In divorce proceedings, the financial settlement between parties is often one of the most contentious and complex issues. The division of assets, maintenance payments, and pension sharing all come into play. A crucial yet sometimes overlooked factor in this process is the future earning potential of both parties.
In divorce proceedings, the financial settlement between parties is often one of the most contentious and complex issues. The division of assets, maintenance payments, and pension sharing all come into play. A crucial yet sometimes overlooked factor in this process is the future earning potential of both parties.
If you have a family law issue and you feel you need legal advice, contact specialist family solicitor Mark Heptinstall of Slater Heelis Solicitors. He is recognised as a ‘Leading Individual’ in The Legal 500 and ranked in Chambers UK, and is described as having “the amazing ability to bring calm into troubled waters”.
Family law recognises that divorce settlements should not only consider current assets and income, but also the future financial trajectory of each spouse. This article looks at how future earning potential can impact a divorce settlement, when it is considered, how it is measured, and whether it can be disputed or adjusted after the settlement.
The legal framework
Divorce settlements aim to achieve a fair division of assets, ensuring that both parties can move on with their lives. The law in this area is governed by several key principles outlined in the Matrimonial Causes Act 1973. When determining the financial settlement, the court must consider a range of factors, including the standard of living during the marriage, the needs of both parties, their financial resources, and their respective contributions. An important consideration is each spouse’s income and earning capacity, which includes not just their current income but also their future earning potential too.
When does future earning potential come into play?
Future earning potential becomes relevant when there is a significant disparity between the spouses’ current or future incomes. This usually arises in two common situations:
The first involves high-earning professionals, where one spouse has a career that promises significant future earnings. For instance, a spouse working in a high-demand field such as law or finance may have substantial earning potential involving promotions or expected bonuses, which could influence the settlement.
The second surrounds sacrifices during the marriage. One party may have put aside own their career aspirations to raise children or support the other spouse’s career advancement. In such cases, the court may recognise that the spouse who gave up their career will have a more limited earning potential, and this could influence maintenance awards or asset distribution.
In both scenarios, the court may consider future earnings to ensure that the financial settlement is fair and reflective of the long-term financial outlook of both parties.
How is future earning potential measured?
Measuring future earning potential can be complex, as it is inherently speculative. Courts often rely on expert evidence, such as career projections or actuarial assessments, to estimate a spouse’s future earnings. Factors that may be considered include:
- The nature of a spouse’s profession and their current position. High-ranking executives or professionals in growing industries may have a higher future earning potential, while those in declining sectors may face more limited prospects.
- A spouse’s age, health, and skill set are also important factors in determining future earning potential. Younger individuals with specialised skills are likely to have higher earning potential than older individuals nearing retirement or those in poor health.
- The court may also examine historical earnings as an indicator of future income. If one spouse has consistently earned a high income, it is reasonable to assume that they will continue to do so unless there is evidence to the contrary.
- Advanced degrees or professional qualifications can signal a higher earning potential. Courts will assess whether one spouse has the qualifications to command a significant income in the future, even if they are currently not utilising them.
Maintenance payments and future earnings
In cases where one spouse depends financially on the other, spousal maintenance payments may be ordered. The court considers not only the payer’s current income but also their potential to earn in the future. This may lead to a larger maintenance award if the court anticipates that the paying spouse will enjoy a substantial income increase due to their career progression.
For example, if one spouse is a junior associate at a law firm but is expected to become a partner within a few years, the court may take this future earning potential into account when determining spousal maintenance. In some cases, maintenance orders may be reviewed and adjusted later, especially if the paying spouse’s earnings increase significantly after the divorce.
Can future earning potential be disputed?
Given that future earning potential is largely speculative, it can be a point of contention during divorce proceedings. It may be possible for a spouse to dispute the projections of their earning potential on the following grounds:
- Even in high-earning professions, there is no guarantee of future promotions or salary increases. A spouse may argue that their future earnings are uncertain because of competition, economic factors, or changes in the job market.
- A spouse may claim that their future earning potential is limited by health concerns that could affect their ability to work in the future. Evidence would be required to support this contention.
- Some individuals may voluntarily choose to reduce their working hours or change careers post-divorce, which can lower their earning potential. However, the courts are generally wary of parties who deliberately reduce their income to avoid paying higher maintenance or a larger settlement.
When is future earning potential not a factor?
While future earning potential is often relevant, there are situations where it may not play a significant role. In shorter marriages, the courts may focus more on what each party brought into the marriage and their current financial situation, rather than future earnings. The thinking behind this is that both parties should leave the marriage in a similar financial position to when they entered it.
If both parties have similar incomes and career prospects, future earning potential is less likely to be a factor.
Can future earnings be factored in later?
Once a divorce settlement is finalised, it is usually binding. However, maintenance orders, in particular, can be subject to variation if there is a material change in circumstances. If one spouse’s future earnings increase significantly post-divorce, the recipient spouse may apply to the court to have the maintenance order reviewed and potentially increased. Conversely, if the paying spouse’s earnings decrease or they retire, they can apply for a reduction in maintenance.
For example, if a spouse who was ordered to pay maintenance secures a lucrative promotion or business success that was unforeseen at the time of the divorce, the court may consider this a material change in circumstances warranting a review of the original maintenance award.
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