Posted by Nydia Streets of Streets Law in Florida Child Support
When determining income for purposes of a Florida child support calculation, there are special considerations when a parent is a business owner or shareholder of a corporate entity. Depending on the type of entity, there are different ways of viewing income received by the parent. This was an issue in the case J.E.B. v. S.A.B., 6D2023-0839 (Fla. 6th DCA July 11, 2025).
The father in this paternity case is the CEO, majority owner and board chairman of a Minnesota-based LLC. According to the appellate opinion in this case, the company he owns “is a pass-through entity for federal income tax purposes, meaning the company’s income is not taxed as company income, but passes through to its members in proportion to their ownership interests to be taxed as their income.” The father testified at trial that income is distributed to the member of the corporation in percentages determined by the board of directors, specifically in this case, 50% of the income is used to pay shareholders’ income taxes, 25% is retained for reinvestment in the company, and up to the remaining 25% is distributed to members as determined by the board of directors based on company cash flow needs. After trial, the court entered a final judgment that assigned all of the corporation’s pass-through income to the father instead of the percentage he testified he actually receives, and ordered him to provide life insurance policy to support his obligation. After his motion for rehearing was denied, he appealed.
Relying on the case Zold v. Zold, 911 So. 2d 1222 (Fla. 2005), the appellate court determined it was error to assign the pass-through income to the father that his unrebutted testimony established that he did not receive. That case set forth a 3-part test:
In determining whether the shareholder-spouse has met his or her burden of proving that the undistributed “passthrough” income was retained for corporate purposes, the trial court should consider (1) the extent to which a shareholder-spouse has access to or control over “pass-through” income retained by the corporation, (2) the limitations set forth in section 607.06401(3) governing corporate distributions to shareholders, and (3) the purpose(s) for which the “pass-through” income has been retained by the corporation.
As to the first part of the test, the court held “The first Zold consideration favors [the father]. Although [the father] is the majority shareholder, CEO, and board chairman of EMC, he is but one of six shareholders, and he testified that he has influence, but not control over board decisions to retain or distribute EMC income in accordance with its distribution policy. The trial court did not expressly state or implicitly suggest that it found [the father’] testimony to be inaccurate or incredible, and [the mother] put on no evidence to the contrary. Thus, there is no competent substantial evidence in the record to support the trial court’s finding that, ‘[a]s the majority shareholder, CEO and Chairman of EMC, LLC, he has significant control over distributions and what income is retained.’”
As to the second part of the test, the court held “The second Zold consideration favors [the mother], but only to the extent that [the father] has not claimed EMC is legally prohibited from distributing more of its income to shareholders. The Zold court looked specifically to section 607.06401(3), Florida Statutes, which prohibits distributions that would make a corporation insolvent, but EMC is not a Florida corporation subject to the statute. Assuming, however, a cognate provision of the state LLC act governing EMC prohibits distributions that would make EMC insolvent, no such statute was before the trial court.”
Finally, as to the third part, the court held “The third Zold consideration—the corporate purpose for retaining income— is the most important here, as it was in Zold. See 911 So. 2d at 1233. [The father’s] unrefuted testimony was that, after the first 50% of EMC income is used to cover the shareholders’ taxes, the next 25% of EMC income is retained for the corporate purposes of paying employees and investing in EMC programs and other companies. Additionally, some or all of the remaining 25% of EMC income may be retained instead of distributed to satisfy EMC’s operational cash flow needs. These are quintessential corporate purposes for retaining income. [. . .] Again, the trial court did not express or imply any inaccuracy or incredibility of [the father’s] testimony, and [the mother] put on no evidence to show any purpose for EMC’s income retention other than [the father’s] stated corporate purposes under EMC’s established 50%–25%–25% distribution policy. Thus, no competent substantial evidence supports the trial court’s finding that [the father] ‘did not testify about or otherwise explain any reason why the Company retained earnings.’”
The court however found conflict between district court’s as to the treatment of the percentage of income held back for tax liability for members. It therefore certified conflict between the cases McHugh v. McHugh, 702 So. 2d 639 (Fla. 4th DCA 1997) and Bair v. Bair, 214 So. 3d 750 (Fla. 2d DCA 2017). Finally turning to the life insurance ruling, the appellate court held “Because we reverse the child support award for recalculation, we also reverse the requirement for [the father] to purchase life insurance to secure the amount of the child support award. But we do not decide whether the trial court erred in ordering [the father] to obtain life insurance as security instead of giving [the father] statutory security alternatives as it orally decreed at the rehearing. On remand, the trial court may determine anew whether to order [the father] to secure the recalculated child support award in accordance with section 60.13(c), giving the parties the opportunity to put on evidence and argue for or against such security.”
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