August 01, 2020 Feature

Pounding the Pavement: Employment Transitions During Divorce

Meredith Laughridge Cross

Earning Capacity

What does “earning capacity” mean?

In the context of a divorce, earning capacity relates to a spouse’s present or future ability to earn an income. The parties’ respective earning capacities are relevant when there is a claim for support. Depending on the circumstances of the case, a spouse’s earning capacity can be based either on the income a spouse presently earns or upon evidence of a spouse’s ability to earn an income. When a spouse is intentionally depressing his/her income and/or is refusing to work to avoid paying support, the court may use other evidence of a party’s earning capacity to determine income. This evidence may include, but is not limited to, a spouse’s educational history, skills, talent, and experience in the workforce.

How does earning capacity affect my claim for support?

Earning capacity is used to evaluate support claims such as child support and alimony. Because the amount of support you will receive or will be ordered to pay is based upon these numbers, it is important to have accurate accounting of your respective incomes and earning capacities when calculating support. For example, if in anticipation of divorce your spouse has quit a high-paying job only later to assert an inability to pay support due to a lack of income, your spouse’s new, lower income would not be an accurate reflection of his/her earning capacity for purposes of calculating support. To use the new, lower income in determining support would reward the supporting spouse who has acted in bad faith and penalize the dependent spouse.

Can I have the court impute income to my spouse?

Possibly. There are instances where the court can and does impute income to an individual. In determining whether the imputation of income is appropriate, the court will seek to determine the reasoning for the individual’s lowered income or lack of employment. For example, if an individual is voluntarily unemployed or underemployed, a court can impute income to that individual when calculating support obligations in a case. However, there are some instances where the court cannot and/or will not impute income to an individual. For example, if a party is unemployed but is at home and providing care for a minor child under a specified age (for example, age 3), the court will not impute income to this individual caring for the minor child.

When to Look for a Job

I have not worked outside the home in twenty years. Am I expected to immediately seek employment after my separation or divorce?

Although the circumstances of each case are unique, in general you are not expected to seek employment immediately following a separation or divorce. Nor are you required to take the first, low-paying job you find. Depending on the laws of the state in which you live, your spouse may have a support obligation to you, the amount and duration of which will vary on a case-by-case basis. It is expected that you should be reasonable when evaluating your employment opportunities, as most courts will expect spouses to enter the workforce at some point. In addition, alimony will not last forever; therefore, you will need to formulate a plan for your long-term financial future. Remember that incurring additional debt to maintain the same standard of living during the marriage is not ideal. It is better to cut expenses in the short term than to incur additional debt for which you will be solely responsible in the future. Practice patience and take the opportunity to find employment that not only holds your interest but also will reward you with independence and financial security. If you are represented by counsel, listen to your counsel’s advice on when to seek employment, as income is relevant to any claims for child support and/or spousal support.

Going Back to School

How will going back to school help me after my divorce?

As a stay-at-home parent or someone with a limited work history, registering for classes and earning a degree in your identified area of interest have the potential to elevate your earning capacity and allow you to become financial independent. Going back to school is not a “cure all” solution to this employment situation, but you can use it as an opportunity to better position yourself to provide for you and your children going forward.

When in the divorce process should I go back to school?

Unfortunately, there is no “one size fits all” answer to this question. When you should pursue higher education will depend entirely on the facts of your case. Although there may not be a “perfect” time to hit the books, there may be a time that works better for you and your family. Once you have made the decision to go back to school, determine what type of educational program will work for you. Many schools now offer night, weekend, or online classes, which cater to the working, nontraditional student. In addition, look for scholarships and grants that might be available to you in order to limit your debt associated with this new endeavor.

Vocational Evaluation

What is a “vocational evaluation”?

A vocational evaluation is an evaluation performed by a vocational expert that provides an unbiased assessment of an individual’s true earning potential. The vocational expert, through a series of in-person interviews, tests, and market research, is able to assess an individual’s ability to earn an income. Often in cases of divorce, one or both spouses have alleged that the other party is intentionally depressing his/her income or has the potential to earn an income far in excess of what he/she currently earns. When performed, a vocational evaluation can determine whether these allegations have merit.

How can a vocational evaluation help my case?

Whether a vocational evaluation is needed in your case will depend on the facts of your case. Although expert reports are not binding, they can be very persuasive to the judge, who will be the ultimate trier of fact in your case. Where it is alleged that a party has depressed their income to avoid a support obligation or a party has the ability to earn a more significant income, despite a limited work history, a vocational evaluation can be used to provide the judge with an unbiased assessment of the true earning power of the individual in question instead of conjecture. In addition, if you have had an illness or injury and can no longer work as you previously could, a vocational evaluation might be helpful in explaining to the Judge why your earning potential is now less than it has been in the past. When support is at issue, you want the court to have an accurate analysis of your income and earning potential when making important decisions regarding support in your case. Reports such as these have the potential to affect the amount of support a judge orders to be paid.

Can or Should I Retire?

I had planned to retire at age 65, but instead I am now divorcing. Can or should I still retire as I had previously planned?

Whether or not you will be able to or even should retire as previously planned will depend entirely on the facts and circumstances of your particular case. The number of individuals divorcing at age 50 or later has increased drastically in recent years and spawned the term “gray divorces.” Individuals like you who are separating later in life face different issues than your younger counterparts. Younger individuals going through a divorce have not yet reached their maximum earning potential and therefore are better able to weather a loss of retirement. However, individuals such as you, who are close to or of retirement age, have already maximized your earning potential and are therefore unable to easily make up for a 50 percent reduction in retirement. If you have a premarital or postmarital agreement, you may be able to mitigate the extent to which your retirement is divided with your spouse. However, if you have not previously addressed how your retirement is to be divided in the event of a divorce, you may need to reevaluate your retirement goals to accommodate a divorce in your overall retirement plans. Take proactive measures, such as meeting with your financial advisor, to manage and restructure your remaining retirement after divorce. Depending on the facts of your case, you may consider delaying your retirement to age 70 in order to maximize your Social Security benefits. Also, you will want to avoid the appearance of intentionally depressing your income for the purpose of paying support.

5 Tips for Reentering the Workforce

  1. Identify your area(s) of interest. Simply because you worked in one area of employment prior to getting married and/or leaving the workforce to raise children does not mean that you are required to reenter the workforce within the same area of employment. For example, if you are seeking work in the field of technology after having been absent for a significant period, you may require additional training or schooling in order to be considered a viable candidate for employment in a competitive job market. Take some time to self-reflect on where your interests now lie and determine what employment opportunities are available to you.
  2. Set goals for yourself, and manage your expectations. After identifying your area of interest for employment, determine what you need to do in order to apply for job opportunities in your area of interest. Next, set goals for yourself to accomplish these requirements. Hold yourself accountable to these goals. An easy way to do this is to tell a family member or friend about your specific goals. Not only will you be closer to securing employment once you have met your goals, but you will also derive a sense of self-confidence and accomplishment for meeting the goals that you have set for yourself. Remember throughout this process to manage your own expectations. More than likely, you will not immediately secure your dream job. Be realistic and reasonable in your evaluation of employment options.
  3. Update your resume. This tip may seem self-evident for an individual seeking employment. However, if you have been out of the workforce for an extended period of time, this task may seem quite daunting. Do not hesitate to ask for help from friends, family, or professionals when updating your resume. You can use Google to find examples of what resumes in your area of interest should look like. In addition, your college or place of higher education may have the additional resource of a career services office to help you craft your best resume.
  4. Consider retraining or additional schooling. If you have been unemployed, have a limited work history, or simply have the desire to forge a new career path, you may want to consider taking some retraining classes or going back to school, full or part time, for a degree in your identified area of interest. If you still have minor children at home, you may need to think outside the box and look for opportunities that allow for a flexible work schedule. However, do not let your desire for additional education become an excuse for not going back to work. There are no guarantees in life, and although obtaining a new degree in your area of interest may not necessarily result in you landing the job of your dreams, it will allow you to increase your earning potential going forward.
  5. Network. Networking is one of your best and most effective uses of your time when seeking employment. Social networking sites, such as LinkedIn, offer you the opportunity to connect with individuals currently employed in your identified area of employment. Take the opportunity to connect with these individuals by meeting them for coffee or lunch. In addition to creating and expanding your online presence, you can join local organizations such as Rotary, Kiwanis, Junior League, ATHENA, etc., to meet other professionals and network in person. Introduce yourself to those individuals whom you have identified as working in your area of interest and tell them you are seeking employment. Lastly, when appropriate, remember to take the time to send a handwritten thank you to individuals who have helped you along the way.

 

5 Tips for Navigating a Gray Divorce

  1. Determining the amount of support. For individuals separating later in life, determining income for purposes of support may be challenging. Unlike individuals separating early in their careers, income of individuals separating at age 50 or later may include alternate forms of compensation, such as stock options, restricted stock units, grants, options, stipends, and bonuses. These alternate forms of compensation should be considered in addition to a party’s W2 income when determining the amount and duration of child and spousal support.
  2. Social Security benefits. When negotiating support, it is important to know what you may expect from Social Security. Do not assume that you will be eligible to collect Social Security under your spouse or former spouse’s earnings simply because you have been married 10 years or more. If necessary, make an appointment at your local Social Security Office to determine what you could expect to receive in Social Security benefits when you retire. At present, age 62 is the earliest you can claim Social Security. However, claiming your Social Security benefits early will result in a lesser overall benefit. If you are able to defer to age 70 to collect, you will maximize your Social Security Benefit.
  3. Life insurance as collateral for support. Depending on the jurisdiction in which you live, you may be required to provide or entitled to receive life insurance sufficient to cover the outstanding support obligation. If you are in a jurisdiction in which life insurance as collateral for support is not required, you may still be able to contract for this as a part of a separation agreement and property settlement.
  4. Dividing retirement benefits can be complex. Depending on the facts of your case, dividing retirement benefits can be an involved process. Some forms of retirement such as defined contribution plans (401(k)s and IRAs) can easily be divided using a qualified domestic relations order or domestic relations order. However, other forms of retirement, such as pensions, are not as easily valued and divided. Unlike 401(k)s and IRAs, the division of a pension may require a valuation to determine its actual value as it may include other benefits, such as healthcare coverage, in addition to a monthly monetary benefit. For example, if you or your spouse worked for the federal government, you might be entitled to receive retirement benefits related to the Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS). A court order acceptable for processing (COAP) is required to divide retirement benefits such as these. Educate yourself on what retirement benefits exist, what you are entitled to receive, and what actions you need to take to ensure that you receive the retirement benefits to which you are entitled.
  5. Proving marital property vs. separate property. Determining the classification of property prior to its division is an essential part of equitable distribution. If you have a premarital agreement and/or postnuptial agreement, determining the classification of property as marital, separate, or divisible may be a simple process. However, if you are like most individuals involved in a divorce and do not have a premarital or postnuptial agreement, you will be required to prove your contentions regarding the classification of the property. Generally, inheritance and gifts from third parties are considered the separate property of the recipient. However, over time the line between separate and marital property may become blurred, depending on how the recipient subsequently used and/or titled the property. To successfully argue your proposed classification of property, you must provide the court with supporting evidence. Such evidence can include, but is not limited to, deeds, titles, affidavits, bank statements, wills, correspondence, photographs, and the testimony of witnesses. If you believe that the classification of property is an issue in your case, gather documents now, as records are usually maintained for a limited time before they are destroyed by the provider
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Meredith Laughridge Cross is a board certified specialist in family law and partner with Gailor Hunt in Raleigh, North Carolina.