Category Archives: Finances

Inheritance Act or Will Dispute Mediations

The Inheritance Act 1975 provides a route where someone can make a claim against the deceased’s estate on the basis that the deceased’s Will or intestacy does not make any or sufficient financial provision for them. It is designed to help spouses, children, civil partners, cohabitees and other surviving dependents that have not been provided for sufficiently in the will.

Continue reading Inheritance Act or Will Dispute Mediations

Budget July 2015 – Changes to Tax Credits

In the budget on July 9th George Osborne announced 9 billion pounds worth of cuts to the tax credit system. Many of the changes are due to come into effect in 2016. Tax credits are hugely important to many separating and divorcing people, so we thought it would be helpful to look at where the cuts are going to fall.

Tax Credit Rates are being frozen for four years. In addition parts of the payments are being scrapped, thresholds are changing to reduce the amount some people can claim and the ‘Child Element’ in tax credits is being limited to two children.

We’ve identified 4 major changes for people currently receiving Working Tax Credit and Child Tax Credit.

What the changes mean is complicated so we’ve included some examples to help clarify.

  1. Income threshold reduction

From April 2016 the income threshold for claiming will go down from £6,420 to £3,850, meaning that far fewer people will be eligible to claim. And anyone earning more than £3,850 will now have their tax credit income reduced.

  1. Taper rates increased

Tax credit income for those earning over the threshold will also be reduced more steeply from April 2016. The taper rate will increase from 41p per pound to 48p per pound. This means once a claimant earns more than the income threshold for tax credits their award will be withdrawn at a rate of 48 pence for every pound earned.

For example someone earning £12 000, working 30 hours, with 2 children.

Old Tax Credit:

£12 000 (wage) – £6 420 (threshold) = £5 580

£5 580 X 41p = £2 287.80

Total possible entitlement (made up of WTC Basic element and WTC 30 hours element) = £2 770

WTC Received: £2 770 – £2 287.80 = £482.20

New Tax Credits (from April 2016):

£12 000 (wage) – £3 850 (threshold) = £8 150

£8 150 X 48p = £3 912

This puts her above the £2 770 possible entitlement for Working Tax Credit so she will not get anything.

Previously claimants’ income could rise without their tax credits being affected by £5,000 a year. This was known as the income rise disregard. That disregard will now be cut to £2,500.

  1. The Basic Family Element of Working Tax Credit will also disappear from April 2017

In the example given above of a single parent of two children, working 30 hours a week for £12 000 she would have got £545 as the Basic Family Element of Working Tax Credit. From April 2017 this will stop. Households who have been in receipt of tax credits with an interruption of less than 6 months will be protected from this change. Children with disabilities will continue to receive the Disabled Child Element or Severely Disable Child Element

  1. Child Element Limited

Child Tax Credit can currently add up to £2,780 a year per child

Parents who have a third child after April 2017 will only be able to claim child tax credits for their first two children. Parents who have been receiving tax credits for 3 or more children before 2017 without interruption will continue to receive tax credits for their children as before.

Tax Credits are due to be replaced by Universal Credit. Transitional arrangements started in 2014. The date for the full switch over was originally supposed to be 2017, but it is likely this will be delayed.

To calculate your eligibility for Tax Credits – go to the calculator on the Turn2us website.

Unmarried Couples and the Law when Separating

Blog updated on the 22nd Nov 2017 – all information is current.

Cohabiting Couples who are separating – What protection do they have under the law?

More than 6 million people in Britain currently live in cohabiting relationships, and this is the fastest growing family type in UK.

There is now growing public pressure to increase protection for unmarried couples who are separating. Next week is Cohabitation Awareness Week (November 27th – 1st December 2017), so we thought this might be a good time to highlight this issue.

At the moment, despite the widespread belief that living together for a period of time, gives some rights, there are actually very few legal rights for unmarried couples, and there is definitely no legal concept of a ‘common law husband’ or ‘common law wife’ in UK law. In fact, it’s possible for a couple to live together for decades, to have children together, and on separation to walk away from the relationship without taking any responsibility for a former partner.

This can have a huge impact, particularly if one of the couple, usually the woman, has taken time out of work to look after children.

So what does this lack of protection this mean for unmarried couples who are separating?

Of course, unmarried couples can separate informally without the intervention of a court of law. However, if agreement cannot be reached between separating partners the court does have power to make orders relating to the care of the children, or a financial settlement.

Dividing Assets – Jointly Owned Property

For unmarried couples when it comes to dividing up capital assets, such as a jointly owned home, in general this will be governed by property law, rather than family law. This means that if a claim doesn’t succeed the losing party may have to pay the other party’s costs. Claims can be made under the Trusts of Land and Appointment of Trustees Act 1996 (known as ToLATA for short). A court can decide what proportion of the property each partner owns, and whether the property should be sold to release one partner’s share in it.

If the unmarried couple owns a property it is crucially significant whether they own it as Joint Tenants or as Tenants in Common. If the couple owns the property as Joint Tenants they are taken as owning the property equally irrespective of their contributions (i.e. towards deposit or mortgage). On death the property will go to the other party. If the property is owned as Tenants in Common, it is likely that there will be a declaration of trust defining the percentages in which they hold the property – usually based on their contributions to the purchase price. On death people can choose who to leave their part of the property to.

For properties bought after April 1998 the transfer document (TR1) should set out the parties’ interest – i.e. as Joint Tenants, as Tenants in Common in equal shares, or Tenants in Common in unequal shares, and those shares are usually specified. However, in many cases the TR1 will not have been completed. If the property was bought prior to April 1998 you can tell by looking at office copy title entries (available from the Land Registry) how the couple hold their shares. If there is no evidence otherwise the assumption is that they are Joint Tenants in law and that the property should be divided equally between them.

Dividing Assets – Property owned by one partner

If property is owned by one partner, then the other partner has no automatic entitlement to any share of the property, but it may be possible for them to make a case that the they have an interest in it. Ideally this would be in the form of a written agreement. Or if they can prove that they made a financial contribution to the purchase or upkeep of the property, or that there was an understanding between partners that both would have a share in the property if it was sold. A court could therefore decide the unnamed partner had a ‘beneficial interest’ in the property. In rare cases this might mean that they then have the right to live in the home, preventing the named owner from living there, or it might mean them getting a share of the proceeds if the property is sold. Inevitably these cases are very hard to prove, and can be very expensive and time consuming.

Property – Children Involved

The other circumstance when it could be possible for a partner whose name is not on the property deeds to claim an interest in a property is when there are children living in the property. Under Schedule 1 of the Children’s Act 1989 if there are children living in a family home, even if the primary carer’s name isn’t on the property deeds it is possible that court would order a lump sum payment, or the transfer of the property to the primary carer if it was felt to be in the children’s best interests, but it would usually link this to a return of the named partner’s capital when the children grow up.

Property – Rented

If cohabitees have been renting a property together, the tenant with their name on the tenancy agreement will have the most right to stay in the property, although it is possible to convert existing sole tenancies to joint tenancies if the sole tenant and the landlord agree. With a joint tenancy it only takes one person to bring the tenancy to an end, and once it is done the court cannot do anything to get the tenancy back, but a court can make an order stopping either partner from giving up a tenancy. Unmarried partners can also get short-term rights to stay if they apply to court. For council or housing association tenants a court can transfer a tenancy from one partner to another, whether it is a sole or joint tenancy. The court would have to weigh up financial and housing needs and the needs of any children before deciding whether to transfer a tenancy

Pensions

There is usually no entitlement to each other’s pensions for unmarried couples (unless they are already being paid).

Arrangements for Children

When it comes to making arrangements for children, it is important that both parents have ‘Parental Responsibility’.

Parental Responsibility

Both parents are assumed to have on-going financial responsibility for their children whether or not they are living with them. Since December 2003 unmarried fathers who are on their children’s birth certificate automatically have Parental Responsibility for them. This gives them the right to have a say in important decisions about the child’s life – i.e. schooling, religion and education. If the father is not named on the birth certificate and the couple is not married the father can apply for Parental Responsibility on separation. Similarly if the father is named on the birth certificate and the child was born before December 2003 the father would need to apply for Parental Responsibility.

Child Maintenance

This is the one area of law where the rights of unmarried parents are no different from married parents. Unmarried parents have the right to cliam child maintenance and unmarried parents are still liable for claims of Child Maintenance whether or not they have Parental Responsibility.

Spousal Mainteneance

No spousal maintenance is payable between cohabiting couples. However, a court can consider the position of a parent (usually the mother) who is the primary carer of the child and “should have control of a budget that reflects her position and the position of the father, both social and financial.”

How Mediation can Help

In mediation we are often aiming to come up with a Memorandum of Understanding and an Open Financial Statement. For unmarried couples these can then be incorporated into a legally binding Separation Agreement which constitutes a full and final settlement between them.

As you can see the law is particularly complicated for unmarried couples and it can be easy to become involved in costly litigation.

However, in mediation couples can make realistic, practical and fair settlements that do have regard to the law but that can focus on the practical reality of their life and their children’s lives in the future rather than the minutiae of the law.

If you would like further advice on separation when not married; please give us a call on 0117 924 3880.

Divorce and Separation Mediation Case Studies

Everyone’s divorce or separation is different, but I think it’s sometimes helpful to read about what other people have gone through, particularly when you are feeling that there is no good way out of your situation. These are two recent cases we have worked on which I thought would be worth sharing. When they first came in both couples were very stuck and couldn’t see a way forward. Through Mediation both couples reached settlements which, if they were not exactly happy about, they could live with. Even more importantly communication improved dramatically and they could begin to build their new relationship as separated parents.

Continue reading Divorce and Separation Mediation Case Studies

Pensions on divorce

In order to reach a financial settlement in divorce proceedings it is necessary to obtain the cash equivalent value of any pension acquired during the marriage.

This is the value the pension fund would have if it was transferred out of one scheme into another on a given date. A cash equivalent value is not exactly the same as cash. A cash equivalent value is basically the right to buy a pension for a given amount of money at some date in the future.

Types of pensions
Pensions are often defined contribution schemes, also known as money purchase schemes. With these pensions the benefits are provided by sum of money accumulated over time. The accumulated sum is used at retirement to provide an income, such as by way of buying an annuity. Lots of private pensions are this type of scheme.

In the public sector pensions are often part of a defined benefit scheme, where the benefit payable is defined as an amount according to a formula at retirement. Examples of such schemes would include civil service, NHS and teachers pensions.

Ways of dealing with pensions
Off setting
Frequently the only significant assets owned by a couple when they separate are the family home and one pension (often accrued by husband). For example, a family home with an equity of £100,000 and husband’s pension fund with a CE value of £50,000. Instead of saying that the former family home should be sold and the proceeds divided equally between husband and wife and the pension should also be divided equally, another way of dealing with matters which might make more sense would be to say the wife should have the house and the husband should retain the pension. This would provide accommodation for the wife and possibly children whilst allowing the husband to retain a substantial asset.

Earmarking
The difficulty with offsetting is it may not provide the wife with the possibility of a pension at all. This might particularly be the situation for older women who had never worked or only worked part-time. The husband might still have an earning capacity and can build up pension provision whereas the wife would not be able to do this. In order to address this problem earmarking was introduced as a possible solution. With earmarking the courts have the power to earmark a certain percentage of future pension benefits for the benefit of the wife. This would usually take the form of an order addressed to the trustees of the husband’s pension fund directing them to pay a given percentage of his future pension benefits to the wife. This would apply to both any lump sum he might receive and also to the pension payments he would receive.

The wife would only receive any benefits when the husband takes his pension entitlement. If he were to die before taking either of these then the wife would lose any benefit of an earmarking order. Earmarking is something which is always capable of being varied and so does not create a clean break between husband and wife. For these reasons earmarking is uncommon in practice.

Pension sharing
Pension sharing means that a court can order a pension provider to split a pension so that both husband and wife have separate, independent pensions. There is no requirement that they should be split equally. The percentage which will be transferred to a pension, usually for the wife will depend on the circumstances of the case. If, for instance the wife has already received the bulk of the other assets of the marriage she might not receive as much as 50% of the husband’s pension. With pension sharing the wife no longer has to wait until her ex-husband takes his pension benefits in order to take her pension benefits. She has her own independent pension provision and will not lose this pension if her husband happens to die before reaching pensionable age.

The pension is split at the given date. The pension trustees inform the court that the husband’s pension fund has a certain value at a given date. The pension is split using that date and these figures. The wife will not benefit from any further contributions paid into the pension fund by the husband from that date onwards. The husband is still able still able to rebuild his pension provision if he wishes.

There can be significant costs in pension sharing. A pension provider may seek up to £2000 to implement a pension sharing order.

Pension sharing requires a court order.

Problems with valuing pensions
How pensions are taken into account will vary greatly from one divorce case to another. For example, if both spouses are fairly young and have negligible pension provision it may not an important part of any settlement. If both husband and wife have been working during the marriage they may have fairly comparable pension provision.

The CE value of a pension does not necessarily value a pension accurately. For example, people working in the public sector often have rights to retire early while taking a full pension. The value of such a pension is not necessarily accurately reflected in its CE value. A pension to a person in good health is in reality worth much more than the same pension to a person in poor health. Women tend to live longer than men and so a given pension pot will typically provide less by way of pension income for a woman than for a man.

In cases where the value of pensions is substantial it may be necessary to instruct an actuary in order to work out what the effects of various methods of dealing with the given pensions would be in retirement.

Child support

The Department for Work and Pensions (DWP) is now responsible for the child maintenance system in Great Britain. It both funds information and support for separating parents and runs the child maintenance schemes. As of the beginning of 2014 all CSA maintenance cases will be closed or transferred to the new Child Maintenance Service

The government is keen for families to make their own private arrangements for child support.  However if they cannot do this there are other options.

  • The Child Maintenance Service (CMS) which is available for those parents unable to make their own arrangements can provide something known as Direct Pay. The CMS will work out payment amounts due but will not get involved in collection or enforcement. This can be a good option for parents who cannot agree how much payment should be.
  • The CMS can get involved in enforcing the payments. This cannot be set up within 12 months of a consent order. There is a fee of £20 to use this service.
  • CM Options is another service provided by CMS to give information and support to parents to help them decide what to do about child support. The website to refer to is www.cm options.org

Child Maintenance Calculator
This calculator (on the CM options website) can give you and idea of how much you can expect to receive or pay in child maintenance.

CM Calculator

The formula for working out payments
(Gross income is defined as before tax and NI is taken off but after pension contributions are deducted)

Gross weekly income up to £800    BASIC RATE applies
One child            12%
Two children            16%
Three more children        19%

Gross weekly income between £800 and £3000    BASIC PLUS applies to the excess over £800

(£3000 is the highest gross that will be taken into account)
One child            9%
Two children            12%
Three or more children    15%

e.g. Andy has three children and has a gross weekly income of £1200 after deduction of pension. To calculate child support he would have to use the basic plus rate.
Andy will pay 19% of £800 = £152. He will also have to pay 15% of £400 = £60. Total £212

Default maintenance position
If parents cannot agree on how much maintenance should be paid the paying parent might have to pay a default rate based on the number of children until the CMS has the information required

One child            £39 a week
Two children            £51 a week
Three or more children    £64 a week

Note that the age limit of the child has increased to 20 from 19,  provided the child is eligible for child benefit

Second family children
Second family children living with the non-resident parent (NRP) are referred to as the ‘relevant other children’. The number of ‘relevant other children’ in the household reduce the gross weekly income of the NRP by a percentage as follows:

For one ‘relevant other child’ reduce gross weekly income by 11%, for two relevant other children reduce gross weekly income by 14% and  for 3 or more relevant other children reduce gross weekly income by 16%

Eg Peter earns gross £500 a week, after deduction of pension.  He has 2 children not living with him by his ex-wife and 1 child by his new partner.  To calculate child support deduct £55 (11% of his gross income). This leaves a balance of £445. For the 2 children not living with him he pays 16% of the balance, £71.20

Reduced rate for gross income between £100 and £200 a week
The amount of maintenance to be paid is worked out as a flat rate of £10 in the first £100 of gross income plus a percentage of the gross weekly income over £100. The percentage varies according to the number of qualifying and relevant other children to ensure that liabilities increase smoothly as gross income increases from £100 to £200.

Parents on benefits will pay a flat rate of £10 a week

Shared Care
If parents share care of their children, then the amount of maintenance to be paid by the non-resident parent can be reduced to reflect this. If there is to be shared care arrangement that the number of nights spent with the non-resident parent is 1 then a deduction of one seventh will be made. If two nights a week are spent with the non-resident parent then a deduction of two sevenths will be made.

Eg Chris has 1 child with his ex-wife who does not live with him.  Chris earns £450 gross per week, after deduction of pension.  His daughter Amy spends 1 night a week with him.  He is liable to pay 12%, £54 a week, less one seventh, £7.70 so Chris will pay £46.30 a week.

Principles guiding decision-making –‘Section 25 factors’

A court will always take into account the needs of a child under 18 as a priority when financial matters are being resolved. In addition Section 25 (2) (b) of the Matrimonial Causes Act 1973 sets out a number of factors which the court should take into consideration when deciding on applications made in divorce proceedings.

These are factors that any separating couple might like to take into account when they are reaching their own decisions, bearing in mind that they may wish to obtain the court’s approval to the terms of any financial agreement they reach.

The factors are:

  1. The income, earning capacity, property and other financial resources which each of the parties has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that earning capacity which it would, in the opinion of the court, be reasonable to expect a party to the marriage to take steps to acquire.
  2. The financial needs, obligations, and responsibilities which each of the parties has or is likely to have in the foreseeable future.
  3. The standard of living enjoyed by the family before the breakdown of the marriage
  4. The age of each party to the marriage and the duration of the marriage.
  5. Any physical or mental disability of either of the parties to the marriage.
  6. The contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family
  7. the conduct of each of the parties if that conduct is such that it would in the opinion of the court be inequitable to disregard it
  8. in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit (for example, a pension) which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.

In addition in respect of pension arrangements the court must look at

In the case of paragraph (1) any benefits under a pension arrangement which a party to the marriage has or is likely to have and
In the case of paragraph (8) any benefits under a pension arrangement which, by reason of the dissolution or annulment of the marriage, a party to the marriage will lose the chance of acquiring

Separation or divorce: why mediation may help you do the sums

Dividing up assets

When a married couple separate or divorce they often need to divide up their assets and deal with any liabilities so that they can both move forward. The law considers marriage a partnership and if a couple resort to the courts, the courts will take into account all assets the couple possess, whether  together or separately.  Below is a summary of the ‘section 25 factors’ which are enshrined in the Matrimonial Causes Act.  In particular the court will consider:

  1. The income, earning capacity, property and other financial resources which each of them has or is likely to have in the foreseeable future
  2. The financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future
  3. The standard of living enjoyed by the family before the breakdown of the marriage
  4. The age of each party to the marriage and the duration of the marriage
  5. Any physical or mental disability of either of the parties the marriage
  6. The contribution which each of the couple has made or is likely to make to the welfare of the family and this includes looking after the home or caring for the family
  7. In extreme cases, the conduct of either spouse
  8. The value of any benefit which will be lost on divorce, for instance pension rights.

It is better both financially and emotionally for couples to negotiate if at all possible either between themselves or through mediation rather than resorting to the courts, and the above factors can be taken into account in the negotiations. Together a couple can decide which factors are most important to them in order to achieve a realistic settlement rather than leaving it to the court to decide on an arrangement which may be less attractive to both parties.  But the court is always a last resort.

If you are an unmarried couple do not go to court

From a legal point of view the situation for unmarried couples separating is very different in terms of division of assets.

The law focuses on property rights, rather than taking into account the above factors to help achieve a fair and realistic settlement.

For unmarried couples it is sometimes possible for an individual to argue that they made a contribution to an asset  not in joint names.  They can go to court to try and prove it but litigation can be very expensive, can take a long time and the outcome can be very uncertain.

For an unmarried couple mediation can be very beneficial because there they can consider whether they have they to all intents and purposes lived together as if they were married.  If the answer to this is ‘yes’ then it is perfectly possible to negotiate a settlement together which to them seems realistic and fair, taking into account some of the above factors rather than just looking at property rights.

If a couple has children, and both parents are really putting the interests of the children first, they will want to find a fair financial outcome that everyone can live with and will want to maintain a reasonable relationship where they can continue to communicate as parents. Simply dividing up finances looking at the law and property rights may make this hard to achieve.   Where there are children often one partner’s earning power is greater than the other but the law as it stands would not take this into account for an unmarried couple.  Justice, it seems, is not always fair.