Family courts always consider each party’s earnings capacity analysis during family law matters like divorce and child support. Divorce is the legal end of a marriage and typically includes property settlement and spousal maintenance procedures. Property settlement is a legal procedure that requires divorced couples to divide their assets and finances between each other. This way, each couple can get a proper amount of:
- Material goods
- Any other necessities that can help a person achieve a standard of living
These factors can help a divorced individual keep living and possibly remarry with no financial worries. A court may conduct spousal maintenance procedures if a divorced individual has low actual or expected earnings. The higher-earning ex-spouse is responsible for providing spousal maintenance to his/her lower-earning ex-spouse. A parent’s earning potential may also affect how much child support they should pay.
A person’s earning potential greatly affects property settlement and spousal maintenance proceedings. Simply put, in property settlement proceedings, a partner’s non-financial contributions may match their spouse’s financial contributions. This allows lower-earning parties to receive more in property settlement proceedings. On the other hand, an ex-spouse who earns a lot may provide more spousal maintenance amount to his/her lower-earning ex-spouse.
Common Reasons for Lower Earning Capacity
1. Child Care/Home Maintenance
Some parents may agree with parenting arrangements that may have affected the carer’s earning potential. Usually, the breadwinner of the family is tasked with providing financial support for the family. On the other hand, the primary caretaker provides day-to-day care for their children or does household chores.
The primary carer is the person with whom a child spends most of his/her time with. While the primary caretaker gets to spend time with his/her children, this does, however, greatly affect his/her earning potential. Family courts will categorise parenting and home maintenance as non-financial contributions to the relationship in divorce proceedings.
2. Abuse or Family Violence
Abuse and family violence are punishable offences that greatly affect a person’s earning capacity. Family violence doesn’t only involve physical acts but financial acts as well. Let’s use an example. For instance, Rowan is keeping his wife Martha from earning for herself by:
- Preventing her from exiting the house to look for work
- Forcing her to care for the children at unreasonable hours
- Keeping extra money from her and giving bare minimum amounts
- Taking insurance payments under her name without consent
Let’s say Martha is able to earn for herself. Rowan can still commit financial abuse if he keeps borrowing huge amounts of money from Martha even if he has a reasonable earning capacity. It’s important to seek advice from a family lawyer if financial abuse or any type of abuse occurs within a relationship.
3. Partners Providing Financial Support for Their Spouse
Some partners may also continue to provide financial support to their spouses of their own volition. However, these spouses may not know the long-term effect of lending huge amounts of money to their partners who are, in fact, capable of seeking suitable employment for themselves. Nevertheless, financial support may be subjective to most people and is their way of showing affection.
4. Partners Providing Child Support in the Absence of Proper Agreements
Child support is financial aid given to children who are under 18. Services Australia is a government agency that is responsible for making child support assessments for parents. This agency takes into account the earning capacity of each parent. Then, they will set out how much child support each parent is liable to pay after the assessment.
The Child Support (Assessment) Act of 1989 contains the legal foundation for child support assessments and the appeal process. A court may issue a leave in response to an appeal of a child support assessment based on a parent’s earning potential.
Parents may think that it’s too much of a hassle to undergo child support assessments. As a result of this, they may end up paying a lot more in child support than what they are required to. These assessments are important as they can help parents identify fair payments that reflect their earning potential. It’s also important to note that child support may still continue even if a child turns 18. This is referred to as child maintenance and courts may order this if an adult child:
- Is finishing tertiary school and relevant training or vocational courses
- Has physical and mental illnesses that prevent them from reaching a reasonable standard of living
Finding Out Actual or Expected Earnings
An earning capacity assessment is performed to determine a worker’s weekly pay rate. Earning capacity is the expected earnings of a worker who chooses to maximize the expected present value of future actual earnings.
Case Example About Earning Capacity
In the case of Walters & Carson (2018), the parties were in a de facto relationship with three children under 18. Couples in a de facto relationship are living together on a domestic basis and are not married. Mr Walters and Ms Carson had a net property pool of $7,640,851 with:
- Mr Walters earning $12,000 weekly; and
- Ms Carson earning $824 weekly.
Indeed, there is a great imbalance between their earning capacities in the case which resulted in the alteration of property interests. Section 79(4) of the Family Law Act 1975 states alteration to property interests for married or de facto couples.
Parties involved in the alteration of property interests must determine the total amount of assets in their possession. The court will then determine what orders are necessary to change the property interests and split the assets between them. In this case, the court decided a 15% property adjustment in the wife’s favour to which Mr Walters appealed the decision.
The judges had the choice to determine how much each party will earn over the next 15 years. However, their duty leaned more towards adjusting each party’s earning capacity or potential future earnings equitably. This includes:
- Establishing the couple’s property pool’s net value
- Determining each couple’s financial and non-financial contributions
- Identify each couple and children’s special needs
- Deciding whether the effect of the order is just and equitable for the couple.
Mr Walters’s appeal was dismissed but his appeal from child support and maintenance orders is successful. However, these orders were only successful due to errors of law. Hence, these procedures will require rehearing.
Importance of Seeking Legal Advice
Couples who are separating or divorcing may argue about how to split their finances and if a partner needs spousal maintenance. This leads to them having further disputes about who has the higher earning capacity or who should get more from their property pool. For instance, some couples may have disputes on how much is the appropriate weekly pay rate of their partner.
JB Solicitors is an experienced family law firm that handles financial disputes arising from relationship breakdowns. Our team can help in conducting an earning capacity assessment for disputed parties. We have mediation and arbitration services for couples who want to make amicable agreements about their finances and assets.
If you wish to understand this topic under employment law, speak to our lawyers today. Suppose you have unreasonably rejected suitable employment, or have questions about abstract earning capacity, legal and economic bases, personal injury litigation utilizing, or earning capacity standard, please do not hesitate to speak with our employment lawyers today.
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