Imputation of Income from Work and Investments

Losing a job. Choosing to stay home with children. Receiving an inheritance. What do these situations have in common?

In a New Jersey divorce, each may affect support obligations through a legal concept known as imputation of income.

Many people assume that support calculations are based solely on what a person is earning at the moment a divorce is filed. In reality, courts often look beyond current income and consider a person’s earning capacity. Under New Jersey’s alimony statute, courts may evaluate a party’s education, work history, skills, employability, and ability to generate income from investments or other assets.

As a result, unemployment does not automatically translate into a lower support obligation, nor does it necessarily increase a support award.

For example, if a spouse has a long history of earning a substantial income, often documented through tax returns and Social Security earnings records, a court may determine that person is capable of earning more than they currently earn. A spouse who loses a job is generally expected to make a genuine and documented effort to secure comparable employment. Judges frequently examine job-search records, employment applications, labor market statistics, and, in some cases, expert testimony regarding employability.

At the same time, courts recognize economic realities. A highly compensated executive in his or her early sixties may lose a position and be unable to obtain employment at the same compensation level despite diligent efforts. When a spouse acts in good faith and secures replacement employment at a lower salary, courts are often willing to use the actual income earned, particularly when the evidence demonstrates a sincere effort to maximize earnings.

Transparency matters. Attempts to manipulate income frequently increase litigation costs and rarely produce favorable results.

The same principles apply to spouses who have been out of the workforce for many years raising children. Courts generally acknowledge that re-entering the workforce can be difficult and may not immediately result in significant earnings. However, it is uncommon for income to be imputed at zero indefinitely. Even where a spouse has not worked outside the home for years, courts often attribute some level of earning capacity based upon the individual’s circumstances and opportunities.

From a practical perspective, returning to work often makes financial sense. Alimony can provide important support, but developing independent earning capacity frequently provides greater long-term financial security and flexibility.

Investment income can also play a significant role.

Many individuals enter or leave a marriage with separate assets acquired through inheritance, gifts, or property owned before the marriage. While those assets may remain exempt from equitable distribution if properly maintained and documented, the income generated by those assets can still be relevant when determining alimony and child support.

Consider a spouse who has access to a $4 million inheritance while the other spouse earns $200,000 annually. Even if the inherited assets themselves are not subject to division, a court may examine the income that those assets can reasonably generate when evaluating support obligations.

This principle reflects a broader theme in family law: courts often focus not only on what a party currently earns, but on the financial resources available to that party and the reasonable income those resources can produce.

Understanding these rules before litigation begins can save substantial time, money, and stress. Divorce is often one of the most significant financial transactions of a person’s life. Individuals who approach the process with accurate information, realistic expectations, and a businesslike mindset generally achieve better outcomes than those who attempt to hide assets, manipulate income, or use the process as a means of control.

Relevant authority includes N.J.S.A. 2A:34-23(b)(5), Stiffler v. Stiffler, 304 N.J. Super. 101 (Ch. Div. 1997), Gnall v. Gnall, 432 N.J. Super. 129 (App. Div. 2013), Miller v. Miller, 160 N.J. 408 (1999), Aronson v. Aronson, 245 N.J. Super. 354 (App. Div. 1991), and Overbay v. Overbay, 376 N.J. Super. 99 (App. Div. 2005).

Tanya Helfand is a Certified Matrimonial Attorney and Certified Divorce Financial Analyst with more than 30 years of experience representing professionals, executives, business owners, and other individuals navigating complex financial issues in divorce. Her goal is to help clients resolve matters fairly, efficiently, and with a clear understanding of the financial consequences of every decision. While the vast majority of cases settle, Tanya and her team are fully prepared to litigate when necessary to protect a client’s interests.

For intelligent, successful, and business-minded individuals seeking experienced divorce counsel, informed legal and financial guidance can make all the difference.

At Sarno da Costa D’Aniello Maceri Webb LLC, we help couples navigate family law matters with compassion, clarity, and respect. To learn more about legal separation and divorce, contact us or call  973-274-5200 to schedule a consultation with a family law attorney near you in New Jersey. We offer several convenient locations to serve you, including Roseland, Bridgewater, Hackensack, Morristown, and Eatontown, NJ.