Understanding Earning Capacity in Divorce
Posted on 19th July 2024
Earning Capacity - What's That, and How Does It Affect Me?
Navigating the financial aspects of divorce can be challenging, especially when it comes to understanding earning capacity. This concept plays a crucial role in determining financial settlements and ongoing support. You may find yourself unfairly being accused as seeing the other party as a "meal ticket", or you may indeed think the other party sees you as such. So what are the rules?
What is Earning Capacity?
Earning capacity refers to the potential income that a person is capable of earning based on their skills, qualifications, and job opportunities. It considers the ability to work and generate income, not just the current earnings.
The Changing Role of Caregivers
As children grow older, the expectation for the main caregiver to stay at home diminishes. This shift often raises questions about the lower-earning party's path to self-sufficiency. In family law, the phrase "marriage is not a meal ticket" rings true. Both parties are expected to maximise their income potential, regardless of past roles.
Transitioning to Self-Sufficiency
For those who have taken on the primary caregiving role, re-entering the workforce or increasing work hours is often necessary. This can be particularly challenging for part-time workers transitioning to full-time or homemakers who have been out of the workforce for extended periods. Factors such as the length of absence from the workforce and the current job market conditions play significant roles in this transition.
High Earners and Earning Capacity
Even high earners threatening to quit their jobs can backfire. The court is likely to assess their potential earning capacity rather than their current employment status. This means they may still be deemed to have a high earning capacity based on their skills, experience, and previous earnings.
Individual Circumstances Matter
Each divorce case is unique, and the courts will consider individual circumstances when assessing earning capacity. The aim is to ensure a fair outcome that encourages both parties to work towards financial independence.
To summarise...
Earning Capacity Matters, Understanding earning capacity is crucial in divorce settlements, as it affects financial decisions and support. Earning capacity refers to potential income based on skills and opportunities, not just current earnings. Both parties are expected to maximize their income potential, especially as caregiving roles evolve. Courts consider individual circumstances, aiming for fair outcomes that encourage financial independence.
Elaine Foster is a qualified and practicing family lawyer with over 20 years experience in the field.
Alongside her family law practice, she also runs a prioneering private membership group, Divorce Without Lawyers, which helps those going through divorce to manage the day to day running of their the case efficiently and without wasting money on unnecessary legal fees. For more information click here
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