Wyoming Supreme Court Bars Double Counting of Pass‑Through Business Income in Child Support Calculations

Case: Matthew R. Stenson v. Nikole M. Stenson, 2025 WY 102 (Wyo. Sept. 23, 2025)

Court: Supreme Court of Wyoming

Authoring Justice: Fenn, J.

Introduction

This decision addresses a recurring and often misunderstood problem in child support litigation: how to calculate a payor parent’s income when that parent owns and operates one or more pass‑through businesses (S‑corporations, partnerships, or LLCs). The Supreme Court of Wyoming reverses a substantial child support increase after finding the district court improperly “double counted” the father’s business income by adding both the S‑corporation’s K‑1 pass‑through items and the corporation’s distributions, even though the distribution already reflected those pass‑through items.

The parties divorced in 2021. They share joint legal and physical custody of two children. The father owns Stenson’s Weed Service, Inc. (an S‑corporation wholly owned by him) and, through that corporation, a 50% stake in Back Country Spraying, LLC (a pass‑through LLC). In 2024, the district court denied the father’s request to modify visitation but granted the mother’s request to modify child support, raising his payment to $5,292/month. The father appealed solely the income calculation underlying that order.

The central issue on appeal was whether the district court abused its discretion by miscalculating the father’s income. Specifically, the father alleged the court doubled his income by summing (1) Stenson’s ordinary business income and investment items (as shown on a Schedule K‑1) and (2) Stenson’s distributions to him, even though the distribution already embodied those K‑1 items. The Wyoming Supreme Court agreed, clarified how to handle pass‑through income and distributions, affirmed the add‑back of depreciation/amortization, and remanded for a proper recalculation using complete financial information.

Summary of the Opinion

The Supreme Court reversed the child support order and remanded. It held that the district court abused its discretion by double counting the father’s pass‑through business income. The error occurred when the court added:

Stenson wages ($50,000) plus
Stenson’s ordinary business income ($210,307) and investment income ($18,362) from the K‑1, and also
Stenson’s cash distributions to the father ($228,669),

even though the distribution already reflected the ordinary business income and investment items for the year (because Stenson distributed all of its 2022 income). By counting both the K‑1 items and the distribution, the court effectively doubled the father’s income.

The Court affirmed the district court’s decision to add back depreciation and amortization from Back Country, consistent with Wyoming child support law that treats such noncash deductions as not reducing income for support purposes.

The Court clarified that its prior decision in Marquis v. Marquis does not authorize double counting; rather, Marquis allows courts to include “phantom income” (undistributed taxable income) when appropriate. Because Stenson’s 2022 income was actually distributed to the father, it was not phantom income. On remand, the district court must obtain and review complete tax records (including full business returns and the individual return) to determine whether any phantom income exists and to compute income correctly beginning December 1, 2024.

Analysis

Precedents Cited and Their Influence

Lemus v. Martinez (Lemus I), 2019 WY 52, 441 P.3d 831, and Lemus v. Martinez (Lemus II), 2021 WY 66, 486 P.3d 1000. Lemus I provides key statutory scaffolding and process: child support calculations are governed by Wyo. Stat. Ann. §§ 20‑2‑301 to ‑308; the district court must determine “income” and “net income” under § 20‑2‑303 and cannot enter an order without financial affidavits or testimony that fully discloses the parties’ financial status (§ 20‑2‑308(a)). Lemus I also emphasizes the court’s duty to require sufficient financial information—especially critical where a parent’s income is tied to closely held or pass‑through entities. Lemus II informs the standard of review (abuse of discretion and sufficiency of evidence). In Stenson, this framework undergirds the remand direction: get complete business and individual tax returns and calculate income correctly.

Marquis v. Marquis, 2020 WY 141, 476 P.3d 212. Marquis clarified the treatment of “phantom income,” defined as taxable income from which the taxpayer does not actually receive money. There, distributions used to pay the owner’s tax liability still “enhanced” the owner’s wealth and were includable. In Stenson, the Court distinguishes Marquis: it does not authorize double counting where an S‑corp actually distributes its income and the distribution already reflects the K‑1 items. Marquis supports inclusion of phantom income when it exists; it does not justify adding K‑1 items on top of distributions when the same income has already been distributed.

Hyatt v. Hyatt, 2023 WY 129, 540 P.3d 873; Ready v. Ready, 2003 WY 121, 76 P.3d 836; Houston v. Smith, 882 P.2d 240 (Wyo. 1994). These decisions establish that depreciation and amortization—while legitimate tax deductions—are not deducted in computing income for child support. Instead, they are added back “to accurately reflect the income of the business.” Stenson reaffirms this principle and upholds the add‑back of Back Country’s depreciation/amortization.

Teeples v. Teeples, 2012 WY 127, 286 P.3d 134; Comptroller of Treasury of Md. v. Wynne, 575 U.S. 542 (2015); J.S. v. C.C., 912 N.E.2d 933 (Mass. 2009); Harrison v. Harrison, 949 N.W.2d 369 (Neb. App. 2020). These authorities describe the tax mechanics of pass‑through entities and Schedule K‑1 reporting: K‑1s allocate to owners their pro rata shares of income, deductions, and credits, whether or not cash is distributed. Stenson leverages these basics to explain how double counting can occur if courts add K‑1 income and distributions without examining whether the business distributed the same income during the year. Harrison also illustrates that undistributed K‑1 items can be “phantom income,” which courts may consider under Marquis.

The Court’s Legal Reasoning

1) Statutory framework. Wyoming law defines “income” broadly and “net income” as income less listed deductions (personal income taxes, Social Security, health insurance for dependents, etc.). See Wyo. Stat. Ann. § 20‑2‑303(a)(ii)–(iii). The court’s first task is to identify income accurately, including for self‑employed parents and owners of pass‑through businesses.

2) Pass‑through mechanics and the problem of double counting. Stenson (S‑corp) wholly owned by Father, in turn owned 50% of Back Country (LLC). These are pass‑through entities: their income flows to the owner’s tax return via K‑1, regardless of whether cash is distributed. The district court computed Father’s income by adding:

Wages from Stenson ($50,000), plus
Investment income from Stenson’s K‑1 ($18,362), plus
Stenson’s ordinary business income from the K‑1 ($210,307), plus
Stenson’s distributions to Father ($228,669), plus
Back Country depreciation/amortization add‑back ($35,095).

The Supreme Court demonstrated why this was erroneous: the $228,669 distribution already “included” the $210,307 ordinary income and the $18,362 of investment income for 2022, because Stenson distributed the entirety of its 2022 income to Father. Adding the K‑1 ordinary income and investment items on top of the distribution counted the same dollars twice. Numerically, Father’s 2022 figures line up:

Distribution: $228,669 = $210,307 (ordinary business income) + $18,362 (investment items).
The $18,362 investment bucket comprised a $11,365 net long‑term capital gain and a $6,997 gain on excess distributions (as shown on the K‑1 and the shareholder basis worksheet).

3) Depreciation/amortization add‑back was correct. The Court reaffirmed that, for child support purposes, depreciation and amortization are added back to income. Father conceded this point, and the district court correctly included 50% of Back Country’s depreciation and amortization ($35,095) in Father’s income.

4) Phantom income clarified and Marquis distinguished. Mother’s expert argued Marquis required adding both distributions and business income. The Supreme Court rejected that reading. Marquis stands for the inclusion of phantom income (undistributed taxable income) in appropriate cases, not for double counting actually distributed income. Here, the S‑corp’s 2022 income was distributed; it was not phantom. Thus, the district court should have counted either:

the K‑1 pass‑through items (if income were undistributed), or
the distribution (if the income was actually distributed),

but not both for the same dollars in the same year. The Court also signaled that undistributed K‑1 income attributable to Back Country or Stenson could still qualify as phantom income and be included, if proven on remand with complete records.

5) Procedural guardrails: complete financial disclosures. Echoing Lemus I and § 20‑2‑308(a), the Court faulted the incomplete record: the full 2022 return for Stenson was missing (only its K‑1 was in evidence). On remand, the district court must obtain and review Father’s individual return and both business returns (Stenson and Back Country) to ensure a reliable, non‑duplicative calculation, including any phantom income analysis.

Impact and Practical Implications

A. Clear rule for pass‑through owners. Trial courts in Wyoming must avoid double counting pass‑through income. When a pass‑through entity distributes its current‑year income to the owner, courts should not add K‑1 pass‑through items to distributions for the same year’s dollars. Conversely, if the entity does not distribute all pass‑through income, undistributed K‑1 income may be included as “phantom income” consistent with Marquis.

B. Reinforced record‑building duty. Courts must insist on full, reliable financial data before entering child support orders. Especially with multi‑tiered ownership (e.g., an S‑corp owning an LLC), this means obtaining and reconciling:

Complete individual tax returns (with schedules and basis worksheets),
Complete business tax returns for each pass‑through entity (with K‑1s), and
Supporting financial affidavits showing cash flows and distributions.

C. Depreciation and amortization remain add‑backs. Stenson strengthens the line of Wyoming cases mandating add‑backs for noncash tax deductions. Business owners should expect depreciation and amortization to be included in income for child support purposes.

D. Expert testimony must align with Stenson and Marquis. Financial experts should be prepared to demonstrate the relationship between K‑1 pass‑through items and actual distributions, to prevent double counting and to identify genuine phantom income when it exists.

E. Predictability for settlement and litigation. The clarified approach promotes fairer and more predictable outcomes in cases involving closely‑held businesses, reducing the risk of outsized support obligations based on accounting artifacts rather than true economic income.

Complex Concepts Simplified

Pass‑through entity. A business (like an S‑corp or LLC taxed as a partnership) that does not pay income tax itself. Instead, its income, deductions, and credits “pass through” to the owners, who report them on their personal returns via Schedule K‑1.

Schedule K‑1. A tax form issued by the pass‑through entity to each owner showing that owner’s share of the business’s income items (e.g., ordinary business income, capital gains), deductions, and credits. These amounts affect the owner’s personal taxable income, whether or not the business pays out cash.

Distribution. Cash or property paid from the business to an owner. An S‑corp distribution typically is not itself taxable income; for child support purposes, however, distributions are a form of income because they enhance the owner’s wealth/cash flow.

Double counting in this context. Counting the same income twice—for example, adding a business’s K‑1 ordinary income and investment items to the owner’s distributions when the distribution already reflects those same K‑1 items for the year.

Phantom income. Taxable income allocated to the owner (via K‑1) without a corresponding cash distribution. Phantom income can still be counted for child support (Marquis) because it increases the owner’s wealth, even if cash was not received.

Gain on excess distributions. If an S‑corp distributes more than the owner’s basis, the excess may be taxed as a capital gain. In Stenson, the K‑1 showed a $6,997 “gain on excess distributions,” which the Court observed was included within the investment income bucket for the year.

Depreciation and amortization add‑back. Noncash deductions reduce taxable income but do not represent real, current cash outflows. Wyoming law adds these back when computing income for child support, ensuring reported income reflects actual earning capacity/cash generation.

Wyoming statutory definitions. “Income” in § 20‑2‑303(a)(ii) is broad and includes wages, distributions, and other forms of compensation; “net income” in § 20‑2‑303(a)(iii) subtracts taxes and specified mandatory deductions. Courts must first get income right—without double counting—before computing allowable deductions to reach net income.

Practical Guidance for Recalculation on Remand and in Future Cases

Step 1: Build a complete record. Obtain:

Father’s full individual tax return for the relevant year(s), including all schedules and basis worksheets;
Stenson’s complete S‑corporation return (Form 1120‑S with K‑1);
Back Country’s complete return (e.g., Form 1065 with K‑1s) and financial statements;
Financial affidavits and any interim financials clarifying intra‑year distributions and cash flows.

Step 2: Identify what was actually distributed versus what was merely passed through.

If the entity distributed all current‑year K‑1 income to the owner, count the distribution (and do not add the same K‑1 items again).
If the entity did not distribute some or all K‑1 income, treat the undistributed portion as potential phantom income and include it, consistent with Marquis, if supported by the evidence.

Step 3: Add back noncash deductions. Include the owner’s pro rata share of depreciation and amortization from pass‑throughs in income (Hyatt, Ready, Houston).

Step 4: Determine net income under § 20‑2‑303(a)(iii). From the correctly determined income figure, subtract allowable items (personal income taxes, Social Security/Medicare, dependent health coverage costs, mandatory pensions, and other court‑ordered obligations currently being paid) to reach net income. Convert to monthly amounts as needed.

Step 5: Apply the statutory guidelines for presumptive support. Use the parents’ net monthly incomes to compute presumptive support. Articulate any deviations with findings, if warranted.

Step 6: Make explicit findings preventing double counting. The order should specify how the court avoided double counting (e.g., “The court included 2022 distributions from Stenson because those distributions represented the entirety of 2022 K‑1 income; the court did not also add the same K‑1 items.”).

Conclusion

Stenson v. Stenson establishes an important, clarifying rule for Wyoming child support cases involving pass‑through businesses: courts must not double count income by adding both K‑1 pass‑through items and distributions when the distribution already embodies those same items for the year. At the same time, the decision reaffirms two durable principles: (1) depreciation and amortization are added back to income for support purposes, and (2) courts may include phantom income where appropriate, consistent with Marquis.

The opinion also reemphasizes the court’s gatekeeping duty to obtain complete, reliable financial records—especially full business returns—before entering child support orders. Practitioners should prepare comprehensive, coherent presentations tying K‑1 items to actual distributions (or their absence), thereby enabling courts to compute income accurately, transparently, and without duplication.

Key takeaway: For owners of pass‑through entities, the correct calculation hinges on tracing what income was actually distributed, what remained as phantom K‑1 income, and adding back noncash deductions—grounded in a complete evidentiary record. By enforcing these principles, Stenson advances fairness and accuracy in Wyoming’s child support determinations.

Wyoming Supreme Court Bars Double Counting of Pass‑Through Business Income in Child Support Calculations: Stenson v. Stenson (2025 WY 102)