During a divorce, support discussions often start with what each spouse earns. But what happens if one of you left a high-paying job, reduced your hours, switched careers, or hasn’t worked in years?
In Connecticut, a court may also consider earning capacity, which looks beyond a person's current paycheck and considers what they could reasonably earn. When a court attributes income to someone based on earning capacity rather than actual earnings, that amount is often called imputed income.
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What Does Imputed Income Mean in a Divorce?
Imputed income is the amount the court decides someone could reasonably earn, not just what they earn right now.
This amount isn’t always based on a past salary. The court looks at what they could reasonably earn today. Depending on the circumstances, that amount may be higher than their current income, but lower than what they earned in the past.
For example, someone earning $40,000 now may have previously earned $80,000. If they still have the skills and opportunity to earn more, the court might consider an amount higher than $40,000 for support but would not automatically use the old $80,000 salary.
When Might a Court Consider Earning Capacity?
Questions about earning capacity often come up after someone changes jobs, works fewer hours, switches careers, or has been out of work for a long time.
Why the income changed is also important. Losing a job, having health problems, or caring for family may be considered differently. The court also takes into account the person’s situation, skills, and job opportunities.
How Do Courts Determine Imputed Income?
Courts may consider a variety of factors when determining imputed income, including:
- Employment history and past earnings
- Education, training, and job skills
- Recent work experience
- Available employment opportunities
- Age, health, and other relevant circumstances
Does Imputed Income Apply to Stay-at-Home Parents?
Yes, in some circumstances. A stay-at-home parent may have income imputed to them, but their situation often requires a closer look.
Someone who has spent years caring for children and managing a household may face different challenges than someone who has remained continuously employed. Time away from the workforce can affect career opportunities, earning potential, and the ability to return to work immediately.
When evaluating earning capacity, courts may consider factors such as the children's needs, childcare responsibilities and costs, the parent's work history, education and skills, and how long it may take to reenter the workforce.
How Can Imputed Income Affect Alimony and Child Support?
Imputed income can affect how alimony and child support are calculated.
When a court uses earning capacity instead of current income, support may be based on a different income figure than a person's actual earnings. For someone seeking support, this may affect how financial needs are evaluated. For someone paying support, it may affect their potential support obligation.
Even when spouses reach an agreement outside of court, assumptions about future earnings can influence the support arrangements being discussed. That's why it's important to understand not only the support amount being proposed, but also the income assumptions behind it.
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Planning for Your Finances After Divorce
Understanding imputed income is important, but it is only one part of the divorce process. Before agreeing to financial terms, it can be helpful to step back and evaluate how the overall agreement aligns with your goals and priorities moving forward.
If you’re going through a divorce and have questions about how imputed income might affect your proposed settlement, we’re here to help. You can schedule a complimentary introductory meeting with our team in Glastonbury or Wilton, Connecticut, to discuss the financial terms and how they may affect your budget, savings, and retirement plans.
Have a quick question instead? Send us a note.
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Kelsey Conklin is a CERTIFIED FINANCIAL PLANNER® professional and Certified Divorce Financial Analyst® professional who helps individuals and families plan for their financial future. Based in Glastonbury and Wilton, CT, she also specializes in financial planning for women, guiding her clients through divorce, widowhood, career transitions, caregiving responsibilities, retirement planning, investing, and managing longevity risks. As a female financial advisor, Kelsey is passionate about financial empowerment for women and provides personalized financial strategies designed to help women take control of their wealth with clarity. Whether you’re navigating major life changes or planning for retirement, she is committed to providing guidance tailored to your goals. Schedule a complimentary Women and Wealth introductory meeting with Kelsey and start building a financial plan designed for you.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation.
Prior to making an investment decision, please consult with your financial advisor about your individual situation. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice.
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