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  1. Law
April 4, 2012

Should Child Maintenance Change to Reflect Changes in Fortune?

By Spear's

An unexpected impact is being felt in the family courts as maintenance orders made before the financial crisis become essentially worthless. When many high-net-worth couples split, maintenance — either for spouses or for the upkeep and care of the children — is assessed on the basis of the assets and income the couple hold at that point in time. Once the maintenance order is made, an individual may struggle to change the terms of that order even if their circumstances change drastically. The position can be exacerbated if maintenance arrangements were set out in a form of contract, as is often the case in other European countries.

Divorcees, especially those that continue to be or were once in the banking and finance industry, are finding themselves in a sticky situation if they agreed a hefty financial order a few years back when their jobs seemed to be safe and their bonuses were healthy. Many City professionals have much more complex remuneration packages than simple salaries — including share options which vest over a period of time, cash retention awards, sign-on bonuses, partner drawings/distributions, dividends, employee benefit trusts and offshore pension plans. Maintenance is often just one aspect of an intermeshed set of arrangements.

But all of these are called into question when those who made their fortunes in the UK and other European financial markets are struggling to meet their regular maintenance payments as a result of redundancies or at the very least a significantly reduced bonus pool. The implications of this can be severe — the ex-partner may apply to the court for an Attachment of Earnings so money is taken directly out of the payer’s earnings at source or, if the ex-partner and their children live in a different jurisdiction then the payer may effectively be at risk entering that jurisdiction and so would have significantly reduced contact with their child.

Spousal maintenance orders will automatically come to an end if the recipient chooses to remarry or either party dies. Financial support can also be reviewed circumstances change and a court can adjust the term and the amount of the maintenance order. The problem is that assets may remain high even while the income drastically reduces. Is it then fair for the payer to continue to bear the full amount, and have to draw down capital to do so? Conversely, is it fair to say to a recipient spouse that times have changed, and now she has to either reduce her standards or draw down her capital from the settlement?

Other practical points for wealth management advisers are to examine jurisdictional options with their clients, especially those who have moved country since the original deal. They may have assets or funds in different jurisdictions. There may be a possibility that the client can reside in another jurisdiction or conduct their affairs in a way that frees up more money to meet their regular maintenance payments – could they benefit from relaxed tax rules if they were resident in another country, for example? These other assets could also be of use in a mediation scenario — for example would their partner agree to a one off sum arising from the sale of a holiday home instead of regular maintenance payments?

In these uncertain times, the best advice is to take advice. Ensure that the correct balance is struck in the maintenance order so that the client is protected if, further down the line, their situation changes and they find themselves unable to meet their obligations. 
Henry Brookman is a founding partner of Brookman solicitors

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