The court has the discretion to consider the parent’s earning capacity instead of their actual income in calculating child support, so long as doing so is consistent with the best interests of the supported children. Rightly or wrongly, the strong California public policy of providing adequate child support has led to the wide usage of earning capacity as a replacement of actual income. Accordingly, courts have the discretion to impute income to both the payor and the payee parents based on their earning capacity, and often do so consistent with the best interest of the child. As a result, experienced divorce attorneys are quick to utilize earning capacity when possible to alter the child support calculation in their client’s benefit.
When the court considers earning capacity instead of actual income, it is only the actual earned income that is replaced by earning capacity. The court may still consider both earning capacity and actual unearned income and add the two items.
Ability and Opportunity to Work
It is not necessary for bad faith to exist before the court can consider earning capacity a basis instead of actual income. The court should consider the earning capacity of an unemployed or allegedly underemployed parent when the child support attorney shows that the parent has:
- The ability to work, considering the factors such as the parent’s age, occupation, skills, education, health, background, work experience, and qualifications; and
- An opportunity to work. The parent has an opportunity to work if there is a reasonable likelihood that the party could, with reasonable effort, apply his or her education, skills, and training to produce income. “Opportunity” is limited to working for someone else. The court may also consider the parent’s “opportunity” for self-employment.
If either the ability or opportunity to work is absent, the parent’s earning capacity may not be considered. But if the parent is unwilling to work, despite having the ability and opportunity to do so, earning capacity may be imputed.
Objectively Reasonable Work Regimen
When earning capacity is imputed, it should normally be based on an objectively reasonable work regimen and not an extraordinary work regimen. Overtime and extra hours beyond the regular schedule should not be factored in as a general rule. The fact that the parent may have worked overtime before becoming unemployed or underemployed does not mean that earning capacity should be based on this schedule.
The exception to this rule is when the parent is in an occupation in which a normal workweek necessarily includes or requires overtime work. In cases like this, overtime may be considered to be part of the parent’s reasonable work regimen and thus part of his or her earning capacity.
Children’s Best Interest
The guidelines governing child support do not provide a limit for the circumstances under which a court may consider a parent’s earning capacity, so long as imputation of earning capacity is consistent with the best interests of the children. Remember, a court cannot impute earning capacity to a parent unless doing so is in the children’s best interest. (See Fam Code 4058(b)).
The application of the best interest rule is usually on a case to case basis. For example, earning capacity was imputed to a parent who quit their position as an attorney at a large law firm to raise their children, when returning to work was in the best interest of the children. However, in another case, earning capacity was not imputed to a lawyer who reduced workload by 80 percent when their motivation was to allow more time to care for their children
The issue regarding a child’s best interest usually arises in cases involving young children where on parent stops working to stay at home with the children. In determining whether to impute earning capacity to the stay-at-home parent, the court must balance the state policy that both parents are obligated to support their children and that without imputing income the employed parent carries the entire burden against the interest of the children in having a stay-at-home parent.
In cases with very young children, the issue may become moot. For example, to impute an earning capacity of $2000 per month to the stay at home parent who, if working, would incur $1000 per month in day-care expenses would not be in the child’s best interest.
Note – The result may be different when the parent decides to stop working after marriage to a new spouse with significant income in order to stay at home with the children.
The best interest being considered in imputation of earning capacity are those of the children for whom support is being ordered, not the interests of children from a parent’s subsequent marriage or relationship.