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Whilst we welcome the recent downward trend in the UK’s headline inflation rate, there is no doubt that families across the country continue to feel the pinch with real wages persisting to lag behind inflation.
Negotiations against a backdrop of affordability is a feature of family law and we regularly advise clients on their spousal maintenance orders and concerns regarding the impact that rising inflation rates will have on their ability to meet their own income needs.
This blog will consider how spousal maintenance orders can be linked to inflation, how to calculate these inflations and what to consider if the payments are no longer affordable.
This depends on the terms of the agreement and financial order in place and whether, or not, the order specifies that maintenance will be varied on an annual basis in line with inflation (i.e. if the amount payable is index-linked). Such a clause is often linked to the Consumer Price Index (“CPI”) or the Retail Price Index (“RPI”) and seeks to protect the buying power of the payee party’s maintenance from eroding over time.
The way these indices work is by aggregating a hypothetical “shopping basket” of goods and services and tracking how the cost of this “shopping basket” changes over time.
Whilst the CPI and RPI “shopping baskets” differ in a multitude of aspects, of importance to maintenance indexing is that the RPI takes into consideration mortgage payments, private rent charges and council tax whereas the CPI does not. Such a difference should be considered when discussing and agreeing the appropriate index to use within a periodical payments order.
An example of an indexed periodical payment clause is as such:
‘The periodical payments set out in paragraph [x] shall be varied automatically on the “variation date”, which shall be on the date of the payment due in [insert month] and at yearly intervals afterwards. The change in payments shall be the percentage change, if any, between the [retail prices index OR consumer prices index] for the month 15 months before the variation date and the [retail prices index OR consumer prices index] for the month 3 months before the variation date”
By way of example, if your spousal maintenance order provides for maintenance to be paid at the rate of £2,000 per calendar month, commencing from 1 January 2021 and maintenance payments are to be index-linked to RPI, we use the following formula to calculate the inflated figure:
Where X is the figure to be inflated
A is the RPI for three months before the variation.
B is the RPI for 15 months before the variation
The relevant RPI statistics can be found on the OPS website here: https://www.ons.gov.uk/economy/inflationandpriceindices/datasets/consumerpriceinflation. At the time if writing, the RPI table is found at tab 36 of the spreadsheet (with the CPI table being found at tab 20 of the spreadsheet).
The figure to be inflated in our example is £2,000.
A is the RPI for three months before the annual date of variation (initially January 2022) i.e. October 2021. Looking at the ONS table linked above, we can see that the RPI for October 2021 was 312.0.
B is the RPI for 15 months before January 2022 i.e. October 2020. Looking at the ONS table linked above, we can see that the RPI for October 2020 was 294.3.
Plugging the relevant RPI statistics into the above formula and, for the first calculation, you get:
£2,000 * (312.0/294.3) = £2,120.29
As such, the receiving party would receive £2,120.29 per calendar month from January 2022 to January 2023.
Taking the next calendar year as an example: to calculate the maintenance payable from January 2023 to January 2024, you would use the above £2,120.29 as “X” with the new RPI statistics i.e.
Month A = October 2022 = 356.2
Month B = October 2021 = 312.0
2,120.29 * (356.2/312.0) = £2,420.66
As such, the receiving party would receive £2,420.66 per calendar month from January 2022 to January 2023.
If your financial order includes a provision for “index-linked” maintenance but you have overlooked the recalculation, the ability to claim the increases is not waived and you can claim the arrears at a later date.
However, the ability to recoup maintenance arrears over 12 months old is limited and the court’s permission is required to reclaim such sums by way of an enforcement application. It is important that you seek specialist advice as to the cost-proportionality of such applications and whether an alternative dispute-resolution method, such as mediation, may be a more advantageous forum for negotiations with your ex-partner.
A court order requiring spousal maintenance to be paid, including indexed-variable provisions, will remain binding and enforceable unless an application is made to formally vary maintenance and the court orders the same. Further information in respect of varying a spousal maintenance order can be found in our earlier blog.
Such an application does not need to result in contested proceedings and, against the backdrop of an affordability dispute, the cost-proportionality of such an application should be considered carefully. If the financial climate of today and/or indexed-linked maintenance payments have made it unaffordable for the payer to continue payments, in the first instance it is worth considering if you can reach an agreement with your partner by consent. Family mediation is often a helpful forum to broach such issues with the assistance of a neutral third-party who can help facilitate discussions and navigate a way forward.
The team at Family Law Partners are committed to a solution-focused, cost-proportionate approach, using alternative ways of resolving matters and will be more than happy to discuss your options with you.
If you or your partner are concerned about the affordability of maintenance and the effect of inflation, please reach out to one of our mediators (who can help facilitate discussions with your partner) or one of our solicitors who can provide legal advice on your situation.
Grace Savage is a Trainee Solicitor in our Horsham team. If you would like further information or advice regarding spousal maintenance and any variation of the same, please feel free to contact a member of our dedicated team for a confidential discussion about your own personal circumstances.