Jacobson v. Jacobson, 21088.

Citation611 N.W.2d 210,2000 SD 60
Decision Date03 May 2000
Docket NumberNo. 21088.,21088.
PartiesScott J. JACOBSON, Plaintiff and Appellant, v. Nancy J. JACOBSON, Defendant and Appellee.
CourtSupreme Court of South Dakota

John J. Delaney of Delaney & Sumner, Rapid City, for plaintiff and appellant.

James L. Waggoner, Rapid City, for defendant and appellee.

MILLER, Chief Justice

[¶ 1.] This is an appeal from the trial court's modification of a provision in a divorce decree which allocated the federal income tax dependent exemptions. We affirm in part and reverse in part.

FACTS

[¶ 2.] Scott Jacobson and Nancy Jacobson were married in August 1985, and two children were born to the marriage. They were divorced in May 1996. The divorce decree incorporated a "Stipulation, Property Settlement and Child Custody Agreement" [Stipulation] entered into between the parties, which provided in salient part:

IV. The parties agree that [Scott] shall pay child support in accordance with the guidelines of the state of South Dakota of Eight Hundred Sixty-eight Dollars ($868) per month. Day care or similar costs incurred as a result of [Nancy's] employment will be shared by the parties ([Scott] shall pay 70% and [Nancy] shall pay 30% at this time) and paid separately from the child support obligation.... Uncovered medical expenses and all costs of medical insurance shall be shared equally by the parties.... In any year in which the child support paid by [Scott] to [Nancy] equals or exceeds Four Thousand Two Hundred Dollars ($4,200), the exemption for the Internal Revenue Service shall pass to [Scott] and [Nancy] shall execute any documents or papers necessary to accomplish that end.

[¶ 3.] At the time the Stipulation was signed, Nancy had just been notified that her teaching contract would be reduced to a part-time position for the 1996-1997 school year.1 She later testified that she agreed to permit Scott's claiming the children's income tax exemptions because she "just thought that it was fair that Scott get them. At the time, they would have been worth more to him for his income than they would have been to me for what my income was going to be."

[¶ 4.] As a result of Nancy securing a full-time teaching contract for the 1998-1999 school year, Scott suggested that child support be reviewed. Nancy agreed and filed a Petition for Modification of Child Support, claiming that circumstances had changed. In addition to Nancy resuming full-time employment, both parties had re-married. Further, the state child support guidelines and the federal tax laws concerning dependency exemptions and child care credits had changed.2 She and Scott agreed to present the case to a referee in order to "keep the lawyers out of it."

[¶ 5.] A hearing was held before the referee on December 9, 1998. A transcript of the hearing is not contained in the file, but it appears that the issue of whether the dependent exemptions could be modified was not addressed.

[¶ 6.] Apparently the referee assumed Nancy was entitled to the federal income tax dependent exemptions, despite the contrary provision in the Stipulation. He additionally assumed that she was in fact claiming the exemptions on her tax returns. Under the presumption that he had no jurisdiction to make a recommendation about who was entitled to claim such exemptions, the referee treated them only as a factor to consider in deviating from the child support guidelines. He ultimately recommended that the amount of child support be increased (pursuant to applicable child support guidelines), and that the payment of the children's medical expenses not covered by insurance be re-allocated between the parties.

[¶ 7.] Neither party objected to the referee's report. The trial court adopted the report and entered a child support order accordingly. Two days later, Nancy filed a motion to modify the divorce decree and remove the provision concerning which party is entitled to the dependent exemptions. On June 23, 1999, the court granted the motion, finding that circumstances had changed since the entry of the divorce decree. Specifically, it noted that both parties had re-married and each parties' new spouse was employed full time, Nancy had secured full-time employment, the statute (SDCL ch. 25-7) pertaining to child support had been modified in 1997, and federal tax laws relating to dependent exemptions and child care credits had changed. The court further found that the value of the dependent exemptions was almost equal to both parties, but were Nancy allowed to claim the children as dependents for income tax purposes, the children would be more greatly benefited. Based on these and other findings, the court concluded in pertinent part:

5. The issue of what party is entitled to claim a child as a dependent for income tax purposes is part of child support and the child support equation and in fact, the amount of child support and which party will claim the children as dependents for federal income tax purposes are absolutely interlocking considerations. Sarver v. Dathe, 439 N.W.2d 548 (S.D.1989).

6. This Court must defer to federal law as to which parent is entitled to claim the children as dependents for income tax purposes as that matter has been determined by federal law.

7. The portion of the Stipulation, Property Settlement and Child Custody Agreement requiring the custodial parent to sign a written statement disclaiming her right to claim the children as dependents for income tax purposes for a specified year and allowing the noncustodial parent to attach that statement to his tax return for that particular year is removed and stricken from the Decree of Divorce.

8. Commencing with calendar year 1998, which party shall be entitled to claim the children of the parties hereto as dependents for income tax purposes shall be determined in accordance with applicable federal law and regulations.

[¶ 8.] Scott now appeals, raising essentially one issue: Did the trial court abuse its discretion by modifying the provision in the divorce decree which allocated the federal income tax dependent exemptions? Nancy seeks attorney fees on appeal.

STANDARD OF REVIEW

[¶ 9.] We will not tamper with modification decisions unless the circuit court has acted in a manner which amounts to an abuse of its discretion; "a discretion exercised to an end or purpose not justified by, and clearly against, reason and evidence." Deference must also be accorded a circuit court's findings due to its opportunity to view the witnesses and judge the credibility of their testimony.

State, ex rel. Dryden v. Dryden, 409 N.W.2d 648, 651-52 (S.D.1987) (citations omitted).

DECISION

[¶ 10.] 1. The trial court did not abuse its discretion in modifying a provision in the divorce decree which allocated the federal income tax dependent exemptions.

a. Modification of the dependent exemption allocation

[¶ 11.] Scott contends that the dependent exemption provision in the divorce decree cannot be stricken or otherwise modified by the court, because that issue is controlled by federal law. Citing Jameson v. Jameson, 306 N.W.2d 240 (S.D.1981) (Jameson II),

he further argues that even though a court in this state does not have authority to allocate dependency exemptions, it has a duty to enforce those obligations the parties undertook willingly. Thus, Scott asserts that even though the court could not allocate the exemptions initially, it can enforce the exemption provision in the original decree. He argues that since Nancy agreed in the Stipulation that he could claim the children as dependents in any year he paid more than $4,200 in child support (which he has done every year since the divorce), the provision must be upheld and cannot now be stricken from the decree. We disagree.

[¶ 12.] "In an action for divorce, the court may, before or after judgment, give such direction for the custody, care, and education of the children of the marriage as may seem necessary or proper, and may at any time vacate or modify the same." SDCL 25-4-45. "Circuit courts have continuing jurisdiction to modify child support obligations and are statutorily infused with broad powers to implement modifications `from time to time,' SDCL 25-4-41, and `as may seem necessary or proper.' SDCL 25-4-45." Dryden, 409 N.W.2d at 651 (citations omitted). A child support agreement may be modified even though it was originally based on a stipulation between the parties. Jameson II, 306 N.W.2d at 242; State ex rel. Larsgaard v. Larsgaard, 298 N.W.2d 381, 383 (S.D. 1980). "The parties' agreement cannot deprive the courts of their power to modify support obligations." McGee v. McGee, 415 N.W.2d 812, 813 (S.D.1987). In addition, dependent exemptions and child support are "absolutely interlocking considerations," Sarver v. Dathe, 439 N.W.2d 548, 551 (S.D.1989), and "the tax exemption is part of the child support issue." Id. at 554 (Sabers, J., concurring specially).3

[¶ 13.] On the other hand, federal law mandates that absent three exceptions, the dependent exemption goes to the custodial parent. IRC § 152(e).4 Accordingly, trial courts have no authority to award dependent exemptions for federal income tax purposes. Alexander v. Hamilton, 525 N.W.2d 41, 45 (S.D.1994); Voelker v. Voelker, 520 N.W.2d 903, 909 (S.D.1994); Earley v. Earley, 484 N.W.2d 125, 128 (S.D.1992),cert. denied 506 U.S. 895, 113 S.Ct. 272, 121 L.Ed.2d 200 (1992); Sarver, 439 N.W.2d at 551; Brandriet v. Larsen, 442 N.W.2d 455, 460 (S.D.1989); and Dryden, 409 N.W.2d at 652 n.2.

[¶ 14.] Further, we have held that although a court cannot impose an obligation such as college education expenses upon the parties to a divorce, such an obligation is valid and enforceable if stipulated between the parties. Jameson II, 306 N.W.2d at 244. Even though a party may subsequently find harsh the terms of an agreement to which he earlier stipulated, such a revelation does not constitute changed circumstances so as to...

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    ...was aware of a potential dispute over this issue and the trial court merely resolved it. The South Dakota case of Jacobson v. Jacobson, 611 N.W.2d 210 (S.D.2000), further supports the trial court's decision. In Jacobson, the trial court changed the original dissolution decree, taking the de......
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