Earning Capacity vs. Actual Income in Divorce Support

One of the most debated issues in California divorce cases is whether support, be it spousal support or child support, should be calculated using a spouse’s actual income or their earning capacity. While actual income is straightforward, earning capacity introduces a complex legal standard that can reshape the outcome of a case.

The recent decision in Marriage of Lim and Carrasco provides valuable insight into how courts weigh this balance, particularly when family responsibilities and professional demands intersect.

Case Summary: Marriage of Lim and Carrasco

It is sometimes an issue in dissolution actions whether support, whether child support or spousal support, should be based on a spouse’s actual earnings or their earning capacity. In the recent case of Marriage of Lim and Carrasco, this issue arose.

Wife was an attorney whose actual earnings were $22,000 per month. Her Husband claimed she was only working an 80% schedule, and if she worked her 100% schedule, she could earn $27,600 per month. The trial court based support on the Husband from the Wife using the 80% schedule rather than the 100% schedule. Husband appealed that decision, and the appellate court agreed with the trial court.

The appellate court held that it has long been the rule that a parent’s earning capacity may be considered in determining support. But what was “earning capacity”? A work schedule that was engaged in during the marriage, but still extraordinary and requiring excess hours per week, or a reasonable work regimen of established employment norms?

The court found that the Wife clearly worked excessive hours as a full-time law partner, and even at an 80% schedule, would require her to work at least 40 hours per week. This, combined with the fact that an 80% work schedule would allow Wife more time with the children, was in the children’s best interest, and the trial court’s finding, which supported the 80% schedule, was not overturned on appeal. So, in determining support – yes, the court can consider earning capacity – but the answer is most often: it depends on the facts of the case.

What Does “Earning Capacity” Mean in California Law?

Under California Family Code §4058, courts are permitted to consider a parent’s “earning capacity” rather than actual income when calculating child support or spousal support. Earning capacity refers to the income a spouse could reasonably earn based on their:

• Education, professional skills, and licenses.
• Prior work history and demonstrated career trajectory.
• Job opportunities are available in the geographic area.
• Age, health, and ability to work a reasonable schedule.

This doctrine prevents manipulation, such as when one spouse intentionally works less to reduce support obligations.

Earning Capacity vs. Actual Income

Courts must carefully distinguish between these two standards:

• Actual Income is the amount a spouse is presently earning from employment, self-employment, or investments.
• Earning capacity refers to the income a spouse could reasonably be expected to earn, given their qualifications and the current job market.

Support may be based on either, depending on what the court finds most equitable in light of the circumstances of the case.

When Do California Courts Impute Income?

Courts may impute income and rely on earning capacity in several scenarios:

• When a spouse is voluntarily unemployed or underemployed without a valid reason.
• When one party deliberately reduces working hours to minimize support obligations.
• When a spouse has professional qualifications that allow for significantly higher earnings.
• When working reduced hours is not in the child’s best interests, such as when it results in financial hardship for the child.

However, as the Marriage of Lim and Carrasco illustrates, imputation is not automatic, courts balance earning potential with reasonable expectations and family responsibilities.

Precedent Cases That Shape Earning Capacity Doctrine

Several California cases have influenced how courts apply the doctrine of earning capacity:

• Marriage of Regnery (1989) – Support must be based on a reasonable work schedule, not extraordinary or excessive hours.
• Marriage of Simpson (1992) – Courts cannot impose unrealistic workloads when calculating support.
• Marriage of Bardzik (2008) – Established that voluntary underemployment can justify imputing income.

These cases emphasize that earning capacity must reflect realistic employment norms rather than punishing spouses for balancing work and family life.

Conditional Scenarios in Earning Capacity Disputes

Spouses Who Are Self-Employed

When a spouse owns a business, determining earning capacity may require reviewing tax returns, business records, and consulting with forensic accountants. Courts may also look at whether the business is being operated to minimize reported income.

Stay-at-Home Parents

A parent who stays home to care for children may face imputed income if the court finds they could reasonably return to the workforce. However, if the caregiving arrangement benefits the children and is consistent with family responsibilities, courts may base support on actual income or no income.

Career Changes and Education

If a spouse leaves a high-paying job to pursue education, training, or a lower-stress career, courts assess whether this decision aligns with family obligations and whether it unfairly shifts financial burdens.

Health-Related Limitations

A spouse with medical conditions or disabilities may not be imputed with higher income if they cannot realistically maintain full-time work. Courts weigh health records and expert testimony carefully in these cases.

Temporal Evolution of Earning Capacity in California

Historically, California courts were more rigid in imputing income when a spouse worked fewer hours or earned below their potential. Over time, however, family law has evolved to strike a balance between economic fairness and realistic lifestyle choices.

Modern rulings, including those of Lim and Carrasco, reflect a greater willingness to consider work-life balance and child welfare, rather than strictly maximizing financial output.

Comparing Child Support vs. Spousal Support Applications

While both child support and spousal support can be based on earning capacity, courts apply different emphases:

• Child Support: Stronger focus on the child’s best interest. Courts may allow reduced hours if it enhances parenting and child care.
• Spousal Support: Courts more closely examine whether reduced income is voluntary and whether it unfairly shifts financial responsibility.

This distinction underscores why support cases are highly fact-specific.

The Role of Vocational Experts and Evidence

In disputes over earning capacity, courts may rely on vocational experts to evaluate a spouse’s potential income. These experts analyze:

• Job opportunities in the local market.
• Reasonable salaries based on education and experience.
• Availability of positions within the spouse’s field.

Other evidence, such as tax returns, business records, and prior employment contracts, may also be used to establish realistic earning potential.

Frequently Asked Questions

Can California courts base support on earning capacity instead of actual income?

Yes. Under Family Code §4058, courts may impute income if they determine a spouse is capable of earning more than they report.

What evidence is used to prove earning capacity?

Courts may consider vocational expert testimony, employment records, tax returns, and professional qualifications as evidence.

Can stay-at-home parents be assigned imputed income?

In some cases, yes. If the court finds that a parent could reasonably reenter the workforce without harming the children’s best interests, imputed income may apply.

What if my spouse owns a business and underreports income?

Courts may use forensic accountants to review business records and adjust reported income to reflect true earning capacity.

Does earning capacity apply equally to spousal support and child support?

It applies to both, but with different considerations. For child support, the child’s welfare is paramount. For spousal support, the focus is more on fairness between the spouses.

Can support orders be modified if income changes later?

Yes. California law permits modification of support orders when there is a material change in circumstances, such as job loss, promotion, or significant health changes.

Is vocational evaluation mandatory in California support cases?

Not always. Courts may order one if earning capacity is contested, but it is not required in every case.

Get Legal Help from Reape Rickett

Determining whether support should be based on actual income or earning capacity requires careful legal analysis. Courts balance statutory rules, case precedents, financial records, and family dynamics to reach a decision.

At Reape Rickett, our experienced California family law attorneys can help you navigate complex support disputes, whether you are seeking fair child support, contesting spousal support, or responding to a request for imputed income.

Contact Reape Rickett today to schedule a consultation and protect your financial and family interests.