Divorces Impacted by The Cost of Living Crisis
2022 has seen a massive rise in the cost of living, with energy bills soaring, food and fuel prices rising rapidly, and increasing interest rates. All these factors are undoubtedly having a palpable financial impact on people across the country.
In relation to the breakdown of a marriage, many couples are querying how the crisis impacts reaching a financial agreement upon divorce. The current economic climate is likely to affect all aspects of a financial settlement and this blog raises some areas to consider which may be at the forefront of people’s minds.
Reassessing your monthly outgoings on separation
For some couples, living under the same roof post-separation for financial reasons is a viable option for a period of time, however this is not suitable in all circumstances particularly where the home has become a hostile environment. Ultimately, the reality when a relationship breaks down is that one household’s finances will eventually have to be shared between two households. Both sides will inevitably feel the pinch as a result and the whole family is impacted.
Types of maintenance
Child maintenance – If you have children you may be able to claim maintenance to cover their costs from the other parent. The Child Maintenance Service (CMS) have a calculator to work out how much maintenance should be paid based on a percentage of gross weekly income, less any pension contributions. There are deductions for the number of nights the paying parent cares for the child. Child maintenance can be agreed between parents or in default, the CMS can assist.
Spousal maintenance – This is a payment by one spouse to the other to meet the receiving party’s income needs. Whether maintenance is payable requires a careful exercise of assessing each party’s reasonable outgoings against their income from all sources.
Interim (spousal) maintenance – The cost of living crisis may be effecting those already in the process of a divorce, do not have a final financial order in place and cannot agree the interim position. This form of maintenance requires one spouse to pay the other for the duration of the divorce proceedings. Very careful consideration must be given as to the merit in making such applications as they are not simple and can be very costly.
Benefits – It is worth considering whether there are any government benefits available for you to claim to supplement your income. For example, child benefit and/or Universal Credit or a single person Council Tax discount. Some benefits are only available if you are living separately or have children under a certain age so you should check the UK Government website for details.
Support with legal costs – There are various ways in which you can try to minimise your legal fees, some of which are explored here in our blog ‘Financial Settlement On Divorce – What Can I Do to Manage My Legal Fees?‘. There are also different ways to fund legal costs, including specialist loans where appropriate and this can be discussed with your lawyer from the outset.
Varying maintenance orders
What if I need more money or I can no longer afford to pay maintenance as a result of the cost of living crisis?
Child maintenance – If the CMS are involved, they will annually review the paying party’s income position to ensure the level of payment is correct. Without the CMS’s involvement, parties can review this themselves (usually annually) and agree to vary the maintenance up or down. The position is more complicated if the maintenance is set down in a Court order but it is possible for it to be varied.
Spousal maintenance – Orders of this nature are variable and can be changed or stopped altogether in the future if there is a change of circumstances e.g. change in income, illness, retirement. The Order can be varied/stopped either by agreement or by the Court.
The effect of the cost of living crisis is likely to tighten the squeeze for both the lower earning spouse and the higher earner. The former will want to make sure any maintenance payments awarded sufficiently cover their outgoings, and the latter is also likely to have higher bills and outgoings for mortgage/rent with potentially less surplus income available to pay the other spouse. Spiralling inflation rates could cause problems for the paying party if your Order provides for inflationary increases year on year.
Every spousal maintenance question must be considered carefully as any change very much depends on the financial and personal circumstances of the parties involved.
Should I delay reaching a financial agreement in my divorce?
Unfortunately, we cannot be certain how long the current crisis will last. It is possible to delay reaching a financial settlement upon a divorce but there are risks to doing so and these may outweigh the benefits of ‘waiting out’ the storm.
It is important to obtain legal advice concerning your specific financial circumstances as each family is different and matters very much depend on the individual circumstances of the case.
Is there anything that can be done before a relationship breakdown to try and control the financial consequences upon a possible, future divorce?
Entering into a mutually agreed prenuptial (before marriage) or postnuptial (after marriage) contract whilst in a settled relationship could help.
In brief, these agreements are not legally binding (in that we cannot guarantee that the Court will hold parties to them), but there is an increased willingness by Judges following the landmark case of Radmacher v Granatino [2010] UKSC 42 to give effect to the agreements where certain safeguards are met. The Law Commission has also recommended that there should be legislation in this area and has prepared a draft bill to provide for Qualifying Nuptial Agreements (QNA) to be legally binding. It may be that current agreements in existence will retrospectively become binding. See further information on prenuptial agreements here.
Whilst we do not know what the cost of living situation will be in the future, if a couple decides to divorce, taking some control early on to try and agree how certain assets and income will be dealt with on divorce may help to mitigate conflict and complications down the line.
Blandy & Blandy’s specialist Family Law team can advise on the above, as well as in relation to a wide range of family matters.
Blandy & Blandy is recognised as a top tier firm for Family Law in the UK’s leading guides to law firms, Chambers UK and The Legal 500.
For further information or legal advice, please visit www.blandy.co.uk.