Gingerbread & Mostyn J call for urgent reform so parental capital is taken into account by CMS

Mr Justice Mostyn has again called for urgent child maintenance reform. He is frustrated that some asset rich non-resident parents pay nothing or as little as £7 per week child maintenance. Since the child maintenance reforms 5 years ago, a non-resident parent’s assets are no longer taken into account when calculating child maintenance as only taxable income is included. The result is that in a significant minority of cases, there is a loophole that allows a wealthy non-resident parent to avoid taking appropriate financial responsibility for their child.

Green v Adams May 2017 EWFC 24

Green v Adams May [2017] EWFC 24

In May 2017, Mostyn J heard an already heavily litigated case between unmarried parents. The mother who was on a low part time income and in receipt of tax credits, made an application for singular items of capital provision for her 16 year old son under Schedule 1, to the Children Act, 1989.He awarded lump sums amounting to £20,600 to cover current capital needs of the son (car for mum, laptop, trips…) His father, 65, owned properties valued at over £5,000,000, had substantial savings and a pension fund of £1,350,000. He had already taken a pension tax free lump sum of £450,000 in the tax year 2011/2012. Father’s child maintenance payments were based on his state pension as that was his only income for the purposes of the Child Maintenance Service’s (CMS) calculator.  He lived with his elderly parents as their carer and in n return they ‘kept’ him. Mostyn J questioned at what point he would receive an income from his pension ( Mostyn J calculated it to be £70,000 per annum). Father said he had to wait until he was 67.

Mostyn J felt he was evasive and could receive the pension income immediately if desired. Under current child maintenance rules, the court can only award periodical payments under schedule 1 to ‘top up’ child maintenance payments if the CMS has awarded a resident parent the highest child maintenance award. As this wasn’t the case, and as mother had not been married to father, her only option was to apply under schedule 1 for singular items of capital expenditure. Mostyn J said ‘for reasons which I cannot fathom the assets ground of variation has been removed from this latest regime. Therefore, it is possible, as in this case, for a father to live on his capital, which may be very substantial indeed, and to pay no child support at all.’ He went on to say that he felt the ‘parsimonious approach’ to the support of his son was little short of scandalous. He called for the urgent reinstatement of the old rules to take into account a parent’s assets.

Action since Mostyn J’s call for urgent child maintenance reform

Conservative MP David Burrows on behalf of the mother raised the issue in parliament and proposed a bill to ensure that assets were taken into account in future. He said, ‘the boy should not be made to pay the price of low child maintenance contributions simply because the father has a clever accountant who can help to hide his assets.’ Gingerbread, a charity which promotes equality of single parents has produced a report ‘children deserve more; challenging child maintenance avoidance’. Click here for the full report.  The report states that the child maintenance service’s loophole denies children the financial support they deserve. It explains that the CMS is supposed to calculate and when necessary enforce the payments that children need. However, the reforms have instead prioritised administrative convenience over all other concerns. It believes the system lets resident parents down. In particular, it is critical of the decision to base the child maintenance calculation on gross taxable earnings or profits as reported to the HMRC. It highlighted how paying parents with often considerable assets can end up paying a bare minimum, since several sources of income aren’t taken into consideration. In other cases, self-employed parents are able to get away with under-reporting their income in order to reduce their payments. It argues that the CSA was not fit for purpose and nor is the CMS. It said, ‘Parents who believe they are receiving less than their children are entitled to frequently complain about being stonewalled by the CMS, or being kept in the dark about their options. Since the calculation is based on HRMC information, single  parents often find themselves being passed back and forth between the two organisations, with neither taking responsibility for re-evaluating the calculation.’

Gingerbread Director of Policy Dalia Ben-Galim went further and said, ‘Up and down the country, loopholes in the child maintenance system are allowing parents to deny their children the essential support they need. Some are deliberately hiding their income, while others can perfectly lawfully escape with income or assets ignored; some are cash-in-hand labourers, while others are multi-millionaires. But in all these cases, single parents now have to collect evidence for a system that continually obstructs them. It’s not enough that they juggle being breadwinners and homemakers – they are now forced to become private detectives as well. Unless there is an urgent change, these injustices will continue indefinitely.’ Gingerbread is calling for the government to set out a clear strategy for tackling child maintenance avoidance and evasion, including far greater co-ordination between the CMS and HMRC when assessing incomes and greater support for parents who wish to challenge assessments.

Green v Adams August [2017] EWFC 52

The case returned before Mostyn J regarding consequential issues arising from the principle judgement.  Mostyn J again bemoaned the abolition of the assets ground of variation and urged the government to consider its reinstatement. He said he had read with interest the Gingerbread report.  He said the report recorded that the CMS had explained that, compared to the CSA, the scope of income which could be captured by a possible variation had been widened to include almost all sources of gross income identified in the self-assessment process. The author of the report he said rightly pointed out that this was a non-sequitur because the assets ground of variation was focussed on people who arrange their affairs so that they do not have any income but who rather live on their capital. He said the relevant minister then said that the CMS doesn’t attempt to provide a unique, bespoke solution in respect of the care of each child, as it would be prohibitively expensive and time-consuming to do so. Mostyn J argued that the scheme should strive to provide solutions in every case and that ‘justice should not be sacrificed on the altar of managerial efficiency. Ease of administration surely does not furnish an objectively reasonable justification for a process that allows a multi-millionaire father to get away with paying child support for his son of a mere £7 per week.’ He concluded that if the ground is not reinstated that he could foresee more cases seeking singular awards of capital and the family court taking an ever more expansive view of what constitutes singular expenditure.

We wait to see what happens next. However, Mostyn J is clear that without CMS reform the courts may look for ways to provide more generous capital awards to remedy the unfairness some children and their resident parent face.

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