance of the property's in-ground swimming pool, yard care, payment of real estate taxes, payment of an approximately $2,100 annual premium on a life insurance policy for Paul, some of his personal attorney fees and accounting fees, homeowner's insurance policies, and use of motor vehicles. Paul also testified PG Farms paid for approximately $7,200 in groceries per year for his family, but in interrogatories, the annual amounts that Paul had estimated for the past 3 years for groceries were $10,045 for 2004, $9,399 for 2005, and $10,000 for 2006, which averages out to $9,814.67 per year. Paul estimated that PG Farms paid $2,730 annually in utilities for him personally in 2004, $3,682 in 2005, and $3,757 in 2006, which averages to $3,723 per year over the 3-year period. PG Farms also pays the real estate taxes for the property, including Paul's home, which in 2007 were $5,223.26 for the entire property, which includes 4 1/2 acres, six grain bins, a shop building, a storage shed building, and the residence.
Paul testified that PG Farms does not pay for health insurance premiums for himself or his family, but does pay some unreimbursed medical expenses. PG Farms also paid, at least partially, for a trip to Hawaii in 2006 for Paul, his wife, and Paul's parents. Additionally, the satellite service for Paul's home, his Sam's Club membership, Nebraska football tickets, and some other normal living expenses like dog food and cat food and personal car washes are paid through PG Farms.
PG Farms also owns several motor vehicles that Paul admits are exclusively for personal use: a 1993 Corvette, a 2001 Volkswagen Bug, and a 1969 Chevelle. He further testified that a Suburban owned by PG Farms is used in the farming operation, but is also driven by him for personal reasons. PG Farms sometimes pays for the fuel used for personal vehicles.
PG Farms utilizes a fiscal year for tax purposes running from December 1 to November 30. At the end of each fiscal year, PG Farms has grain inventory on hand which is sold in the following calendar (and fiscal) year. Since 2002, PG Farms has sold the grain inventory on hand at the end of each fiscal year in the following fiscal year with the possible exception of a small amount of grain that was carried over. The grain inventory which has been sold is then reflected on the tax returns in the following year for PG Farms, ZBD, and Paul, individually.
In fiscal year 2003, PG Farms had a taxable income of negative $123,072, with a depreciation deduction of $221,859. In fiscal year 2004, PG Farms had a taxable income of negative $362,340, with a depreciation deduction of $205,438. In fiscal year 2005 (tax year December 1, 2005 to November 30, 2006), PG Farms had an income of $135,631, which, for tax purposes, was set off against operating losses leaving a taxable income of $0. In fiscal year 2005, PG Farms also had a depreciation deduction of $200,988. Additionally, PG Farms has operating losses available to be applied against future earnings of $774,335.
At this same time, the balance sheet dated November 30, 2006, provided by Paul to Farm Credit Services for the purpose of obtaining continuing operating loans, reflects that PG Farms had total assets of $3,556,408, including $1,348,635 of crops in storage. PG Farms had total liabilities of $1,962,181 for a total equity of $1,594,227 as of November 30. On November 30, a consolidated balance sheet for Paul, PG Farms, and PBD Land Co. showed total assets of $4,486,112, with $1,373,635 in crop inventory and $1,380,800 in real estate. Liabilities listed in the consolidated balance sheet were $2,431,427 for total equity of $2,054,685.
Certified public accountant Tim Vaughn testified as an expert witness on Kimberley's behalf. He was hired to assist in determining the value of in-kind benefits received by Paul from PG Farms and to determine the incomes of Paul, PG Farms, and ZBD. To calculate Paul's in-kind benefits, Vaughn reviewed Paul's answers to interrogatories, tax returns for Paul and the corporations, Paul's balance sheets provided to Farm Credit Services, and PG Farms' voluminous general ledgers for the years 2004, 2005, and 2006.
Vaughn compiled exhibit 64, a computation of Paul's average income over the years 2004 through 2006, which exhibit was received into evidence. In this exhibit, in order to gain a complete picture of Paul's income, Vaughn sets out Paul's wages; his rental income, including grain inventory; ZBD income; PG Farms income; the increase in grain inventory; and the value of the in-kind benefits received by Paul. Vaughn testified that, in preparing exhibit 64, he utilized the values of the grain inventories provided by Paul to Farm Credit Services. Based on a 3-year average from 2004 through 2006, including a 3-year average increase in Paul's crop inventories, Vaughn determined that Paul's average income based on a 3-year average was as follows:96,331.70
Wages From PG Farms $ 6,500.00 Farm Rental Inc. (adj. for grain inventory) 21,216.34 ZBD Income (adj. for grain inventory) 14,811.00 PG Farms Income (adj. for grain inv. depr.) 155,543.01 In-Kind Benefits Total earnings/3-year average $294,402.05Paul contended that the grain inventory for himself and ZBD was also listed in the grain inventory for PG Farms and thus was counted twice in Vaughn's calculation.
In making its determination, the district court found that Paul's income, as reported on his individual income tax returns and on the corporate returns for PG Farms and ZBD, do not accurately portray Paul's actual income for child support purposes. Thus, the court determined that a 3-year average increase in Paul's crop inventories should be utilized to determine Paul's income, consistent with the expert testimony provided by Vaughn, with adjustments. The district court credited Paul for a 2004 beginning farm rental grain inventory of $43,574, and PG Farms was credited with a 2004 beginning grain inventory of $605,695. The court did not impute any grain inventory to ZBD.
The computation of the average increase in grain inventory for Paul's farm rental from 2004 to 2006, found in exhibit 64 and referenced by the court, is as follows:2004 2005 2006 Average
Beginning $43,574 $47,000 $46,999 $1,142 Ending $47,000 $46,999 $47,000The computation of the average increase in grain inventory for PG Farms from 2004 through 2006 is as follows:2004 2005 2006 Average
Beginning $605,695 $632,837 $983,482 $247,646.67 Ending $632,837 $983,482 $1,348,635The court determined that Paul's income, for child support purposes, should include the following:
Wages From PG Farms $ 6,500 Farm Rental Income 21,200 ZBD Income 6,500 PG Farms recomputed income 155,000 In-kind benefits paid by PG Farms 35,000Thus, the court concluded that Paul's total income for child support purposes was $224,200. Additionally, the court awarded Kimberley $5,500 in attorney fees. The court also set Paul's child support obligation which, following a motion to alter and amend judgment filed by Kimberley, the court recalculated to be $2,377 per month for three minor children, $2,140 per month for two children, and $1,620 per month for one child. As part of Kimberley's motion to alter and amend, the court also awarded Kimberley $3,562 to apply toward the $5,227 total of expert witness fees paid to Vaughn. Paul has timely appealed, and Kimberley has cross-appealed.
III. ASSIGNMENTS OF ERROR
The assignments of error assigned and argued by Paul, consolidated and restated, are that the district court erred in calculating his child support obligation, specifically in including stored grain inventory as income for child support purposes, and in placing too high of a value on the in-kind benefits that he receives from PG Farms. Paul also assigns as error that the district court erred in ordering him to pay Kimberley's attorney and expert witness fees and in failing to award him attorney fees. On cross-appeal, Kimberley contends that the district court erred in failing to include the total amount of in-kind benefits provided to Paul by his closely held farming corporation in calculating Paul's child support obligation.
IV. STANDARD OF REVIEW
An appellate court reviews modifications of child support de novo on the record and will affirm the judgment of the trial court absent an abuse of discretion. Lucero v. Lucero, 16 Neb. App. 706, 750 N.W.2d 377 (2008); Pool v. Pool, 9 Neb. App. 453, 613 N.W.2d 819 (2000).
V. ANALYSIS 1. DID DISTRICT COURT ERR IN DETERMINING PAUL'S CHILD SUPPORT OBLIGATION?
Paul contends that the district court erred in calculating his child support obligation, specifically in including stored grain inventory as income for child support purposes and in placing too high of a value on the in-kind benefits that he receives from PG Farms.
The paramount concern and question in determining child support, whether in the initial marital dissolution action or in the proceedings for modification of decree, is the best interests of the child. Gangwish I; Claborn v. Claborn, 267 Neb. 201, 673 N.W.2d 533 (2004). The main principle behind the Nebraska Child Support Guidelines is to recognize that equal duty of both parents to contribute to the support of their children in proportion to their respective net incomes. Neb. Ct. R. § 4-201. See Gangwish I.
The Nebraska Child Support Guidelines provide that, in calculating the amount of child support to be paid, the court must consider the total monthly income, which is defined as the income of both parties derived from all sources, except all means-tested public assistance benefits 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. Neb. Ct. R. § 4-204. If applicable, earning capacity may be considered in lieu of a parent's actual income. Id.
In Gangwish I, the Nebraska Supreme Court held that, when determining Paul's income, in addition to Paul's reported income, the following should also be considered: (1) the in-kind benefits, e.g., perquisites, that Paul receives from PG Farms; (2) PG Farms' depreciation expenses; and (3) with due regard for business realities, the amount of PG Farms' income which should equitably be attributed to Paul.
(a) Should Stored Grain Inventory Be Treated as Income for Child Support Purposes?
Paul contends that the district court erred in including stored grain inventory as income for child support purposes. Paul argues that the stored grain inventory is reflected in the tax return of the following year when the grain is sold. Paul also argued that the district court's decision to include stored grain inventory as income essentially forces him to sell the grain prior to the end of the corporation's fiscal year, thus interfering with business decisions and affecting profitability. He further contends that the unrealized, deferred sales of stored grain inventory that the court included in child support calculations inflated his income for child support purposes by essentially counting the income twice — once by utilizing the income averaging method for child support purposes and then, a second time, by adding in the grain inventory.
In Grams v. Grams, 9 Neb. App. 994, 624 N.W.2d 42 (2001), this court considered whether deferred income from crop production should be included in total average income for the calculation of child support. In Grams, child support was calculated based on a 4-year average using the tax years 1995 through 1998 and included deferred income from crop production in each of those years. Thus, tax year 1995 included deferred income from 1994, tax year 1996 included deferred income from 1995, and so on. However, when the district court calculated the 1998 income, the court not only included deferred income from 1997 in the calculation, but also included 1998 deferred income that should have been deferred to the 1999 tax year. Thus, we found that adding back the deferred income for tax year 1998 into the formula resulted in duplicate sets of deferred income being assessed for the tax year 1998 causing the district court to utilize an inflated income figure for 1998 which also resulted in the inflated 4-year average for the years 1995 through 1998. Thus, this court did not disapprove of the use of deferred income in average income figure calculations for child support purposes, but merely found that including 2 years of deferred income in 1 tax year resulted in an inflated income figure.
In the instant case, the district court credited Paul for 2004 beginning farm rental grain inventory of $43,574 and PG Farms was credited with a 2004 beginning grain inventory of $605,695. The values of the grain inventories were utilized from the records provided by Paul to Farm Credit Service. The district court did not impute any grain inventory to ZBD.
The computation of the average increase in grain inventory for Paul's farm rental from 2004 through 2006 found in exhibit 64 and referenced by the district court is as follows:2004 2005 2006 Average
Beginning $43,574 $47,000 $46,999 $1,142 Ending $47,000 $46,999 $47,000The computation of the average increase in grain inventory for PG Farms from 2004 to 2006 is as follows:2004 2005 2006 Average
Beginning $605,695 $632,837 $ 983,482 $247,646.67 Ending $632,837 $983,482 $1,348,635Thus, unlike the facts in Grams, supra, in the present case there was no double-counting of the stored grain inventory because the district court began the 3-year time period by giving Paul credit for grain inventory on hand at the beginning of 2004 and used only the average increase in crop inventory for the 3-year time period from 2004 through 2006. Also, the district court did not use 2 years' worth of stored grain inventory in the calculation of income for 1 tax year, as did the court in Grams, supra.
Further, in this case, the district court did not have the tax return for the 2007 taxable year in which the over 1 million dollars' worth of grain was or would be sold due to the timing of the trial and end of the corporation's fiscal year. Although, on November 30, 2006, Paul had a total of $1,348,635 in grain inventory on hand, the court used an average of the increase in grain inventory over the 3-year period from 2004 to 2006, which the court valued at $155,000, in its child support calculation.
Additionally, contrary to Paul's arguments, the district court's decision to include the increase in stored grain inventory as income for the purposes of child support calculations does not require that Paul sell his grain harvest prior to the end of the fiscal year and the court is not dictating when PG Farms should sell its assets. Paul remains free to sell his grain whenever he chooses in order to maximize his profits. The "support of one's children is a fundamental obligation which takes precedence over almost everything else." Gangwish I, 267 Neb. at 913, 678 N.W.2d at 515, quoting Rauch v. Rauch, 256 Neb. 257, 590 N.W.2d 170 (1999). In this case, for the district court to ignore a substantial asset would require the court to close its eyes to the reality of Paul's situation to the detriment of his children, which would create an inequitable situation. Thus, the district court did not err in including the increase in stored grain inventory as income for the purpose of calculating Paul's child support obligation.
(b) Did District Court Err in Calculating Paul's In-Kind Benefits?
Both Paul and Kimberley claim that the district court erred in calculating Paul's in-kind benefits. Paul contends that the court erred too high. Kimberley, in her cross-appeal, contends that the court calculated the in-kind benefits too low. For convenience, we will consider both Paul's and Kimberley's claims together.
As we previously stated, the Nebraska Supreme Court held in Gangwish I that the in-kind benefits that Paul receives from PG Farms are to be included in calculating his income for child support purposes. Thus, the issue here is not whether the in-kind benefits should be included in calculating Paul's income, but what to value the in-kind benefits that Paul receives.
Vaughn testified as to the in-kind benefits that should be attributed to Paul based upon his review of Paul's answers to interrogatories, tax returns for Paul and the corporations, Paul's balance sheets provided to Farm Credit Services, and Vaughn's review of PG Farms' general ledgers for the years 2004 through 2006. Exhibit 64, created by Vaughn, computed Paul's in-kind benefits for each of the years 2004 through 2006, and then calculated a 3-year average. The district court did not accept Vaughn's determination of the annual value of Paul's in-kind benefits, which was $96,331.70, instead determining that the annual value of Paul's in-kind benefits was $35,000. Upon our de novo review of the record, including substantial review of PG Farms' general ledgers, we determine that the district court did not abuse its discretion in its valuation of Paul's in-kind benefits.
2. DID DISTRICT COURT ERR IN AWARDING ATTORNEY FEES AND EXPERT WITNESS FEES?
Paul contends that the district court erred in awarding attorney fees and expert witness fees to Kimberley and in failing to award him attorney fees.
A district court's award or denial of attorney fees in a proceeding to modify a divorce decree will be upheld absent an abuse of discretion. Hartman v. Hartman, 261 Neb. 359, 622 N.W.2d 871 (2001); Mace v. Mace, 13 Neb. App. 896, 703 N.W.2d 624 (2005). An award of expert witness fees is likewise reviewed for an abuse of discretion. See Davidson v. Davidson, 254 Neb. 656, 578 N.W.2d 848 (1998).
In the instant case, Kimberley's income was readily determinable, whereas Paul's income was difficult to determine, requiring Kimberley to hire an expert to assist in determining Paul's income. Further, as the district court found, and this court has likewise concluded, Paul has substantial assets from which to draw. Therefore, the district court did not err in awarding Kimberley attorney fees and expert witness fees and in failing to award Paul attorney fees.
VI. CONCLUSION
Based upon our de novo review of the record, we find that the district court did not abuse its discretion in its determination of Paul's income and child support obligation. Further, the district court did not abuse its discretion in awarding Kimberley attorney fees and expert witness fees and in failing to award Paul attorney fees. Therefore, the decision of the district court is affirmed in its entirety.
AFFIRMED.