Divorce settlements are governed by a complex set of principles and rules that aim to achieve fairness between the parties involved. One question that often arises in divorce proceedings is whether future earning potential can be considered when dividing assets and determining financial support. This is a nuanced issue, as the courts strive to balance current financial realities with the likely future circumstances of both spouses.
What is the role of future earning potential in divorce cases?
It is extremely common in a marriage for one person to earn more than the other. As a result, the issue frequently arises during financial negotiations as to whether the lower earning spouse will receive a share of the higher earners future income after divorce.
When a marriage ends, the court’s primary concern is to ensure that the financial settlement is fair to both parties. This fairness is assessed according to the Matrimonial Causes Act 1973, which outlines several factors that the court must consider. These include the income, earning capacity, property, and other financial resources of both parties, both now and in the foreseeable future. As such, future earning potential can indeed be taken into account during a divorce, although this is not a straightforward process.
One area where future earning potential is particularly significant is in the determination of spousal maintenance. If one spouse is expected to earn significantly more after the divorce, this may influence the court’s decision on the amount and duration of maintenance payments. For instance, if the lower-earning spouse can demonstrate that they contributed to the other’s career advancement, such as by supporting them through education or child-rearing duties, they may argue that they are entitled to a share of the future financial benefits resulting from that support.
The future earning capacity of each spouse can also affect how the marital assets are divided. While the division of existing assets usually takes precedence, the court may also consider the likelihood of one spouse acquiring additional assets in the near future because of their superior earning capacity. This consideration is particularly relevant in high-net-worth divorces, where one spouse is a professional, entrepreneur, or has the potential for significant earnings through investments or business interests.
If there is a substantial disparity in the earning potential of the two parties, the court may use its discretion to make compensatory adjustments to the financial settlement. This might involve awarding a larger share of the marital assets to the lower-earning spouse or increasing maintenance payments to ensure they are not disadvantaged.
Claims based on future earnings or windfalls
A lower-earning spouse may have grounds to make a claim based on the expectation that the other spouse will earn significantly more in the future. However, these claims are challenging to substantiate, as they rely on predictions rather than concrete evidence. Courts are generally cautious about making orders based on speculative future earnings, as circumstances can change, and what seems likely at the time of the divorce may not materialise.
What factors may influence the court?
For a claim to succeed, the lower-earning spouse would need to provide compelling evidence of the other party’s future earning potential. This could include existing contracts, business forecasts, or career trajectories that clearly indicate a significant increase in income post-divorce.
If one spouse is suspected of delaying the realisation of income until after the divorce, this could be seen as an attempt to minimise their financial obligations. For example, a business owner might defer receiving dividends or bonuses until the divorce is finalised. If such behaviour is proven, the court has the power to consider these deferred earnings when making a financial settlement.
If there is a realistic expectation that one spouse will receive a windfall, such as an inheritance or a financial settlement from a legal dispute, this may be considered. However, the court will typically only include such potential gains if they are imminent and likely. Speculative or uncertain future benefits are less likely to influence the court’s decision.
How does the court deal with income suppression?
If one spouse believes the other is intentionally suppressing their earnings to avoid a larger settlement or spousal maintenance payments, they can raise this issue during the divorce proceedings. The court can scrutinise financial disclosure to ensure transparency and fairness.
Both parties are required to provide a full and frank disclosure of their financial circumstances, including their income, assets, and liabilities. If there is evidence that one party is hiding assets or under-reporting income, they may face legal repercussions, and the court can adjust the financial settlement accordingly.
In complex cases, a forensic accountant may be employed to investigate the true financial position of the higher-earning spouse. This can be useful in cases involving business ownership, where income can be manipulated more easily.
The case law on future earnings and divorce highlights the cautious approach taken by the courts. In the landmark case of Miller v. Miller; McFarlane v. McFarlane (2006), the House of Lords clarified that future earning capacity could be relevant, particularly when it has been built up during the marriage with the support of the other spouse. However, the court emphasised that such considerations should not lead to “unjust enrichment.”
Another, more recent case is Jones v. Jones (2011), where the court distinguished between “matrimonial assets” acquired during the marriage and “non-matrimonial assets” such as future earnings or post-separation business growth. The judgment underscored that, while future potential is relevant, the focus should be on achieving a fair outcome based on current realities.
Although future earning potential can be a factor in divorce settlements, it is not the primary consideration. The courts strive to balance immediate needs with future prospects, focusing on fairness and the equitable distribution of assets. For the lower-earning spouse, establishing a claim based on future income requires clear evidence and may involve complex legal arguments. Suspected manipulation of income or deferred earnings must be addressed through robust legal and financial scrutiny to ensure a fair outcome for both parties.
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