THE INFLATION TRAP FOR DIVORCEES

THE INFLATION TRAP FOR DIVORCEES

It is now well known that the U.K is in a ‘cost of living’ crisis where prices are generally outpacing wage growth, with Britain facing its highest inflation rate for decades. Prices of everyday necessities are rising, from energy costs to food, and, as a result, household budgets are being significantly stretched. Accordingly, divorcees/parents should be aware of the potential ‘inflation trap’ that they might find themselves in and the unintended consequences for the unwary.

The court has a wide range of powers to make orders in respect of assets, pensions and income in order to resolve financial claims on divorce or dissolution (for civil partners). One such order addressing income claims is a spousal maintenance order, known as ‘periodical payments,’ whereby one party pays a regular amount, ordinarily a monthly payment for a specified term, to meet a shortfall in meeting reasonable outgoings.

Maintenance orders are often based on the projected reasonable income needs of the receiving spouse/civil partner as well as the needs of any minor children. Provision can be made for maintenance payments to be linked to an indexation provision, typically the Retail Price Index or the Consumer Price Index (which doesn’t account for rising house and mortgage interest costs) to ensure maintenance will also increase in line with changes in inflation rates.

However, in circumstances where maintenance payments are not index-linked, the receiving spouse/civil partner can find their income is not enough to meet the rising costs of living. There is an option to seek to vary an order for spousal maintenance to ensure payments are index linked and avoid a future shortfall. An agreement to vary can be reached either directly between parties or via solicitors, if necessary. There are also Alternative Dispute Resolution methods available such as mediation. If an agreement is reached, an application should be made to the court to vary the order by consent. In the absence of an agreement, the court can be asked to make a decision and impose an order.

Equally, the paying party may find that they are unable to make payments in line with an existing order because of their own rising outgoings or lack of increase in income that may not be in line with inflation. In those circumstances, it is advisable that an agreement to reduce is sought with the receiving party before making unilateral changes to maintenance payments. Again, if an agreement cannot be reached, an application can be made to the court to decide the issue and whether a downward variation is justified.

Parents often have agreements or orders for child maintenance. Again, similar considerations apply. It is recommended that legal advice is sought either before or during any negotiations to vary a maintenance order and before an application is made to the court to assess the merits of such an application. If you would like to discuss a maintenance issue, or matters relating to divorce generally, please contact Katie Hughes-Beddows, Associate Solicitor at Aaron & Partners for further advice and assistance.