Family breakdown: the impact of redundancy on a financial settlement or existing maintenance order
The number of redundancies the UK has is expected to increase causing concern for anyone receiving or hoping to receive spousal or child maintenance.
The impact of Coronavirus continues to wreak havoc on the global economy. In the UK the Furlough Scheme is being brought to an end on 31 October 2020, to be replaced, for some, by the Job Support Scheme. Unfortunately, the number of redundancies the UK has already seen is expected to increase significantly. That, in turn, is causing increasing concern for anyone receiving, or hoping to receive, either spousal or child maintenance.
Of course, redundancy is not a new concept. How does the Family Court address these issues?
Negotiating a financial settlement on divorce/dissolution
On divorce or dissolution of a civil partnership, both parties are entitled to receive a fair share of the family resources, which include capital, property, debt, pensions and income.
The basis for all financial orders - S25 factors
The Family Court has a wide discretion in deciding how to distribute the assets and income of a marriage. In applying that discretion, the judge will consider what are known as the 25 factors (s25 Matrimonial Causes Act 1973). In summary these include:
- The income and earning capacity of both parties now and in the foreseeable future
- The financial needs, obligations and responsibilities of both parties now and in the foreseeable future
- The standard of living prior to marriage breakdown
- The age of the parties and duration of the marriage
- Any mental or physical disability of either of the parties
- The contributions of the parties to the welfare of the family
- The conduct of the parties (in limited circumstances)
First consideration must be given to the welfare of any child under the age of 18.
Most cases are not decided at a final hearing by a judge as the parties are able to negotiate a suitable solution. However, the statutory guidelines still underpin and inform any advice on what amounts to appropriate settlement terms.
Orders of the court
The court has power to make a wide range of orders to provide financially for both parties including for lump sums, orders for sale or transfer of property, pension sharing orders and orders for spousal maintenance, both during the marriage or civil partnership and after it.
The court can also vary nuptial settlements or trusts, transfer company shares and make orders in respect of overseas assets.
What is a spousal maintenance order?
Spousal maintenance orders require a party to pay ongoing regular sums (usually on a monthly basis) to their ex-spouse. They are made when a party (the receiving party) does not have enough income to meet their ongoing expenditure needs and the paying party has sufficient surplus income to make this affordable for them. They are generally made to last for a specific term of years but can extend for the remainder of the parties’ lives.
How will the Family Court view a redundancy if received before a financial settlement is reached?
A redundancy package may comprise a number of parts, usually including compensation for lost income.
Whether a court will view the package as capital, and so a resource available for sharing with the other party, or as replacement income, depends on the circumstances of the particular case.
If, for example, the recipient of the redundancy package were fortunate enough to secure a new position quickly, it is entirely possible that some of the redundancy package is now ‘surplus’ and so may be treated as capital by the court. In another case, evidence may be presented where the court is quick to determine that the replacement income through the redundancy package will shortly run out, with little prospect of the paying party generating a future income stream at a rate comparable to that received prior to the redundancy.
As with any litigation, evidence is critical to support a case, but in equal measure, a realistic approach must be taken by both parties, as little is served by depleting family resources even further in contested litigation.
The court will also consider other sources (or potential sources) of income: are there income producing assets available e.g. property, pensions?
The court will also expect the party hoping to receive maintenance to explore other options such as state benefits if available, and to maximise their own earning capacity.
Can a final settlement be delayed until the redundant party secures new work?
In theory, an application for an adjournment could be made until the position becomes clearer. However, in practice, applications for adjournment are rare and may not succeed.
Unlike a married couple on divorce, an unmarried partner has no right to maintenance for themselves from their partner.
However, if they are parents, financial obligations arise in the form of child support as explained below. If the paying party’s income is over £156,000 gross pa, and a maximum assessment made by the Child Maintenance Service (CMS), there may be a residual opportunity to seek ‘top up’ (i.e. additional) maintenance.
In a redundancy situation, the paying party should apply to the CMS for a reassessment of the child support assessment.
Child support payments
The jurisdiction for dealing with child maintenance generally lies with the Child Support Agency (CSA). Even on divorce, agreements will normally be reached by reference to the CSA formula.
For the vast majority of people, the court does not have jurisdiction to deal with child maintenance. For anyone earning less than £156,000 per year gross (£3,000 per week), child maintenance is dealt with by the Child Maintenance Service (CMS) and the first port of call should be government guidance on making a child maintenance arrangement.
If the paying party earns more than £156,000, and a maximum assessment is made by CMS, the court is able to deal with any issues that arise by what is called ‘top up maintenance’. In that event, the factors that the court will consider will be similar to those in proceedings concerning spousal maintenance, although it is not possible to capitalise child maintenance to avoid any future payments.
If the paying party is made redundant, they should make an application to the CMS for a reassessment to overturn any previously made maximum assessment.
Impact of redundancy on an existing maintenance order
Unlike capital orders for lump sums, transfers of properties or pension sharing orders which are one-off orders that cannot later be changed, spousal maintenance orders are always variable. That means that the amount to be paid can be reduced or increased, the term for payment can be increased or decreased, or the order can be terminated.
The paying party, on being made redundant, will need to consider whether to continue to fund support at the current level of the court order, funded through their redundancy package, or apply to the court for a downward variation if their package is of limited duration.
It may be difficult for someone who has recently been made redundant to convince the Family Court that a maintenance order that already exists should be immediately reduced or extinguished due to redundancy. The Family Court may say that the redundancy fund can be used as continuing maintenance for the time being, in the hope that alternative employment can be found by the time the redundancy package is exhausted.
On a variation application, the court will consider all of the circumstances of a case, again applying s25.
What should the receiving party do?
In circumstances where so much is changing so quickly, the important thing is to not act rashly and agree to – or challenge - something that they may later regret.
If the paying party has lost their job, the receiving party should be sensitive to that but their priority will need to be to ensure that their own financial position remains as secure as possible. They should consider gathering together evidence about suitable alternative jobs that the paying party could apply for, to challenge any suggestion that there are no alternative jobs to be found.
If there are arrears of maintenance, they should consider whether they could be enforced against other assets. Early legal advice is critical as the ability to recoup maintenance arrears over 12 months old is limited.
A temporary ‘holding’ position might be agreed, whereby the receiving party agrees to a reduced level of income for a short-term period, with the understanding that the order remains in force and should be complied with when normality resumes. Again, legal advice should be sought at the earliest opportunity.
What should the paying party do?
As arrears of maintenance under the terms of a court order or CMS assessment will accrue during any period in which there is reduction or cessation of maintenance, even in a redundancy situation, the paying party should consider an application for a downward variation of maintenance or reassessment from CMS as soon as possible.
At a stage where the redundancy payment is running out and there is no alternative employment on the horizon, a downwards variation application should be made, together with an application to remit (waive) any arrears that have arisen due to lack of funds. The order and any arrears remain in place unless varied by the court.
If an agreement can be reached with the receiving party, entering into a consent order through the court, providing for a binding and enforceable change of arrangements with a remittance (waiving) of any arrears, is the only way to completely protect the paying party. If the receiving party agrees to a temporary change, ensure it is recorded in writing and acknowledged by both parties. Even an email, text or WhatsApp message will provide a measure of protection in the event of a later application to enforce the arrears.