Definition - What does Earning Capacity mean?
Earning capacity is most often seen in divorce cases. It refers to the ability of a spouse to earn money based on their talent, skills, training, and experience. During a divorce proceeding, earning capacity is relevant to matters related to division of possessions and spousal support.
You may see the terminology used in other cases as well. In a personal injury case where a party may require long term care and will no longer be able to work in their trained profession, it is common to use earning capacity to help the parties come to an agreed settlement.
Justipedia explains Earning Capacity
Earning capacity becomes an important factor when a judge has to divide possessions between spouses or to determine spousal support in a divorce proceeding. The amount of money that an individual can earn, based on his or her background, is considered the earning capacity. In divorce cases where a spouse doesn’t work, is unemployed, or hasn’t worked for a long time, a judge has no option to look at the earning records of the spouse to determine the financial implications of the divorce. In such cases, the earning capacity of the spouse helps a court to make informed decisions. In child support and spousal support cases, earning capacity is taken into account.