Legal Definitions - earning capacity

Earning capacity refers to an individual's potential to generate income, considering their unique combination of education, professional skills, training, work experience, and natural talents. It represents what a person could reasonably earn, rather than necessarily what they are currently earning.

This concept is frequently used in legal contexts to assess financial obligations or damages, particularly when a person's ability to earn money has been impacted or needs to be fairly evaluated.

• Example 1: Personal Injury Lawsuit

  A highly skilled software engineer, Sarah, suffers a severe hand injury in a car accident. While she can still perform some administrative tasks, her ability to write complex code and manage large development projects, which was her primary source of high income, is significantly impaired.

  In a personal injury lawsuit, a court would assess Sarah's earning capacity before the accident versus her earning capacity after the accident. The difference would be a key factor in calculating the financial compensation she deserves for her lost potential income, reflecting her diminished ability to earn money in her specialized field due to the injury.

• Example 2: Divorce and Spousal Maintenance (Alimony)

  David and Lisa are divorcing after 18 years of marriage. Lisa, who holds a master's degree in business administration, chose to be a stay-at-home parent for most of the marriage, occasionally working part-time in non-managerial roles. David has maintained a high-paying executive position throughout.

  When determining spousal maintenance, a court would evaluate Lisa's earning capacity. Even though she hasn't worked full-time in a high-level business role for years, her education and past experience indicate a potential to earn a substantial income if she were to re-enter her professional field. The court would consider this potential, alongside other factors, to decide a fair amount and duration of support, possibly encouraging her to utilize her full earning potential.

• Example 3: Child Support Calculation

  Maria, a certified dental hygienist, decides to work only two days a week at a local clinic, earning a modest income, despite having the qualifications and opportunities to work full-time for significantly higher pay. She is ordered to pay child support to her ex-spouse.

  A court calculating child support might look beyond Maria's current low income. It would assess her earning capacity – what she could reasonably earn if she utilized her professional license and experience more fully. If the court finds she is intentionally underemployed, it might base child support obligations on her higher earning capacity rather than her actual current earnings, ensuring she contributes fairly to her children's support.