CORONATION STREET AND ABOLISHING TAX CREDITS: HOW THE UNIVERSAL CREDIT COULD AFFECT YOU

Many will be blissfully unaware that a new Universal Credit was introduced by the government in 2012 as part of its welfare reforms. It replaces seven of the means tested benefits including child and working tax credits. It has already been introduced in different parts of the country and now the Tories have obtained a majority it is going to be phased out across to all parts of the country by 2017.

What does this mean for me?

It will mean that if you receive tax credits (or other means tested benefits) you will receive just the Universal Credit. Given that the government needs to find £12bn in welfare savings I very much suspect its introduction will mean, in one way or the other, some form of cut to the amount of financial help you receive.

Why is a family solicitor telling me this?

Good point. Well, there is more…

Presently any child or spousal maintenance payments from an ex-spouse are not taken into account when calculating tax credits. They are completely ignored. A claimant therefore receives his or her maximum entitlement in tax credits.

Whilst child maintenance will continue to be ignored, the calculation of the Universal Credit will take into account any spousal maintenance a claimant is receiving. It will deduct spousal maintenance in a pound for pound way from any Universal Credit calculation. So let’s say a claimant is receiving the Universal Credit of £900 p/m and spousal maintenance of £400 p/m. Under the ‘old’ rules they would receive £1,300 p/m. Under the new Universal Credit the spousal maintenance will be deducted and a claimant will receive just £900 (being £400p/m in maintenance and £500 for the Universal Credit (£900 - £400)).

This is a significant development. Tax credits are very often taken into account when looking at maintenance for an ex-spouse. Many hard working people rely heavily on tax credits as a way of financially supporting their family. This is even more relevant in single parent families after a separation.

What are the implications?

 

It is now more important than ever that we make sure the impact of the Universal Credit is factored into any settlement. It may mean that Husband’s (and it usually is gents) pick up the governments tab. The law will not change. A family court is still going to want to ensure the financial needs of any children and the Wife are met. The court will need to undertake a close examination of whether it is affordable to a Husband to bridge the gap created by the Universal Credit. I believe there will be a greater onus placed on the Wife, in cases where it is not affordable to the Husband, to maximise income from employment.

One thing for sure is that this is going to create a headache for all family practitioners and judges. In many cases it could significantly alter the approach taken and the outcome. I also predict future disputes arising from orders already made and which were based on an understanding that any spousal maintenance award would be supported by tax credits. The award may now not be satisfactory when the universal Credit is introduced.

What happens now?

What happens, you ask, if I do a deal now and then the Universal Credit is introduced. Taking my example you might do a deal on the understanding you are going to receive £1,300 only to receive £900p/m when the Universal Credit is introduced. Can you go back and change the order? What happens?

The answer depends on a number of factors, such as affordability and whether there is the possibility of asking the court to take another look at the order. It is also important, in my view, to make it clear on the face of an order the basis of any maintenance order especially during this period of limbo where, in many parts of the country, the Universal Credit has not yet been introduced.

Pondering this issue as I was over some sugar laden cereal bar I decided to come up with a form of wording that may be of assistance when drafting an order. This is absolutely untested and may not carry any weight. (Please do not rely on this!) In my view, however, it would be of assistance and carry some weight with the court should a spousal maintenance order be made now in circumstances where the Universal Credit has not yet been introduced. It certainly can’t do any harm. It reads as follows:

“In the event the Applicant is entitled to, or obliged to take, Universal Credit, the parties agree that should this impact on the amount of global income the Applicant will receive for the benefit of her and/or the children the rate and nature of any periodical payments by the Respondent will be revisited with the intention of ensuring the Applicant is not put to any financial prejudice by the introduction of the said credit.” 

On lighter note….

On a lighter note, with my laptop still on, I was enduring my other half’s usual fix of “double corrie” on Monday evening (very sad I know) when I saw two characters come head to head in the court room. What I witnessed was what I could only describe as an appalling attempt to present a real life court dispute about the living arrangements of a child. Aside from the acting the saddest part is that, during a time when the legal community is working in unison to persuade parents there are alternative solutions to court proceedings in child disputes, the episode seemed to glorify such proceedings – pitting one ‘victor’ against a ‘loser’. It is these types of court dramas that create deluded perceptions of the satisfaction a litigant will receive in pursuit of some gladiatorial battle in the court room. The quicker we televise real life disputes or produce some real life documentary the better.

You will, however, be pleased to know that despite my displeasure it did not stop me getting my Wednesday night fix …roll on Friday!

If you need any help with any family law issues please do feel free to get in touch.