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Statutory child maintenance variation applications and capital assets

Date:28 MAR 2018
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Family analysis: Liz Cowell, partner at McAlister Family Law, examines the implications of P v Secretary of State for Work and Pensions and another [2018] UKUT 60 (AAC) for cases concerning the diversion of assets and deemed income. A change in regulations means this decision is only fully applicable for certain past decisions, but there are still lessons to be learned for family law practitioners.

What are the practical implications of this case?

This decision is a sad example of how the system for child maintenance can fail the children for whom it was designed to protect. By the time this decision was made, the children in the case were aged 25 and 23.

It is a decision on the issue of diversion of assets and deemed income from capital. The effective date of the decision being varied was 10 November 2006. This pre-dates the introduction of the new child maintenance system pursuant to the Child Maintenance and Other Payments Act 2008 (CMOPA 2008). All assessments from 25 November 2013 come under the new system, and some of the regulations that are considered in this case would no longer apply. Accordingly, most of the practical implications of the decision are limited to decisions where the old regulations still apply.

This does not mean, however, that there are no lessons to be learnt. In particular, there are still appalling delays for families, and there is an ongoing problem with paying parents who are self-employed or shareholders in small private companies, who are prepared to dispose of assets to avoid theirresponsibilities.

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What was the background?

The non-resident parent in this case divested himself of shares in a property development company. The shares were given to his partner, but it was found that he had retained control of the company, After numerous hearings and decisions, the Upper Tier Tribunal found that instead of having no capital, his capital as at 10 November 2006 was £1,132,388.40. This comprised interest in a farm and the value of shares he had transferred. The original variation had found him to have no assessable capital.

There were two later effective dates where his capital was found to be less, due to the business being in difficulty. The salient message, however, to this father was that the transfer of his shares to his partner was not going to relieve him from his responsibilities as a father. This was because the rules on variation at the time allowed for a deemed income to be calculated from his capital. In the decision, it was decided to apply an interest rate of 5% from 10 November 2006, and this reduced to 2% from 15 October 2009.

What should practitioners be aware of?

The practical problem faced by practitioners now is that the ability to deem an income from capital is no longer relevant on an application for a variation. Variations can be granted under the new rules which apply to all families from 25 November 2013.

Variation is currently applicable on unearned income which is rental income for property or land dividends and interest from savings and investments. This type of income must be at least £2,500 a year. It can also be obtained on earned income where a paying parent is receiving benefits and qualifies, but also has a gross income from a pension employment or self-employment of at least £100 a week. Finally, it remains possible to obtain a variation on diversion of income when the income the paying parent should be getting is being diverted to another person or for some other purpose, to avoid it being included in the maintenance assessment.

It can be seen that these changes in the regulations would affect a family in the same position this family were in, were the effective date to be after December 2013, in that the only income which could be used in the assessment would bethe dividends paid on the shares, and there would be no deemed income from the farmland.

The tribunal decision in this case is only fully relevant to those decisions where the effective date is before the implementation of the 2008 regulations. However, it provides a detailed explanation as to how things go wrong onvariation, and how, if an appellant is persistent, a reassessment willeventually be done. The delay from when the appeal was made in 2007 to the decision in 2018 is an indictment of the system.

Interviewed by Emily Meller.

This analysis was originally published on LexisPSL Family (subscription required). Click here to request a free 1-week trial