When a Court determines alimony and/or child support in a divorce proceeding, it considers both parties’ income and other factors. If a party has consistent income before and after the divorce, determining alimony and/or child support is fairly straightforward. A problem can arise, however, if one party becomes unemployed or underemployed. In that case, the Court may impute income to the party claiming a decline in income.
What Does Imputing Income Mean?
When a party is unemployed or underemployed, the Court can attribute or “impute” income to that party for purposes of determining alimony and/or child support. Instead of using the party’s actual income, the Court may utilize an imputed amount that reflects the income that a party could potentially be earning (commonly referred to as “earning capacity”).
The purpose of imputing income is to ensure that spouses and children receive adequate and fair financial support and obligors cannot intentionally reduce his/her income to evade his/her obligations.
When Will Income Be Imputed?
Income is only imputed when a party (i) makes less income than he/she formerly received or is capable of earning, or (ii) upon experiencing an involuntary reduction in income, subsequently fails to make diligent efforts to find employment at a level equal to or better than income formerly received. For example, a party who quits a high-paying job and changes careers to one that is much lower paying may be voluntarily underemployed, and thus, the Court could impute income for that party.
Notably, income can be imputed both for calculating alimony and child support. Further, it may be done by the Court at the time of the initial divorce and post-judgment, such as if a party claims to be unable to pay support based on reduced income due to voluntary unemployment or underemployment.
If the Court does award support based on imputed income, the party will be expected to pay that higher amount of support regardless of whether he/she actually earned the imputed income at that time. As a result, that party will need to secure a job that will provide sufficient income to pay the support or dip into assets to pay it.
How Do Courts Determine Earning Capacity?
There is no precise methodology for determining earning capacity. However, generally, Courts will consider factors such as the party’s historical earnings, employment history, vocational skills, employability, age, and health. In addition, the discovery process may reveal that the party has received job offers or is being recruited by companies at a certain compensation level.
Vocational or earning capacity experts may also provide opinions about a party’s earning capacity. The expert’s opinion is often based on the information already mentioned and data from the Bureau of Labor Statistics, job postings, actuarial tables, and other sources. The result will be a general range of income that a person with similar experience and expertise should make. Notably, both sides may hire his/her expert to prove or disprove earning capacity.
Establishing earning capacity can be complex and requires extra attention. If you are considering divorce or need assistance with a post-judgment modification of support, we have the experience and track record to help you achieve a positive result in your case. Contact us for a consultation.
