The legal term “bad faith” refers to any dishonesty or fraud involved in a transaction. When is this prevalent in family law? Bad faith may come into play when the Courts are calculating financial support in the form of alimony or child support payments or dividing the assets and debts incident to divorce. For example, if a financial support recipient claims that the obligor became purposefully unemployed or underemployed (especially in the midst of a litigation matter), the Court is empowered to determine whether or not the obligor acted in bad faith and can impute an income for financial support calculation purposes.
Bad Faith in the context of family law includes voluntary unemployment, voluntary underemployment, lying about or hiding assets, and other malicious tactics to falsely paint the picture that a party “does not have money or property.”
Unemployment or underemployment alone is not indicative of bad faith though. For example: a person may have quit their job to enroll in college full-time with the hopes of a higher-paying job at the completion of their degree. When looking at Bad Faith in the form of voluntary unemployment or underemployment, the Court determines first if the obligor has a reckless disregard in financial support for their child or former spouse. If so, the Court has the ability to apply the “earnings capacity rule.” When applying the “earnings capacity rule,” the Court has the ability to view evidence about the obligor’s working history, ability to work, training, education, and other factors influencing a person’s income-earning capacity. A vocational expert may also be hired to provide his or her professional opinion about the party’s ability to work and income earning capacity.
In property and debt division matters, which fall under the legal claim of Equitable Distribution in North Carolina, attorneys as well as the Court have the ability to issue subpoenas and conduct discovery to uncover the true financial and asset circumstances of a party. Think your bank statements are private? Think again.
Once bad faith is exposed, the at-fault party generally has a lot of explaining to do and may be subject to significant sanctions, including but not limited to incarceration. At the end of the day, determining whether somebody acted in bad faith depends on the facts of the case. There is no cut and dry formula for determining acts of bad faith.
If you or someone you know is suspected of bad faith to avoid child support, spousal support, or division of property, our Modern Legal Team is here to help.
Please note: these educational materials are based on North Carolina law where Theresa’s legal practice is based. While the insights may have wide applicability, readers should consult with an attorney regarding the specific laws in their state or country.
Written by: Allyson R. Koop and Theresa E. Viera
