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How does the budget 2013 impact on divorce and separation?

Another (austerity) budget

How does the budget 2013 impact on divorce and separation?

Chancellor George Osborne has doled out his latest spoonful of medicine for the UK economy.  My take, as usual, is from the family lawyer’s perspective, for those families dealing with separation or divorce.  How does the budget 2013 impact on divorce and separation?  Where the money has to stretch to two households?

The devil is always in the detail, especially with the Budget small-print, and the picture will not be entirely clear for another few weeks, but here is my initial reaction.

The Help to Buy Scheme.

In my post upon the 2012 Budget I referred to a home buying scheme called FirstBuy (George, did they not tell you about finger spaces between words at Eton?).  FirstBuy was aimed solely at first-time buyers.   The better news, I think, is that the new scheme is no longer restricted to first time buyers but will now be available for all buyers of newly built homes.  I hope that it may ease the pressure for those parents needing to fund a new property purchase after a divorce or separation, especially as a deposit as low as 5% could be obtained.  It appears that up to 20% of the purchase costs will be funded by a shared equity loan which will be interest-free for the first five years.

Personal allowance up to £10,000

On the face of it, it will make the pennies spread further in the family budget, especially for those working parents who struggle to afford child care.  And, it will kick in a year earlier than anticipated – in 2014.

Employers’ National Insurance

Indirectly of potential benefit: NI changes (with a predicted 450,000 firms no longer paying NI) may reduce the financial burden for smaller nurseries to take on more staff and provide more childcare.  Additionally, it seems that a new employment allowance will cut National Insurance bills for every firm by £2,000.

Public sector pay rise cap

The chancellor giveth and the chancellor taketh away, or at least, he lets inflation do his dirty work for him.  Following a public sector pay freeze, a 1% pay rise cap for the public sector – the nurses, council workers and teachers – will last for 3 years.  With inflation last year running at 2.7%, this is a year on year pay reduction for the public sector.

The kids are not alright

The Budget comes hard on the heels of benefit changes including Universal Credit which will replace at least 6 individual benefits or credits in the future and changes to housing benefit for those deemed to be under-occupying in the social housing sector.  The net effect of Mr Osborne’s budgets since the coalition came to power has been, and will be,  to reduce the income of families with children.  It seems to have become fashionable again to hate the poor and less well off,  and perfectly acceptable to mis-label them as scroungers, skivers and deadbeats.  At the end of the day, public policy and budget changes are hurting kids.   Those inconvenient people at the Institute for Fiscal Studies have summarised it nicely in the following table.  Is this really what you want, Mr Osborne?

How does the budget 2013 impact on divorce and separation?


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Tax credits for separated parentsWhen couples separate or divorce, their respective family lawyers, if involved, will try to  agree a financial settlement and, as ever, the issue of child support is usually first on the list.  Some parents may have agreed upon shared care arrangements so that the child or children spend extensive periods of time with both mum and dad.

In such arrangements, the child support needs to be more ‘fluid’.  It should, if possible, reflect the fact that the financial burden under such shared care arrangements will be more evenly distributed between two households.  So, the black and white distinction used by agencies such as the CSA, for the ‘parent with care’ and the ‘non-resident parent’ (NRP) look old-fashioned and inflexible.  You may think they are only labels, but language is a powerful tool.

The CSA can take into account the fact that the NRP has the child or children for a significant number of nights during the year and this reduces the amount of child support that will be paid.  It’s better than nothing but it will still be a major irritant to the so-called NRP who has almost has much care of the children as the so-called parent with care.

To make matters worse, valuable additional sources of income to meet children’s needs suffer from a similar administrative straitjacket:

    • Child benefit cannot be split between two claimants.  This single payment rule means that separated parents who share the care of their children can decide which one of them is to receive the benefit.  In the absence of agreement, HMRC can exercise a discretion over who should receive it.  I have known cases where child benefit has been allocated for one child in one household and the child benefit for another child allocated to the additional household.  Of course, the payment for the first (older) child is greater than the second child so there will still be a differential.
    • Child Tax Credit (CTC) like Child Benefit can cater for separated parents to agree who should receive the credit.  In the absence of agreement, HMRC must consider the “main responsibility test” i.e., which parent has the main caring burden for the child.  So, HMRC cannot share the CTC out between the separated parents but must pay it in its entirety to just one of them.  This can seem manifestly unfair to the parent who may fall short of the “main responsibility test” by just a few hours in any given week because of the significant level of shared care.

I have often wondered whether this inflexibility would be judicially challenged.  Now it has:

Humphreys (FC) (Appellant) v The Commissioners for Her Majesty’s Revenue and Customs (Respondent).  Judgment was given on 16 May 2012.  The Appellant father had argued that the denial of sharing of CTC indirectly discriminated against men because men were more likely to have less care of children after separation.  HMRC conceded that the discrimination was real.  However, the court held that this discrimination, the ‘no-splitting rule’ was justified on public policy grounds as it was the best way to tackle child poverty and was therefore a reasonable approach for the state to adopt.  As an aside, Baroness Hale, in giving the unanimous judgement, thought it unhelpful that the family court did not have the power to make orders about splitting such benefits when it made orders about the welfare of children.  She said:

Unfortunately, the advent of the child support scheme has removed the possibility of doing justice from the courts. To restore it would obviously be the more rational solution to the problem under discussion. 

That seems sensible to me and most other family lawyers I know.  Is the Government listening?

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