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Inflation, the Cost of Living and Maintenance Orders

We are in a period of extreme economic uncertainty. Just as the UK and the wider world were starting to recover from two plus years of the Coronavirus pandemic, lockdowns and economic turbulence, we are now faced with the Russian invasion of Ukraine. Sanctions, supply-chain issues, rising energy prices are amongst the many factors which have led to increased prices on our doorstep. I shall not profess to be a master of global economics, but I don’t need to be to see what is happening day to day to prices, from the weekly shop to filling the car up with petrol.

We have the feeling that prices are going up. But we also helpfully (or, rather, discouragingly) also have indices which can tell us just how much prices have been increasing. CPI (the Consumer Price Index) and RPI (the Retail Price Index) give us a measure of how, month-on-month, the price of living increases.

In very basic terms (I said I wasn’t a master of economics), CPI is a measure of the costs of the average “basket” of goods and services consumed by the average household: so food, drinks, bedding, clothes – the day-to-day. RPI includes these costs but also accounts for housing costs; rent mortgage payments etc. By measuring the cost of everyday existence, these indices give a good indication of the extent to which the cost of living increases, month-on-month, year-on-year.

By extreme example: if a basket of shopping cost £100 in January 1987, we know from the RPI that the same basket of items would cost £317.70 in January 2022. More worryingly, if the basket cost £100 in January 2020, it cost £109.33 in January 2022.

Why is a family lawyer talking about RPI, CPI and the cost of living though? Well, our clients can be significantly affected by the changes to these indices and the underlying cost of living changes which the indices represent.

I have in mind ongoing maintenance orders. Maintenance orders are court orders for one person to pay another a (usually) monthly amount of money to support the recipient’s living costs. These orders are often made following divorce or civil partnership dissolutions or in the context of provision for children. A spousal maintenance orders provides for former spouses or civil partners, and a child maintenance order provides for, you guessed it, children.

Many, if not most, long term maintenance orders will make provision for the amount of maintenance to increase year-on-year on a variation date. To avoid former partners having an annual argument about how much the amount should increase, many orders provide an automated system of increase. Given that the orders are intended to cover the living costs of the recipient, it is only natural that the annual variation is tied to the CPI or RPI. These orders are said to be “index-linked.”

For example, a spousal maintenance order is made in January 2019 for £1,000 per month. It is tied to CPI. In January 2020, the amount would have increased to £1,017.88. In January 2021 it becomes £1,027.28 and in January 2022 it becomes £1,077.09. If it were tied to RPI, the £1,000 per month would have gone up to £1,026.86, then £1,040.99 and finally £1,122.62. An extra £122 per month, £1,464 per year from the original order.

The person paying the maintenance might say that they cannot afford such an increase as their income has not correspondingly increased to cover this additional expense. This mirrors the experience across society – prices have gone up but wages have not done so, or have lagged behind.

In that situation, the payer has to keep paying, otherwise they would be in breach of a court order. As I will come to below, they can seek to vary the Court order.

The changes to these indices reflect the reality we all face. So whilst the paying partner to an index-linked order may feel aggrieved, the recipient may need the additional payments to be able to meet their outgoings. Maintenance orders are intrinsically “needs-based” – i.e. they are put in place to ensure the recipient can meet their outgoings. It is arguably therefore only right that as prices increase, so too does the amount they receive.

But not all maintenance orders are index linked. Whether through lack of foresight, or owing to the commercial realities of a financial settlement, index-linking provisions are frequently omitted from court orders. This leaves the recipient in the position of increased costs of living but with no accounting for those costs in the income they receive by way of maintenance. Without even an incremental increase in income from employment, they will suffer from the additional cost of their rent, their petrol and their shopping basket.

In either of the scenarios I have described, the picture is not all bleak. An Order made by the Family Court in England and Wales can almost always be varied at a later date.

For orders made consequent to a divorce or civil partnership dissolution, the power in section 31 Matrimonial Causes Act 1973 emboldens the Court to vary upward or downward the amount payable under a spousal maintenance order. It can also be used to extend the length of time for which maintenance is payable (unless this has specifically barred).

The provisions of child maintenance orders made in circumstances where all parents and children live in England and Wales can be supplanted by a Child Maintenance Service (CMS) assessment 12 months after the order has been, unless the paying party earns over £156,000 per year. If the CMS does not have this power, a child maintenance order can also be varied, be they orders made in divorce or dissolution proceedings or in separate Children Act proceedings.

Faced with a variation application, the Court will not re-invent the wheel and pull apart the original court order or settlement. Rather, it will look now afresh at whether that order continues to be fit for purpose. Does the amount of maintenance meet the needs of the recipient? Has the index-linked increases made the amount unaffordable to the payer? All circumstances will be taken into account. The right to seek a variation is there to account for changes in circumstances on a personal level, even if those changes are the result of external forces – I have focused her on the cost of living and indices.

Changes to previous orders can be agreed, so do not worry about potential court proceedings. With good advice and proportionate thinking, it is always possible to agree a resolution and a settlement on the question of variation without contested litigation.

At Rayden we can advise you if you have been affected by the themes raised in this article. Whether you are the paying party or the recipient of maintenance, if you feel the need to change the existing arrangements we recommend that you take advice from one of our experts.

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