Gerving v. Gerving

969 N.W.2d 184

Tania GERVING, nka Tania Tschaekofske, aka Tania Hintz, Plaintiff

v. Dean GERVING, Defendant and AppellantandState of North Dakota, Statutory Real Party in Interest and Appellee

No. 20210074

Supreme Court of North Dakota.

FILED JANUARY 6, 2022

Erica J. Shively (argued) and Elizabeth A. Elsberry (appeared), Bismarck, ND, for defendant and appellant.

Sheila K. Keller, Special Assistant Attorney General, Bismarck, ND, for statutory real party in interest and appellee.

VandeWalle, Justice.

[¶1] Dean Gerving appealed from a second amended judgment modifying his child support obligation. Gerving argues the district court erred in calculating his net income and erred by denying his request for a downward deviation in his child support obligation based on his payment of the child's private school tuition. We affirm the district court's denial of Gerving's request for a downward deviation, but we conclude the court erred in calculating Gerving's net income. We reverse the court's child support decision and remand for the court to properly calculate Gerving's net income and child support obligation.

I

[¶2] In 2017, Gerving and Tania Gerving, now known as Tania Tschaekofske, divorced. They have two children together and agreed to have equal residential responsibility for the children. A 2017 amended judgment ordered Gerving to pay Tschaekofske $127 per month in child support for the two children after offsetting the parties’ child support obligations.

[¶3] The parties’ older child is no longer a minor. In 2020, the State moved to modify the child support obligation. The State alleged Gerving is self-employed, his average gross annual income is $361,339 from his self-employment activities and gains, his net monthly income is $21,214, his child support obligation should be modified to $3,129 per month under the child support guidelines, and he should pay $2,444 per month in child support after the parties’ support obligations are offset.

[¶4] Gerving opposed the State's motion to increase his child support payments, arguing the State did not correctly apply the child support guidelines to determine the proposed amount of child support and the calculations do not accurately reflect his income. He also moved to modify the division of the child's expenses, arguing the parties agreed he would pay all of the child's private school tuition when the parties divorced in 2017 and the expense needed to be re-divided if his child support obligation increased.

[¶5] After a hearing, the district court considered the parties’ arguments and their proposed child support calculations, found Gerving is a self-employed farmer, and said the State's child support calculations did not give Gerving credit for depreciation deductions. The court ordered the State and Gerving to submit updated child support calculations consistent with the court's order, specifically including the depreciation deductions when calculating Gerving's net income. The State sent the court a letter explaining the depreciation deductions were considered in calculating any gains in its child support calculations.

[¶6] The district court granted the State's motion to modify child support and adopted the State's child support calculations. The court determined Gerving's five-year average income from self-employment activities, and found Gerving has a net monthly income of $21,214 and his child support obligation is $3,129 per month. The court found Tschaekofske has a net monthly income of $3,734 and her child support obligation is $701 per month. The court offset the parties’ child support obligations and ordered Gerving to pay Tschaekofske $2,428 per month in child support for one child. A second amended judgment was entered.

II

[¶7] Child support determinations involve questions of law which are fully reviewable, findings of fact subject to the clearly erroneous standard of review, and some matters of discretion subject to the abuse of discretion standard of review. Eubanks v. Fisketjon , 2021 ND 124, ¶ 6, 962 N.W.2d 427. A finding of fact is clearly erroneous if it is induced by an erroneous view of the law, there is no evidence to support it, or if, after reviewing the entire record, we are left with a definite and firm conviction a mistake has been made. Id.

III

[¶8] Gerving argues the district court erred in calculating his net income in order to determine his child support obligation.

[¶9] The district court must comply with the child support guidelines in calculating a parent's child support obligation, and the court errs as a matter of law when it does not comply with the guidelines. Gooss v. Gooss , 2020 ND 233, ¶ 15, 951 N.W.2d 247. The interpretation and proper application of the child support guidelines is a question of law, which is fully reviewable on appeal. Id. "The failure to properly apply the child support guidelines to the facts involves an error of law." Id. (quoting State ex rel. K.B. v. Bauer , 2009 ND 45, ¶ 8, 763 N.W.2d 462 ).

[¶10] To determine an obligor's child support obligation, the district court is required to determine the obligor's net income and apply that amount to the child support guidelines to calculate the support obligation. Eubanks , 2021 ND 124, ¶ 7, 962 N.W.2d 427. The obligor's net income from all sources must be considered. N.D. Admin. Code § 75-02-04.1-02(3). "[A] proper finding of net income is essential to determine the correct amount of child support." Halberg v. Halberg , 2010 ND 20, ¶ 10, 777 N.W.2d 872 (quoting Gunia v. Gunia , 2009 ND 32, ¶ 13, 763 N.W.2d 455 ). The court must determine the obligor's gross income and then deduct the items listed in N.D. Admin. Code § 75-02-04.1-01(6) to determine net income. See Halberg , at ¶ 10.

[¶11] The child support guidelines define gross income as "income from any source, in any form." N.D. Admin. Code § 75-02-04.1-01(4). Examples of gross income include gains and net income from self-employment, but nonrecurring capital gains are expressly excluded from the definition of gross income. Id. The guidelines also define self-employment, stating:

"Self-employment" means employment that results in an obligor earning income from any business organization or entity which the obligor is, to a significant extent, able to directly or indirectly control. For purposes of this chapter, it also includes any activity that generates income from rental property, royalties, business gains, partnerships, trusts, corporations, and any other organization or entity regardless of form and regardless of whether such activity would be considered self-employment activity under the Internal Revenue Code.

N.D. Admin. Code § 75-02-04.1-01(10).

[¶12] Section 75-02-04.1-05, N.D. Admin. Code, governs how net income from self-employment is calculated and requires the district court to average the income over a period of time. Net income from self-employment is "total income, for internal revenue service purposes, of the obligor." N.D. Admin. Code § 75-02-04.1-05(1). The guidelines anticipate an obligor's income from self-employment may fluctuate and require the court to average the income from each self-employment activity over a period of time:

Self-employment activities may experience significant changes in production and income over time. To the extent that information is reasonably available, the average of the most recent five years of each self-employment activity, if undertaken on a substantially similar scale, must be used to determine self-employment income.

N.D. Admin. Code § 75-02-04.1-05(4). The guidelines also regulate when a loss from a self-employment activity may be used to reduce other income, stating, "When three or more years were averaged ... a loss resulting from the averaging may be used to reduce other income that is not related to the self-employment activity that produced the loss only if the loss is not related to a hobby activity, [and] losses were calculated for no more than forty percent of the years averaged." N.D. Admin. Code § 75-02-04.1-05(7).

[¶13] The district court adopted the State's child support calculations. The court found Gerving has various self-employment activities, including his farming and ranching operation, a partnership with his brother that owns real property (Gerving Brothers LLP), a subchapter S corporation that purchased real property, some of which Gerving rents for his farming operation (Gerving, Inc.), rental income from a property in Bismarck, and rental income from land that he subleases. The court calculated Gerving's average income from each of these sources and his average gains listed on his tax returns from the sale of cattle and farm equipment. The court made findings about Gerving's self-employment income from his farming and ranching operation, stating:

[Gerving's] personal tax returns reflect that he had a net loss of income from [the farming and ranching operation] in three of the five years considered. According to his tax returns, this operation had the following income amounts:

2015	($208,471)
2016	$7,940
2017	$40,358
2018	($692,719)
2019	($921,002)
Total:	($1,773,894) / 5 = ($354,779)

The court found Gerving reported a net loss for the farming operation in three of the last five years, he had losses in more than forty percent of the years considered, and therefore the average loss cannot be used to reduce other income and the loss must be excluded from the calculation of his income from self-employment. The court found Gerving's business gains from traded farm equipment and the sale of cattle are recurring gains because Gerving had gains in each of the five years. The court concluded the gains must be included in Gerving's income and determined the five-year average:

For 2015 through 2019, [Gerving's] 1040 forms and, for 2018 and 2019, his Schedule 1 forms, include as gross income the gains realized from the sale or trade of his farm equipment and other business property. Based on his personal tax returns, [Gerving] reported the following total gains:

20

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