In this article James Pirrie, a director at Family Law in Partnership and a specialist in issues relating to child maintenance, examines the Government’s response to its earlier consultation paper “Child Maintenance: A New Compliance and Arrears Strategy” published on 14th December 2017.
On 12th July 2018 the Government responded to its earlier consultation paper “Child Maintenance: A New Compliance and Arrears Strategy” published on 14th December 2017. The December consultation put forward a range of proposals intended to further improve compliance in the Child Maintenance Service (CMS), as well as tackling historic arrears built up under the Child Support Agency (CSA). One significant – and unexpected – change in the Government’s response to its consultation paper is that, once again, certain assets are set to be treated as creating a notional income for the purposes of varying a CMS award.
The much criticised “underused assets” category that applied under the CSA scheme saw a notional income applied to those with “free” assets of over £65,000. This “adjustment” was abandoned when the CMS scheme went live in 2012.
Following the consultation, the Government has now announced that it will be bringing in a change with the following effects:
- Has the receiving parent made an application for a child support “variation” from the CMS?
- If yes, set to one side the value of the paying parent’s home and assets used in their business.
- Then, whilst assets up to £31,250 (after deductions have been made for mortgages and charges on the assets) must be ignored.
- If the aggregate value of assets are above £31,250 then the entire amount is treated as generating a gross income of 8% (ie. £2500 or more p/a).
- The formula is then run as usual.
For example, assume that Jo is the non-resident parent and that child support is managed through the CMS and that their former partner claims child support for their two children who stay with Jo on average 2 nights a fortnight through the year.
|The value of Jo’s home is ignored.|
|The CMS can look at other assets. If they were worth £500,000, this will generate notional income of:|
The marginal rate applicable for parents with two children in Jo’s situation is 12%, giving:
A figure which is then reduced by one seventh for the overnight stays, meaning an increased liability for Jo of:
The regulations came into effect on 26th July 2018 and need to be examined in detail to understand how this will work in practice.
This “out of the blue” change will create further challenges for separated parents, many of whom will find their existing court-based arrangements around capital, housing and spousal maintenance up-ended by what may be a significant change in the child maintenance payments upon which they were based. It is likely to see some paying parents race to reduce their “free capital” (which would increase child support payments) by paying down their mortgages.
Receiving parents may make the application for increased child support only to find that this generates an application for downward variation of a spousal maintenance award. Others will suddenly find their existing maintenance awards tipped into maximum assessments creating possibilities of new court applications.
Director James Pirrie of Family Law in Partnership specialises in complex financial issues and non-adversarial and cost effective approaches to divorce and separation including mediation, arbitration and collaborative law. James is very well known for his expertise in the law relating to child support with a commentator noting that James is “undoubtedly this country’s expert on child support“. James appeared before the House of Commons Work and Pensions Committee to assist the deliberations about changes to the scheme. If you would like to receive further information or updates on Child Maintenance matters, please subscribe to our news alerts below. For further information on financial provision for children after divorce click here.