Crawford v. Schulte

#26457-rev & rem-SLZ

2013 S.D. 28

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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DUANE CRAWFORD, Plaintiff, Petitioner
and Appellant,

v.

ANNE SCHULTE, Defendant and Appellee.

****

APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA

****

THE HONORABLE WALLY EKLUND
Judge

****

DAVID L. CLAGGET
Spearfish, South Dakota Attorney for plaintiff, petitioner
and appellant.

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CONSIDERED ON BRIEFS
ON FEBRUARY 12, 2013

OPINION FILED 03/27/13
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ZINTER, Justice

[¶1.] As a custodial parent, Duane Crawford (Father) petitioned to increase

Anne Schulte’s (Mother’s) child support obligation. The referee, however,

recommended that Mother’s obligation be reduced because Father had received part

of an inheritance and expected to receive the balance of that inheritance in the near

future. The referee’s recommendation was based on the view that, in calculating

child support under SDCL 25-7-6.3, Father’s received and projected inheritance

should be divided by twelve and the quotient treated as “monthly income” for a

period of one year. The circuit court adopted the referee’s recommendation and

reduced Mother’s child support obligation. Father appeals. We reverse and

remand.

Facts and Procedural History

[¶2.] Father and Mother had a child on June 13, 2002. They were not

married and never lived together. Mother initially had custody of the child, but in

2008, Father was awarded primary physical custody.

[¶3.] On March 20, 2012, Father filed a petition to modify Mother’s child

support obligation. Prior to Father’s petition, Mother’s obligation was $277 per

month. Father sought to increase Mother’s obligation because he lost his job and

was unemployed.

[¶4.] On April 10, 2012, a referee held a hearing to determine the financial

condition of the parties. After obtaining information regarding each party’s

monthly income, the referee asked whether either party’s financial condition made

application of the child support schedule using the parties’ current income

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inequitable or unfair. Mother’s counsel indicated that Father had received a

“sizeable inheritance” from his father’s estate. Father then indicated that he had

received $60,000 as part of the inheritance and he anticipated a further projected

inheritance payment of approximately $200,000 around the end of May.

[¶5.] The referee issued his report on May 7, 2012. The referee found that

Mother’s monthly net income from employment was $1,449.92 and Father’s monthly

net income from unemployment benefits was $1,392.64. The referee also concluded

that Father’s inheritance (received and projected) of $260,000 1 was “monthly

income” for purposes of determining child support under SDCL 25-7-6.3. The

referee reasoned that the “income” referenced in that statute included everything

except “one time receipts of income related to wages, commissions, or bonuses[.]”

Because Father’s inheritance was not wages, commissions, or bonuses, the referee

concluded that the received and projected $260,000 inheritance should be treated as

monthly income for a period of one year. Therefore, the referee divided the

inheritance by twelve and treated the quotient less allowable deductions

($21,552.67)2 as Father’s monthly net income.

1. Father contends that his actual inheritance was $200,000 rather than
$260,000. We need not consider whether the referee clearly erred in
determining that Father’s inheritance was $260,000 because we determine
that none of Father’s inheritance was “monthly income” for purposes of
calculating child support.

2. The referee concluded that in determining monthly income, inheritance is
“[t]he one time receipt of income[, which] is annualized and has an impact for
one year from its receipt.” Therefore, the referee divided the total inheritance
expected to be received ($260,000) by twelve to conclude that Father’s
monthly gross income was $21,666.67. The referee then subtracted $114 for
income taxes to arrive at a monthly net income of $21,552.67. The referee did
(continued . . .)
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[¶6.] Adding Mother’s monthly net income from employment to Father’s

prorated net inheritance, the referee determined that the parties’ combined monthly

net income was $23,002.59. Using the schedule in SDCL 25-7-6.2 for parents whose

joint monthly income was $20,000, 3 the referee calculated that Mother’s six percent

pro rata share of the scheduled support obligation ($2,101) was $126.06. The

referee then noted that $216 was the statutory minimum child support obligation, 4

and he recommended reducing Mother’s $277 monthly obligation to $216 per

month.

[¶7.] The circuit court adopted the referee’s recommendation and ordered

that Mother’s child support obligation be reduced to $216 per month. Father

appeals, arguing that a lump sum inheritance is not “monthly income” under SDCL

25-7-6.3, and therefore, his inheritance should not have been used to calculate child

support.
________________________
(. . . continued)
not add Father’s unemployment benefits to this total and only used the
inheritance as Father’s monthly income.

3. If the inheritance were includable as monthly income, the referee and court
erred in using the scheduled obligation for parents whose combined monthly
income was $20,000. Under the referee’s calculation, Mother and Father’s
combined monthly net income was $23,002.59. SDCL 25-7-6.9 requires that
“[f]or a combined net income above the [child support obligation schedule’s
maximum income of $20,000], the child support obligation shall be
established at an appropriate level, taking into account the actual needs and
standard of living of the child.” Although Mother and Father’s combined
income of $23,002.59 exceeded the obligation schedule, the referee and the
circuit court did not indicate whether they had considered the “actual needs
and standard of living of the child.” See SDCL 25-7-6.9.

4. The parties do not take issue with the referee’s determination that $216 is
the minimum child support obligation under SDCL 25-7-6.2. We express no
opinion regarding the validity of that determination.

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Decision

[¶8.] “When the circuit court has adopted a child support referee’s findings

and conclusions, we apply the clearly erroneous standard of review to the findings

and give no deference to conclusions of law.” Dahl v. Dahl, 2007 S.D. 64, ¶ 9, 736

N.W.2d 803, 805. “[T]he question whether a source of funds constitutes income [for

purposes of calculating child support] involves statutory interpretation, and that is

a question of law [we review] de novo.” Arneson v. Arneson, 2003 S.D. 125, ¶ 27,

670 N.W.2d 904, 914.

[¶9.] SDCL 25-7-6.3 lists the sources of “monthly income” that may be used

to determine child support obligations. The listed sources include compensation for

personal services, self-employment income, periodic payments from pensions or

retirement programs, gain from assets, and certain statutory benefits. A lump sum

inheritance is not included. The statute provides:

The monthly net income of each parent shall be determined by
the parent’s gross income less allowable deductions, as set forth
in this chapter. The monthly gross income of each parent
includes amounts received from the following sources:

(1) Compensation paid to an employee for personal
services, whether salary, wages, commissions, bonus,
or otherwise designated;
(2) Self-employment income including gain, profit, or loss
from a business, farm, or profession;
(3) Periodic payments from pensions or retirement
programs, including social security or veteran’s
benefits, disability payments, or insurance contracts;
(4) Interest, dividends, rentals, royalties, or other gain
derived from investment of capital assets;
(5) Gain or loss from the sale, trade, or conversion of
capital assets;
(6) Unemployment insurance benefits;
(7) Worker’s compensation benefits; and

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(8) Benefits in lieu of compensation including military pay
allowances.

Overtime wages, commissions, and bonuses may be excluded if
the compensation is not a regular and recurring source of
income for the parent. Income derived from seasonal
employment shall be annualized to determine a monthly
average income.

SDCL 25-7-6.3.

[¶10.] Although an inheritance is not a listed source of income, the list is non-

exhaustive. See Peterson v. Peterson, 2000 S.D. 58, ¶ 21, 610 N.W.2d 69, 72 (re-

stating our prior holding that “nothing in [the statute listing several sources of

income for child support purposes] indicates that the listing of the general

categories of income is exclusive. The use of the word ‘include’ suggests a legislative

intent to encompass other, unlisted sources of income.”). “[W]here general words [in

this case, “monthly . . . income”] precede the enumeration of particular classes of

things, the ejusdem generis [canon] of construction requires that the general words .

. . be construed as applying only to things of the same general kind as those

enumerated.” See DeHaven v. Hall, 2008 S.D. 57, ¶ 51, 753 N.W.2d 429, 444-45.

Therefore, the question is whether a lump sum inheritance is a thing of the same

general kind as the listed sources of “income” in SDCL 25-7-6.3. 5

5. The question whether a prospective inheritance is “income” for purposes of
calculating child support was not answered in Peterson v. Peterson, 2000 S.D.
58, 610 N.W.2d 69, or Gross v. Gross, 355 N.W.2d 4 (S.D. 1984). In Peterson,
we acknowledged our decision in Gross. Peterson, 2000 S.D. 58, ¶ 21, 610
N.W.2d at 72. We indicated that in Gross, “a pending inheritance award was
included in the calculation of child support.” Id. However, Peterson’s
statement of the holding in Gross was incorrect. In Gross, we only held that a
pending inheritance could be considered in determining whether there was a
change in circumstances justifying a modification of a prior child support
(continued . . .)
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[¶11.] We conclude that Father’s lump sum inheritance is an asset or capital

that is unlike the types of monthly income listed in SDCL 25-7-6.3. First, Father’s

inheritance is not similar to compensation for services, income from self-

employment, or periodic payments from pensions or retirement programs. See

SDCL 25-7-6.3(1)-(3). Second, his inheritance is not similar to the gains derived

from the investment or conversion of assets. See SDCL 25-7-6.3(4)-(5). Finally, his

inheritance is not similar to worker’s compensation, unemployment insurance, or

other benefits paid in lieu of compensation. See SDCL 25-7-6.3(6)-(8). Father’s

lump sum inheritance is a gift of capital that is not captured by the statute.

[¶12.] This conclusion is supported by SDCL 25-7-6.6, which specifically deals

with “[g]ross income from . . . estates.” That statute provides that gross income

from estates may be included as income under SDCL 25-7-6.3, but the includable

income is limited to the profits or losses that are reflected on federal income tax

returns. See SDCL 25-7-6.6. Thus, SDCL 25-7-6.6 includes estate profits and losses

as income, but not the principal. We also observe that courts considering the

distinction between principal and profits/losses derived from principal conclude that

the principal is not “income” for purposes of child support. 6 See Humphreys v.

________________________
(. . . continued)
order. 355 N.W.2d at 8-9. Further, Gross was decided before the enactment
of the child support guidelines statutes. Therefore, Gross does not stand for
the proposition that a pending inheritance is “monthly income” for purposes
of calculating child support under SDCL 25-7-6.3.

6. Although some states include inheritance as “income,” many of those states’
statutes provide that “gifts” are a source of income for purposes of calculating
child support. See, e.g., In re A.M.D., 78 P.3d 741, 743 (Colo. 2003); Gardner
v. Yrttima, 743 N.E.2d 353, 357-58 (Ind. Ct. App. 2001); Goldhamer v. Cohen,
(continued . . .)
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DeRoss, 790 A.2d 281, 285 (Pa. 2002) (citing Strunack v. Ecker, 424 A.2d 1355 (Pa.

Super. Ct. 1981), rev’d on other grounds, Miller v. Johnson, 436 A.2d 1187 (Pa.

1981)) (using language from Purdon’s Pennsylvania Statutes and Consolidated

Statutes Title 23, section 4302 to note that because “the [L]egislature specifically

included ‘income from an interest in an estate or trust’ but did not include the

principal of an inheritance or trust, it is logical to assume that the [L]egislature did

not intend to include the principal.”). See also Robinson v. Robinson, 961 P.2d 1000,

1003 n.3 (Alaska 1998) (stating that if the property at issue was inherited, “only the

interest from its sale and capital gain . . . would qualify as income”); Cnty. of Kern v.

Castle, 89 Cal. Rptr. 2d. 874, 882 (Cal. Ct. App. 1999) (stating that “one-time gifts or

inheritances are not income . . . [but] interest, rents, dividends, etc., which are

actually earned from gifts or inheritances, are income for purposes of child

support”); Lasché v. Levin, 977 A.2d 361, 370 (D.C. 2009) (stating that “the overall

structure of the examples of gross income in the [child support obligation statute]

appears to exclude transactions involving shifts in and movements of capital as

opposed to income”). We therefore conclude the referee and circuit court erred by

treating Father’s inheritance as monthly income in the calculation of child support

under SDCL 25-7-6.3 and SDCL 25-7-6.6.

[¶13.] It must also be noted that, at the time of the referee’s decision, the

evidence reflected Father had not received most of the inheritance that the referee

included as monthly income. Father expected to receive the larger lump sum

________________________
(. . . continued)
525 S.E.2d 599, 603 (Va. Ct. App. 2000). SDCL 25-7-6.3 does not include
“gifts” as a source of income.

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inheritance in the future. But to be included as income for the calculation of child

support, the funds “must first be received by the parent.” Roberts v. Roberts, 2003

S.D. 75, ¶ 12, 666 N.W.2d 477, 481. “A parent receives income when the allotted

amount could be used by the parent to support himself/herself and, thus, his child.”

Nace v. Nace, 2008 S.D. 74, ¶ 7, 754 N.W.2d 820, 823 (internal quotation marks

omitted).

[¶14.] In this case, Father had not received much of the inheritance at the

time of the hearing. Further, the amount he expected to receive was speculative.

Father testified that “[i]t’s going to be in the area of about $200,000,” and an

inheritance of “$200,000 is probably the most.” Thus, at the time of the hearing,

Father’s inheritance was prospective and speculative, and it should not have been

used in the calculation of Mother’s child support obligation. See Pasqua v. Pasqua,

547 A.2d 556, 557 (Conn. App. Ct. 1988) (stating that the trial court erred in

including “speculative prospective payments” in its child support order); Sol v. Sol,

656 So. 2d 206, 207 (Fla. Dist. Ct. App. 1995) (“[G]ifts which have not yet been

received are purely speculative in nature, mere expectancies, and as such are not

properly included in the calculation of income for purposes of determining the need

for, or the ability to provide, support.”); Brown v. Brown, 259 N.W.2d 24, 28 (Neb.

1977) (re-stating its prior holding that “a mere prospect or possibility of inheritance

was not to be considered in setting the amount of present child support”).

[¶15.] We finally note that, although we conclude the principal received from

an inheritance is generally not considered income for child support purposes, SDCL

25-7-6.5 allows consideration of such assets in some circumstances. Assets may be

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considered when the “child’s needs are not being met through the income of the

parents[.]” SDCL 25-7-6.5. See also Arneson, 2003 S.D. 125, ¶ 34, 670 N.W.2d at

916 (stating that even if the structured settlement payments were not “income” for

purposes of calculating a parent’s child support obligation, those payments were

assets, and thus, could still be considered). This approach is consistent with other

jurisdictions that have similar statutory schemes. See Castle, 89 Cal. Rptr. 2d. at

878-80, 882-83 (stating that even though an inheritance is not considered income

under the child support statutes, the court may consider it in the support

calculation); Lasché, 977 A.2d at 370-72 (indicating that, although an inheritance is

not income, it is a factor that may be taken into account); Cody v. Evans-Cody, 735

N.Y.S.2d 181, 183-84 (N.Y. App. Div. 2001) (stating that even though an inheritance

is not included in the parents’ combined income, it may be considered as a “financial

resource” if the calculated award is unjust or inappropriate); Humphreys, 790 A.2d

at 287-88 (indicating that an inheritance is not “income,” but it may be considered

as an “asset” when determining a child support obligation).

[¶16.] Although SDCL 25-7-6.5 allows consideration of an inheritance when

the child’s needs are not being met, the statute does not allow consideration of

Father’s inheritance in this case. Neither the court nor the referee found that the

“child’s needs [were] not being met” through Father’s and Mother’s income. See

SDCL 25-7-6.5. Without such finding, Father’s inheritance cannot be considered

when calculating Mother’s child support obligation.

[¶17.] We reverse and remand for reconsideration of Mother’s child support

obligation consistent with SDCL chapter 25-7 and this opinion.

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[¶18.] GILBERTSON, Chief Justice, and KONENKAMP, SEVERSON, and

WILBUR, Justices, concur.

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