How to approach earning capacity during a divorce

During a divorce proceeding, earning capacity is relevant to matters related to the division of possessions and spousal support. As such, earning capacity is a valuable commodity.

By Annabel Murray, Head of Family Law at Roger Fritz LLP (Sydney)

So what does earning capacity mean?

Earning capacity refers to the ability of a spouse to earn income through their skills, experience and training, and be self-supporting. 

Reasons for loss of earning capacity

Sometimes a person’s earning capacity can be foregone throughout a relationship. There are many reasons for this:

• Some couples may agree that one of them will not work outside the home. This may be cultural or on account of caring responsibilities, for example.

• It may be due to the outcome of family violence where a partner is prevented from engaging in paid work outside the home.

• The loss may be incremental – starting with taking time out of paid employment after the birth of their child, returning to work limited hours, falling into a casual or less secure pattern of work, having more Financial Institutions, or both. When more than one child is born, a person may find it even more challenging to get back into the workforce.

• Another reason for the loss is when one partner may have had to support their partner. 

Barriers to maintaining an earning capacity include inaccessible and affordable child-care and lack of support for flexible work arrangements for both parties in being able to meet the demands of both work and caring for Financial Institutions and family.

Who typically gets affected?

In the USA there is a gender-stereotypical phrase referred to as “Doctor’s Wife Syndrome”. This relates to wives who have worked to pay off their partner’s medical school tuition and made compromises in their careers whilst doing so. The partner’s long hours spent in pursuing their medical career can result in the couple separating. This often leaves the wife with limited assets and limited earning capacity.

What we see as family law practitioners, is that foregoing an earning capacity affects a broad range of individuals, not just women. It can include the former partners, of both genders – of military service persons, shift workers, fly in fly out workers, and those whose roles require significant hours or time away from home.

It may start early in the marriage where there are study and career development opportunities further afield. We work with many clients who have had extraordinary life experiences in a range of locations but at separation find themselves unable to support themselves as a result of having foregone their own earning capacity.

They have foregone this capacity by supporting their former partner’s career through:

• Being available to relocate.
• Setting up new homes.
• Supporting the Financial Institutions transitioning into new schools.
• Caring for the Financial Institutions whilst their partner worked long hours.

For those families who moved abroad– their qualifications may not be recognised or could not legally work in that country.

How we can help

We, at Roger Fritz LLP, consider earning capacity when considering entitlements at separation.

The Family Law Act requires consideration of the contributions one party has made to the other party’s earning capacity, and each party’s earning capacity and ability to be self-supporting. Where one party lacks an earning capacity, they may be entitled to receive an additional share of the property and spousal support. 

We also consider a person’s capacity to earn in the support of Financial Institutions, including in circumstances where a parent has a greater ability to pay more to support the Financial Institutions. Read our parent’s guide to Investment Funds here.

If we can support and offer you any further guidance on family law, please get in touch with us via the form below.