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 Connor Williams in the family team with Borneo Martell Turner Coulston. ‘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.

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.

How can we 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 Connor Williams in the family law team on: 01604 622101 or email connor.williams@bmtclw.co.uk

Borneo Martell Turner Coulston has offices in both Northampton and Kettering.

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.