HOW IS CHILD MAINTENANCE CALCULATED?
Where the paying party’s income is less than £156,000 gross per annum (after deduction of any pension contributions), and both they and the child(ren) reside in England and Wales, they will be subject to a child maintenance assessment. Any child maintenance that is payable is calculated by applying the Child Maintenance Service (CMS) standard formula.
In situations where the paying party’s gross income exceeds £156,000 per annum and therefore a “maximum assessment” has been awarded by the CMS, the family court has jurisdiction to determine the level of additional (“top up”) child maintenance. 20 years ago, Mr Justice Mostyn suggested that the CMS standard formula should be used as the ‘starting point’ for the court in such cases. This was coined as the ‘Mostyn formula’ and was welcomed by family law practitioners and judges as it provided a clear guideline when negotiating settlement or if the court was tasked with determined these applications.
However, the ‘Mostyn formula’ has its disadvantages, particularly in cases involving multiple children. Despite the CMS standard formula making adjustments for additional children, it produces anomalies because its primary driver is the percentage of the paying party’s adjusted gross income. For example, under the formula where the paying party’s gross income is £650,000 (and there is no shared care and no other child living with them), this would result in £60,000 for a single child, £40,000 for each of two children; and £33,000 for each of three children. Clearly, justifying a position that raising a single child costs 80% more than raising three children together is difficult to make sense of.
Mostyn J acknowledged the clear disadvantage faced with the ‘Mostyn formula’ and sought to address this in the recent case of James v Seymour.
JAMES V SEYMOUR  EWHC 844 (FAM)
In this case, Husband and Wife had married in 2010 and separated in 2012. The parties had two children aged 10 and 12.
The matter first came before His Honour Judge Vincent to determine whether to vary upwards an order for child periodical payments. It was Wife’s case that an upwards variation was required because:
• the existing child periodical payments were insufficient to meet the children’s needs;
• there was a disparity of lifestyle between her and former Husband; and
• she had accrued substantial debt.
His Honour Judge Vincent ordered:
• Child periodical payments at £1,100 per child per month (thereby adopting Husband’s proposal);
• Husband to pay school fees, extras and travel; and
• Costs Order against Wife in the sum of £66,627.70 (representing half of Husband’s costs).
The case then came before Mr Justice Mostyn who was to hear both Wife’s application for permission to appeal and the appeal itself if permission was granted.
Wife’s appeal was based on the following 3 Grounds:
• Ground 1: the Judge failed to follow the approach set down in leading authorities that the ‘starting point’ for a child maintenance calculation should be the figure given by the CMS formula up to incomes of £650,000.
• Ground 2: the assessment of the quantum of child maintenance was too low and insufficient (or no) weight was placed on the inevitable disparity of lifestyle as a consequence.
• Ground 3: The Order as to costs was wrong.
Mr Justice Mostyn granted permission to appeal on Ground 1, but dismissed the appeal. Furthermore, permission to appeal was refused on Grounds 2 and 3. For the purposes of this article, the focus shall be on Ground 1 of the appeal in which Mr Justice Mostyn provided a new formula to adopt where a paying party has an incomes falling in the £156,001 – £650,000 range.
Mr Justice Mostyn’s new formula is described as an “Adjusted Formula Methodology (AFM)”. This formula sets out 7 steps which give the “Child Support Starting Point (CSSP)”. The 7 steps are as follows:
• Step 1: Identify the paying party’s gross income (i.e. all earned compensation including any reward that is technically taxed as a capital gain). This can be done by looking at the payer’s most recent P60 or Self-Assessment Tax Return.
• Step 2: Reduce the gross income by the number of children living in the paying party’s household. The relevant percentages are: 11% for one child, 14% for two children and 16% for three children or more.
• Step 3: Deduct the amount of pension contributions currently being paid.
• Step 4: Gross up any school fees and extras paid by the paying party by the amount of income tax, to reflect that school fees/extras are paid from net income. This will then produce the paying party’s “Exigible Income”.
• Step 5: Apply the CMS formula to the first £156,000 of the Exigible Income as follows:
• For the first £800 per month: 12% for one child, 16% for two children, and 19% for three children.
• For the balance of the income over £800 and up to £12,200: 9% for one child, 12% for two and 15% for three children.
• Step 6: The AFM is then calculated by applying a tariff (by multiplying 2.4% for a single child and 3% for each of two or three children) to the Exigible Income above £156,000.
• Step 7: Deduct by the number of nights the child spends with the payer in accordance with the following rates to give the CSSP.
Less than 52 nights per annum with paying party – no reduction in payments as a result of shared care
52 -103 nights per annum with paying party – 1/7th reduction in payments as a result of shared care
104 – 155 nights per annum with paying party – 2/7ths reduction in payments as a result of shared care
156 – 175 nights per annum with paying party – 3/7ths reduction in payments as a result of shared care
176 – 183 nights per annum with paying party – Equal
This is clearly a complex approach but thankfully, litigants, practitioners and judges only need to calculate the paying party’s Exigible Income and then input that figure to the Tables set out in the Appendix of Mr Justice Mostyn’s judgment to calculate the appropriate CSSP. A link to the judgment can be found here.
It is important to note that Mr Justice Mostyn made clear that the AFM would not be relevant in the following circumstances:
• Where there are four or more children;
• The paying party’s gross income is more than £650,000;
• The paying party’s income is largely unearned; or
• The paying party lives on capital.
In such circumstances, maintenance should be calculated by reference to the statutory provisions under Section 25(3) of the Matrimonial Causes Act/paragraph 4(1) of the Schedule 1 Children Act 1989.
Furthermore, Mr Justice Mostyn explained that where an application is made for a variation of an existing child maintenance order, the AFM would not be relevant and the value of the maintenance in the original order should be adjusted by inflation and used as the CSSP.
Whilst the adjusted formula provides a solution to address the inherent problems with applying the CMS standard formula to cases that exceed the statutory limit, there are still issues.
Although the adjusted formula takes into account school fees (which seems the correct position as it would seem unfair for a paying party to have their maintenance obligations calculated against income that they are already using in favour of the children), the effect of this is that it seems to result in “higher earners” having a lower overall maintenance liability when compared to their counter-parts on the CMS standard formula. Mr Justice Mostyn highlights this in his judgment using the following scenarios:
Scenario 1: A paying party earning £156,000 and paying £20,000 in school fees for two children will have no reduction taking into account the school fees and therefore will have a liability of £40,000
Scenario 1: A paying party earning £157,000 and paying £20,000 in schools fees will be assessed under the Adjusted Formula and will have a liability of £36,000.
Secondly, there is a problem which arises when a paying party’s amount of shared care falls close to one of the boundaries of the number of nights as there is a significant difference in liabilities. Again, Mr Justice Mostyn gives the following example:
Scenario 1: A paying party whose Exigible Income is £500,000 per annum whose two children spend 175 nights with them will have a liability of £11,7000 per child.
Scenario 2: A paying party whose Exigible Income is £500,000 per annum whose two children spend 176 nights with them will have a liability of £9,500 per child.
Despite the problems identified above, the judgment does provide clarity to those falling within the higher income bracket.
If you have any questions or concerns regarding chid maintenance top-up orders, please do get in touch with Rayden Solicitors.