Inflation and Divorce Spousal Maintenance Payments
Inflation is in the news. Read any newspaper, or turn on the TV, and you can't get away from news on the cost of living crisis, inflation, and talk of disgruntled workers who are either striking or threatening to do so.
As London family law solicitors, we are getting calls from those worried about existing spousal maintenance orders or people concerned about how best to negotiate a divorce financial settlement given the current financial uncertainties.
In this article our family law solicitors, answer your frequently asked questions on inflation and divorce spousal maintenance payments.
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What are the best options for divorce and spousal maintenance?
Spousal maintenance concerns centre on how the value and spending power of spousal maintenance is falling, and will continue to do so, if the forecasted financial projections are right, and UK inflation rises to over ten percent. For those who are already paying spousal maintenance, with annual inflation rises built into the financial court order, it is a tremendous worry when their employer isn’t offering them a corresponding ten percent salary rise.
Our family lawyers are being asked about what the best options are when negotiating a financial settlement and sorting out spousal maintenance. The answer is that it all depends on your personal and financial circumstances but there are four main options:
- Clean break order – with a clean break order a husband or wife can't make any further financial claims even if their circumstances change. For example, one of you loses your job and needs spousal maintenance.
- Time limited spousal maintenance – the time limit can be extended by the person receiving spousal maintenance making an application to court to extend the period of time spousal maintenance is paid for. Alternatively, when making the financial court order, the court can say the spousal maintenance time limit can't be extended and once a certain date has been reached there is a spousal maintenance clean break.
- Maintenance for life – this is open ended maintenance. The payments will only stop if the person receiving the spousal maintenance dies or remarries or if the person paying the spousal maintenance dies. Spousal maintenance can also be ended if the person paying the spousal maintenance successfully makes an application to discharge and end the spousal maintenance order or if the court orders capitalisation of spousal maintenance. Capitalisation means the person getting the income payments gets a one off lump sum, instead of regular monthly payments.
- No financial court order – if you do not get a financial court order and things are left open, your husband or wife can apply to court at a later date and ask for spousal maintenance. This means you don’t have financial security. Family law solicitors say it is best not to take this risk if you are a high earner whose income might rise or if you are an entrepreneur whose company might do really well in future years.
If you need help working out which divorce financial settlement and spousal maintenance option is best for you then give our friendly family law solicitors a call on 0203 959 9123.
What can I do about spousal maintenance and inflation?
It is important to consider inflation when you are negotiating the wording of a financial court order. If you are already paying or receiving spousal maintenance, and you are struggling financially, then your financial court order could be varied by the court. The variation could result in spousal maintenance stopping or the payments being increased or decreased.
Family lawyers recommend that you get advice on the wording of your existing financial court order before you make an application to vary the spousal maintenance as you don’t want to end up worse off. Sometimes the best family law advice is to sit tight and do nothing. An experienced family law solicitor can talk you through your options and explain if a variation application is justified. If you need advice on your existing financial court order and spousal maintenance options our London family lawyers can help. Complete our online enquiry form for help.
If you are negotiating a new financial settlement and financial court order, or negotiating a variation of a spousal maintenance order, there are a number of options over how to deal with spousal maintenance rises and inflation:
- No rises – if the order is silent about rises, either of you can apply back to court to increase or decrease the spousal maintenance or to stop it.
- Annual spousal maintenance rises in line with the RPI – just because a court order says spousal maintenance will go up with RPI doesn’t mean you can't apply to court for an increase or reduction in spousal maintenance. However, the court may question why you are making a spousal maintenance variation application if you agreed to automatic annual RPI increases. You may have a good reason, such as you can't work because of ill-health, or your ex-partner has got a new job earning a lot more money. The retail price index calculation is based on inflation rises, including house prices. It is just one formula used to calculate spousal maintenance rises.
- Annual spousal maintenance rises in line with the CPI – when a financial court order refers to CPI, the reference is to the consumer price index. This doesn’t include figures for rising house or mortgage costs.
- An alternative formula – some financial court orders say spousal maintenance is to be calculated as a percentage of the payer’s income. Whilst this can work for some, it isn’t the best option for everyone. For example, it may not be the ideal option if the payer is self-employed and is able to control their disclosed income flow as they are in a cash industry.
The cost of living crisis has shown just how important it is to negotiate the fine detail of a spousal maintenance order and to carefully consider if you want spousal maintenance to automatically go up with inflation each year or not.
If the court order doesn’t say the spousal maintenance will go up automatically, it may be hard to negotiate a spousal maintenance increase with your ex-husband or ex-wife. On the other hand, if you agree to a RPI rise in spousal maintenance, where does that leave you if your salary does not go up in line with inflation? The answer is that you could ask the court to reduce the spousal maintenance and stop the spousal maintenance continuing to go up with RPI if you can show that the RPI increases are resulting in unaffordability and unfairness.
One thing that all London family law solicitors are agreed on is that when it comes to spousal maintenance and inflation there is no single best option. An experienced family lawyer will look at your financial and personal circumstances and help you work out which option is the best one for you and the one that takes a degree of risk that you are comfortable in accepting. After all, none of us know for certain where inflation is going to end up, or know the outcome of future pay talks with an employer, or whether RPI or CPI is the best formula to use in your financial court order.
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