Earning Capacity & Divorce

By Heather Frances J.D.

When a divorce court divides your possessions, including personal property and real estate, anticipated future earnings can be part of the calculations as well. For example, spousal support may be based on each spouse’s likely future earning capacity. Though state laws on divorce distributions vary, your future earnings may be highly relevant to the court’s decisions about your property and finances.

Imputed Income

Many child support and spousal support decisions begin by comparing the income of the spouses, but courts often have authority to impute to spouses income that they aren't actually receiving when appropriate. The court imputes income by acting as though you make more money than you actually do. Courts frequently use imputed income when one spouse is deliberately unemployed or underemployed in an effort to lower his support payments but has the capacity to earn far more money. For example, if your spouse chooses to drastically cut his work hours so that he appears to make less money, the court may impute income to him according to how much money he made before his decrease in hours.

Supporting the Household

When dividing property or awarding spousal support, courts often consider the contributions one spouse made to the earning capacity of the other spouse by supporting the household while the other spouse attended school, advanced his career or launched a business. For example, one spouse may have worked several jobs to support the family while the other spouse was attending medical or law school. Your court may decide that the benefited spouse’s increased earning capacity is a marital asset and provide additional compensation to the spouse who supported the family. Compensation could include a bigger share of the couple’s marital property or an award of spousal support.

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Equitable Distribution

Most states’ laws direct courts to divide property equitably between divorcing spouses, and such distributions may or may not be exactly equal. In such states, a spouse with lower earning potential may be given an increased share of the marital property if there is little chance she will be able to maintain the couple’s standard of living on her own after the divorce. For example, a spouse without resources to buy her own home and without sufficient earning potential could be given the family home in her divorce.

Spousal Support

Spousal support, or alimony, can fill the shortfalls in post-divorce earning capacity. If one spouse stayed home to care for the couple’s children and fell behind in her schooling or career experience, a court may award rehabilitative or short-term spousal support to help that spouse rejoin the workforce or increase her earning potential by attending school or a training program. If short-term support is insufficient, perhaps because one spouse is unable to work, the court may award longer-term or permanent spousal support for the spouse with lower earning capacity.

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How Does Underreported Income Affect a Divorce?
 

References

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