"In this example, the income from the higher earner is being used to fund the IRA of the lower earner. NOT THE OTHER WAY AROUND."
Correct. That's what's permitted. Your previous statement implied that the lower-spouse's compensation can be used to support the higher-compensated spouse's contribution, but that's not permitted.
For example, if you earned $4,000 and your spouse earned $3,000, your maximum contribution would be $4,000. If you made no contribution, your spouse could make a $7,000 contribution.
