Will rising inflation lead to maintenance variations?
Reports of inflation rising towards 9% is bound to push significant numbers towards considering varying their existing maintenance arrangements.
Consumer prices were 7% higher in March 2022 than they had been a year before. Figures from the Office for National Statistics this week give us a sense of what a dramatic change this has been over what we have been used to. These are numbers that have not been seen for thirty years or more.
And the gloomy news continues. “In its latest forecasts, published 23 March 2022, the Office for Budget Responsibility (OBR) forecast CPI inflation to peak at 8.7% in Q4 2022”
Step across to the world of family law and this will see many people reaching for the small print of their court orders.
An order of £1,000 from last Autumn, linked to CPI would become £1,087 (obviously) this Autumn and would double in 2030. (In 2030, £1,000 indexed from 2021 at 8.7% would be £2,118).
Recipients who do not ask for the uplift recorded in their order and let the matter drift may struggle to recover the arrears. Once arrears are over 12 months old, the court is often disinclined to permit a recipient pursue the shortfall.
Worse than this, so far as the recipient is concerned, the court may start to treat them as someone who is showing that they are adjusting without undue hardship to the reduction in the maintenance and thus they are paving the way for the paying party asking for orders to further reduce or even terminate the provision of support.
The original award (whether a negotiation or a court [or arbitrator]-imposed solution) will have taken into account the needs of the recipient on the one hand and the ability of the better resourced spouse to pay.
Some awards are all about recipient- needs (the paying party’s income is substantial and can easily afford to accommodate payments to the applicant). But for others, the ultimate award is very much about a balancing up: recognising as many of the applicant’s needs as reasonable, whilst appreciating that the respondent has needs to meet too.
Here the chaos of inflation is very likely to upset the balance. This is particularly the case where we have seen across the board wages failing to keep pace with inflation – and for some, they are falling well behind with their incomes flatlining.
Those respondents are safer with the Child Maintenance Service. Whilst inflation proofing orders is standard within the court system, the prime variable with the CMS is the paying party’s income. Where this does not move, neither does the maintenance and the recipient is going to need to find other ways to balance the household books as inflation pushes costs higher.
The original order will have done the best that could be done at the time to anticipate the changes that seemed likely. However, high inflation adds to the stress on those predictions. So inevitably there will be some former partners who will feel themselves forced back to taking legal advice and from there perhaps to court …
- A recipient may not have an indexation clause …
- A respondent may feel that the indexation imposes an unaffordable additional burden and that the recipient should be doing more to contribute towards their needs in the changing family circumstances.
The key challenge will be to have a sensible new arrangement worked out at manageable cost: it is crucial to avoid one of those pyrrhic successes where the negotiation or litigation “win” needs to go entirely to meeting the cost of the process. (Worse still is the other side – any litigation win implies a litigation loss which may mean one person suffering a bad outcome and still having to fund the costs of the process).
For many people this tension will lead them towards the lower cost forum of mediation where the problem can be ventilated and options examined.
Where solutions are not achieved, this may migrate towards the variation application through the courts or an arbitration process. Reforms have now streamlined the court process to be quicker than in earlier years. However, faster and more affordable still will usually be arbitration, particularly where good legal support means that the process is managed mainly in writing.
In each scenario, the Judge’s or Arbitrator’s duty will be to reflect on the earlier order, understand its intention and fathom a) what has gone wrong (how the expectations were not fulfilled) and b) what now is needed to restore balance. Additionally they will have the duty to re-examine the question “can the recipient now adjust without undue hardship to the termination of support?” The court will also explore whether termination could be achieved, for example on the back of the payment of a lump sum or a pension share.
But this reminds us of culture change. In the noughties and on through the early part of the 2010s, joint lives orders were common, particularly in the London courts and maintenance was often ordered at generous levels. The “adjustment to termination” test was seldom given serious consideration. Over the last decade, the zeitgeist has shifted with most courts now offering maintenance only for shorter periods at lower levels. An application for variation is likely to apply that new approach, which is why so many recipients with old orders are keeping their heads low rather than making an application for relatively minor increases. The risk is that they will precipitate a substantial reduction in their award.
There is no standard approach … each case is different and requires separate assessment – and sometimes it is not possible to predict what the outcome of any given course of action will be. It is one of those situations where really good advice early on will pay real dividends.
We discuss more of the detail and the steps you can take here:
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