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                             Nebraska Court of Appeals Advance Sheets
                                  28 Nebraska Appellate Reports
                                               GUTHARD v. GUTHARD
                                                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 unten-
                    able 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 circum-
                    stances 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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           Nebraska Court of Appeals Advance Sheets
                28 Nebraska Appellate Reports
                           GUTHARD v. GUTHARD
                            Cite as 28 Neb. App. 156

      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 sup-
      port 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 deter-
      mining 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 specula-
      tive 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 share-
      holders 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 consider-
      ations 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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          Nebraska Court of Appeals Advance Sheets
               28 Nebraska Appellate Reports
                           GUTHARD v. GUTHARD
                            Cite as 28 Neb. App. 156

    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 rea-
    sonably 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 calculat-
    ing 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 liabil-
    ity 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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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                     GUTHARD v. GUTHARD
                      Cite as 28 Neb. App. 156

determine Joel’s income for child support purposes, Jennifer
sought inclusion of his salary; nonpassive income, distribu-
tions, 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 sup-
port 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, subse-
quently, an amended complaint in May, seeking to modify his
parenting time schedule and establish a procedure for reim-
bursement of noncovered medical expenses. Jennifer filed a
“counter complaint” alleging that Joel’s income had increased,
thus warranting an upward modification of his child sup-
port 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 numer-
ous 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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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                      GUTHARD v. GUTHARD
                       Cite as 28 Neb. App. 156

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 corpo-
ration 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 per-
sonal income taxes.
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                     GUTHARD v. GUTHARD
                      Cite as 28 Neb. App. 156

   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 individ-
ual 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 busi-
ness. 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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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                     GUTHARD v. GUTHARD
                      Cite as 28 Neb. App. 156

   While Coslor was being questioned about Joel’s 2016 per-
sonal tax return, it was pointed out by Jennifer’s counsel that
on the schedule E tax form there was a box that said nonpas-
sive income from the K-1; counsel asked Coslor what the dif-
ference 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 busi-
ness). Coslor confirmed that those rules do not apply to a cor-
poration 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 propor-
tionate 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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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                      GUTHARD v. GUTHARD
                       Cite as 28 Neb. App. 156

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 pur-
poses 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 par-
ent’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 dis-
cretion 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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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                      GUTHARD v. GUTHARD
                       Cite as 28 Neb. App. 156

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 review-
ing 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 varia-
tion 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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             28 Nebraska Appellate Reports
                     GUTHARD v. GUTHARD
                      Cite as 28 Neb. App. 156

       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, equi-
table 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 over-
time wages)). It is logical to extend the principles stated in
Stuczynski to encompass forms of income other than over-
time 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 require-
ments as set forth in the Internal Revenue Code. See I.R.C.
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        Nebraska Court of Appeals Advance Sheets
             28 Nebraska Appellate Reports
                      GUTHARD v. GUTHARD
                       Cite as 28 Neb. App. 156

§ 1361 et seq. (2018). Subchapter S is a tax status designed
to tax corporate income on a pass-through basis to sharehold-
ers 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 share-
      holders. [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 cor-
      poration avoids income tax liability. [Citation omitted.]
         “A [s]ubchapter S corporation allocates various items
      of income to shareholders based upon the sharehold-
      er’s proportionate ownership of stock. [Citation omit-
      ted.] Allocations are itemized on an individual sharehold-
      er’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 attrib-
uted an earning capacity of $69,000 for purposes of calculating
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             28 Nebraska Appellate Reports
                     GUTHARD v. GUTHARD
                      Cite as 28 Neb. App. 156

child support. His salary in the years leading up to the modi-
fication 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 war-
ranting a modification of child support based upon Joel’s sal-
ary 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 dis-
trict 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 factor-
ing into Joel’s income the nonpassive income/retained earn-
ings, 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 discre-
tion 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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             28 Nebraska Appellate Reports
                     GUTHARD v. GUTHARD
                      Cite as 28 Neb. App. 156

thus, the S corporation’s pass-through income was charac-
terized as nonpassive income on schedule E of Joel’s per-
sonal 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 consid-
ered such retained earnings which Jennifer claims Joel “shel-
tered in the [c]orporation,” id. at 12.
   We view Jennifer’s argument to be focused on the inclu-
sion of earnings retained by the S corporation when deter-
mining Joel’s income for child support purposes. Although
Jennifer suggests we do so, we find it unnecessary to con-
sider any distinction between nonpassive income and pas-
sive 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 pas-
sive, 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 exces-
sive 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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             28 Nebraska Appellate Reports
                     GUTHARD v. GUTHARD
                      Cite as 28 Neb. App. 156

   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 corpo-
ration 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 repre-
sent 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 corpo-
ration; 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 impres-
sion, 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 corpora-
tion. 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 consid-
ered 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 case-
specific, factual inquiry and determination . . . .
   We follow the lead of these cases, and similarly con-
clude 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 obliga-
tion 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 struc-
tures should not be used to shield available income that
could and should serve as available sources of child sup-
port 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 share-
holder’s ownership interest—is a factor of substantial
importance. . . .
   Second, the judge should evaluate the legitimate busi-
ness 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 cor-
porations 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 cor-
poration 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 inter-
ests 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 neces-
sary 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 share-
holder’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 pass-
through 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 actu-
ally retained and whether any retained earnings were exces-
sive 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 non-
moving party earns or can reasonably expect to earn a certain
amount of income on a regular basis, a rebuttable presump-
tion 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 exam-
ple, the record supports that most of that $137,625 distribu-
tion 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 approxi-
mately $243,557 ($381,182 income − $137,625 distribution)
of Joel’s share of the pass-through income was not distrib-
uted 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 exces-
sive or inappropriate, and that as such, Joel could therefore
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reasonably expect to receive a certain amount of those earn-
ings 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 expan-
sion, 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 sub-
chapter 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 busi-
ness.” 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, legiti-
mate 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 his-
tory of retained earnings and distributions to consider whether
Joel was attempting to shield income from being consid-
ered for child support purposes by means of retaining corpo-
rate earnings.
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   The district court found that “[t]he balance of GAS
Electrical[’s] ordinary business income, after equal distribu-
tions 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 actu-
ally 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 fac-
tors 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 estab-
lish the retained earnings were excessive or inappropriate. The
court concluded, “There was nothing in the evidence to estab-
lish 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 clar-
ify the rule.” Brief for appellant at 8. She asserts that “once the
moving party establishes the retained earnings are presump-
tively 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 shift-
ing 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 undis-
tributed earnings on a regular basis.
   In order to establish a rebuttable presumption that a corpo-
ration’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 earn-
ings 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 finan-
cial 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 legiti-
mate 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 cer-
tain amount of those earnings on a regular basis.
   Nevertheless, Jennifer contends that the retained earnings
should be considered regardless of whether they were exces-
sive 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 corpora-
tion, 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 par-
ties’ 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 unwill-
ingness to increase his salary despite corporate earnings con-
tinuing 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 exces-
sive 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 consider-
ing 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 cor-
poration and family partnership for 3 years came from corpora-
tion 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 distri-
butions 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 corpora-
tion’s pass-through earnings. However, if the evidence estab-
lishes that the total distribution exceeds the shareholder’s
tax liability on his or her proportionate share of the S cor-
poration’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 share-
holder’s distributions to his or her tax liabilities over a longer
period of time may reveal a regular pattern of excess distribu-
tions which cannot be solely tied to the tax liabilities asso-
ciated 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 distribu-
tions 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 liabil-
ity—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 pro-
duced, 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 distri-
butions in the calculation of Joel’s income.
                   Other Benefits to Joel
   Joel said that GAS Electrical pays a percentage of insur-
ance 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 specula-
tive 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 modifi-
cation of Joel’s child support obligation.
                                                    Affirmed.
