How is future earning potential considered in a financial
settlement?
When you are going through a divorce, or dissolution of your civil partnership, a key
concern will be to ensure that you will have financial security once it has all been
decided. What each of you is likely to earn in the future will be a factor that is looked
at for this purpose. This may be a particular area of focus for you, if one of you gave
up your career to raise the family and supported the other to progress and flourish in
theirs.
‘You may also wonder how a wish to retire early, or perhaps work less, might affect
the way in which future earnings are considered,’ says Akash Soni, a family law solicitor and mediator at Breakthrough solicitors. ‘It is therefore a good idea to understand how this
factor is taken into account, and what you may need to think about before starting
the process.’
Is ‘earning potential’ a matrimonial asset?
In short, no. The family courts have ruled that someone’s future earning capacity
cannot be treated as a matrimonial asset to be divvied up as part of a financial
settlement, in the same way that a private pension might be. The principal reason for
this is that it would conflict with the law’s goal of trying to achieve a ‘clean break’
(breaking all financial ties) for a divorcing couple. If the court were to allow one of
you to claim a share in the other’s future earnings, that would essentially keep you
both connected and unable to gain closure. It would also impact upon the paying
person’s ability to plan and secure their financial future.
If you gave up your job to raise the family, which in turn allowed your ex-partner to
excel in their career and increase their earnings, you might be under the assumption
that you would be entitled to a share of that future success. This is not the case.
Conversely, if you are worried that you will not be able to take the early retirement
you had always dreamed of and planned for, due to a looming divorce, you can rest
assured that the court will not treat your future earning potential as an asset and
force you to work for longer than you might want to.
In situations where you both earn modestly, there would be an undeniable
disadvantage to the paying party if their future earnings had to be shared.
Even if you are both high earners and could absorb the financial loss of sharing
future earnings, the court’s objective is to free you from each other financially
whenever that is possible, and so it is wise to bear the court’s approach in mind from
the outset.
How do the courts consider future earning capacity?
When the court applies the law to calculating the financial settlement arising from
your divorce or dissolution of your civil partnership, it has to consider all of the
circumstances. One of the factors it looks at, along with things like your age and
health, is each of your future earnings potential.
If it is one of the main elements of the settlement negotiations, the court may want to
break it down into elements and explore each person’s situation regarding:
current work and earnings;
qualifications and skills;
experience and employment history; and
projections of future earning capacity based on available evidence.
So, what each of you is likely to earn after a divorce may be just as important, if not
more so, as what you might be earning now. The court’s aim is to get an accurate
picture of the earnings that will be coming in, to try and ensure as best it can that
each of your reasonable income needs will be met.
What about spousal maintenance?
Whilst future earning potential, in and of itself, is not a matrimonial asset, it is
relevant when thinking about whether one of you will require some ongoing financial
assistance from the other by way of spousal maintenance. In that scenario, each of
your incomes and earning capacities will be taken into account to decide the level of
maintenance required, which has to be fair when all things are considered.
Inevitably, the court will want to explore what the paying party’s income is likely to be
after the process concludes and evidence of their future earnings will be required to
assess this. It could be that levels of future earnings will remain the same, might
decrease (one of you may have to work less due to ill health, or may be nearing
retirement), or indeed might increase. However, the level of spousal maintenance will be balanced between what the shortfall in your reasonable income needs are
and what your ex-partner can afford to pay to achieve a fair settlement. It is not the
case that a higher amount, or longer duration, of maintenance will be awarded just
because the paying party will be earning more.
You should also remember that the court will expect each of you to maximise your
own earning capacity and to achieve financial self-sufficiency insofar as possible. If
you have the qualifications, and evidence shows you can get back into the workforce
quite quickly, you should not expect to receive maintenance payments for the long-
term.
Quantifying future earning potential
There are some cases where it is not easy to put a figure on a party’s future earning
potential, for example if a bonus is related to performance. Alternatively, your ex-
partner could deliberately downplay what they might earn following the divorce, and
provide vague and confusing evidence making it hard to quantify and place reliance
on. Their aim may to be muddy the waters enough to escape having to pay you any
spousal maintenance.
In such scenarios it is important to look into whether an expert, such as an
employment consultant in the relevant field, can be asked to provide a report on your
ex-partner’s likely future earning capacity. A court expert is a neutral third party, who
reports to the court under certain duties and obligations, and therefore their findings
can be relied on and help the court to take a decision.
How we can help
Whether a divorce or dissolution of your civil partnership is on the cards, or you need
guidance on how future earnings will be considered in your existing case, we can
provide specialist advice to help you to understand your position and your options.
For further information, please contact our family law team on 02088638388
or email us at mail@breakthroughfls.com. We have offices in Harrow, Berkhamsted, Mayfair and Milton Keynes.
This article is for general information only and does not constitute legal or professional
advice. Please note that the law may have changed since this article was published.
