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The NH Supreme Court issued a decision on August 13, 2024 In the Matter of Gregory Landgraf and Natasha Landgraf. (2024 N. H. 41). The Court decided two issues transferred from the trial court by interlocutory appeal:
Are cash distributions received by a corporate shareholder that are necessary to pay that shareholder’s personal tax liability as a result of corporate earnings monies available to the shareholder for support purposes?
Are distributions made under a corporate instrument requiring [succession] insurance payments monies available to a shareholder for support purposes?
The Supreme Court answered both questions in the affirmative. The Court determined that the SubChapter S tax distributions were in the nature of dividends and thus specifically included in the definition of gross income under the definitions for income in the NH Child Support Statute. RSA 458-C:2 IV (2018). New Hampshire has traditionally held that tax considerations are not material to the determination of child support. See IMO Hampers, 166 NH 422 (2014). The Court’s determination that the payments are available to the shareholder ignores that fact that the full amount of the funds are due to the IRS because SubChapter S corporation taxes are passed through to the shareholder.
Although not presented by the Interlocutory Appeal, the Supreme Court further decided that “net income” as used in the child support statute, is the same as “adjusted gross income” less the applicable amount for that year published in the New Hampshire Department of Health and Human Services (NHDHHS ) Bureau of Child Support Services Child Support Guidelines which is calculated using the withholding table . . . published in . . . the Department of Treasury Internal Revenue Service Publication 15-T. Thus, the standard deduction published by NHDHHS will apply to adjusted gross income to calculate net income regardless of actual employer withholding. Since the NHDHHS tables do not extend to significantly high income and such income is taxed at higher rates, the Court’s decision leaves open the question whether that standard deduction actually makes those funds “available” to a taxpayer for child support payment purposes.
The Court answered the second question in the affirmative also. Since the shareholder’s paystub designated the reimbursement for insurance premiums as a “bonus”, the Court determined that the payment was specifically within the definition of gross income for child support purposes. RSA 458-C:2 IV includes bonus in the definition of gross income. The Court therefore decided that the funds were available for child support payments even though the funds were specifically designated by corporate documents for an entirely different purpose.
The Court’s decision makes the payment of child support more expensive for SubChapter S shareholders and seems to create a windfall for child support recipients. Calculation of child support in these cases will require careful analysis.
