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Impact of Universal Credit on spousal maintenance

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Nigel Shepherd of Mills & Reeve assesses the impact of Universal Credit on spousal maintenance.

  • Universal Credit is the new welfare benefit that was introduced by the Welfare Reform Act 2012. It replaces seven of the main means-tested benefits and tax credits, including child and working tax credit. It was introduced in April 2013 for new claimants of Jobseekers Allowance in one Manchester area, was extended to other areas in the North West in July and will continue to be phased in between now and October 2017.

    The changes of most importance for family lawyers relate to the impact on tax credits of "unearned income". This includes pension income from early retirement and, perhaps most importantly for family lawyers, spousal maintenance. Additionally, surplus capital will now come into play.

    At the moment both spousal and child maintenance are ignored for the purposes of calculating tax credits. That is of course a significant benefit that is very regularly taken into account when assessing the appropriate level of order. With Universal Credit, however, whilst child maintenance will continue to be disregarded, spousal maintenance will be deducted pound for pound.

    In respect of capital, anything under £6,000 is ignored when assessing eligibility for Universal Credit. Anything between £6,000 and £16,000 is treated as if it produces a monthly income of £4.35 for each £250 or part of £250, irrespective of whether you actually achieve that return. So if you have £16,000 you would be treated as having an income of £174 which would be deducted from your entitlement. If you have savings/capital of more than £16,000 you will not be entitled to Universal Credit at all. Your house, business assets and pensions shouldn't count as capital but any spare cash or other investments resulting from the divorce settlement almost certainly will.

    The problem is that there is no way of knowing when existing or new tax credit claimants will be moved on to Universal Credits. The original plan was for all new cases to be on them from March 2014, but although significant volumes will come on stream during 2014 the timetable for full roll out has slipped. The uncertainty makes negotiating in many financial remedy cases that much more difficult, but practitioners will need to take these changes into account.

Published: 04/09/2013

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