In divorce, a judge can order the spouse who earns more to pay spousal support to the other to enable them to continue the lifestyle of the marriage or to help meet their future needs. Or the litigants may negotiate a marital settlement agreement that includes provision for alimony.
In a situation where a litigant is underemployed but may have the ability to earn more, the court may consider their earning capacity as an available resource when crafting an alimony award.
Connecticut courts and earning capacity
For decades, Connecticut courts have used the same language about earning capacity for this purpose. “Earning capacity, in this context, is not an amount which a person can theoretically earn, nor is it confined to actual income, but rather it is an amount which a person can realistically be expected to earn considering such things as [their] vocational skills, employability, age and health … it … is especially appropriate for the court to consider whether [a litigant] has wilfully restricted [their] earning capacity to avoid support obligations.” See Birkhold v. Birkhold, 343 Conn. 786 (2022).
Imputed income from potential salaries, wages, self-employment and independent contracts
The court may consider whether it would be equitable to not only consider available income as an alimony resource, but also analyze a potential payor’s earning capacity. Simply put, Connecticut courts have noted several relevant factors that point to an earnings capacity beyond current income level:
- Employment history
- Previous earnings
- Education and training
- Professional licenses and certifications
- Vocational and professional skills
- Need to refresh skills through retraining or education
- Age and retirement plans
- Lifestyle, discretionary personal spending and expenses
See CT Gen. Stat. 46b-82.
The court must consider earning capacity as one of the factors required by statute, but it may give it the weight it feels is appropriate. A judge may consider imputing income from earning capacity, but it is not required to do so. It may be more equitable to do so in a complex, high-earnings family where one or both spouses have served in professional, executive or other important decision-making capacities.
A vocational expert may be necessary to determine earning capacity and whether imputing income to a litigant is appropriate as well as the amount. The court using its “inherent supervisory authority” must determine a specific dollar amount of earning capacity. Tanzman v. Tanzman, 209 Conn. 105 (2013).
A recent example
In 2022, the Connecticut Supreme Court in Birkhold affirmed the trial court’s calculation of a litigant’s earning capacity. It based a modified monthly alimony amount of $6,500 on a net annual earning capacity of $250,000.
Notably, the Supreme Court said the trial court did not abuse its discretion because it documented that it considered factors other than only past gross income (the measurement of income in the marital settlement agreement).
These additional factors included:
- Payor’s “long and successful career as a senior executive, broker, and consultant”
- Recent move to Texas where he did not have to pay state income tax
- Actual income and earning potential of both litigants
- Finding a net earning capacity less than recent past gross annual income was not an abuse of discretion
Birkhold v. Birkhold, 343 Conn. 786 (2022).
Voluntary underemployment or unemployment
Connecticut courts do not view with favor litigants who wilfully decrease their incomes by leaving lucrative employment, taking positions for which they are overqualified or selling their businesses to create the impression that they have legitimately diminished ability to pay alimony. Tax returns and other financial disclosures may raise questions about why income has inexplicably dropped or disappeared.
Matrimonial counsel will carefully examine the record for these clues and follow up through the discovery process to determine whether a drop in income is willful or if uncontrollable circumstances have contributed such as involuntary termination or economic fluctuations.
A judge may be more inclined to impute income to a litigant who put themselves in this position, although a finding that they acted in bad faith is not a requirement.
For example, when a litigant had worked for many years as an IT consultant, it was not error for the trial court to base alimony on earning capacity when he refused to return to this work. While he said his skills were not up to date to return to this work and he was earning less in another job, the trial court found he was “intentionally underemployed.” The appeals court noted he had “done little since then to improve his qualifications or pursue additional employment in the field.” Al-Fikey v. Obaiah, 196 Conn.App. 13 (2020).
Whether a litigant believes their spouse is understating their earning capacity or, on the other side, opposing an earning capacity allegation they feel is too high, an experienced Connecticut family lawyer can get to the bottom of the dispute and present their client’s case using solid evidence and an understanding of complex legal concepts and cutting-edge case law. In addition, the attorney can push for a detailed and complete court record that specifies the evidentiary basis for any finding of earning capacity or imputed income.