Family Law Hub

Impact of Universal Credit on spousal maintenance

An updated note on Universal Credit and its impact on spousal maintenance.

  • UC was the 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 has continued to be phased in since then with well-publicised delays. What I think might be the most recent roll out guide can be accessed here: https://www.entitledto.co.uk/help/Universal-Credit-Pilot.
    Those currently on tax credits are safe until 2019, but if they come off tax credits and then later need to make a fresh benefits application it will be UC if they meet the criteria. 

    The main political parties remain committed to it's principle as, despite at times serious issues with the most vulnerable being left high and dry whilst waiting for it, it is still considered to be a simpler benefits system.

    The changes of most importance for family lawyers relate to the impact on tax credits of a) "unearned income". This includes pension income from early retirement and, perhaps most importantly for family lawyers, spousal maintenance and b) surplus capital (savings). Both these are of course relevant to our client demographic.

    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 UC, 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 UC. 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 UC at all. Your house, business assets and pensions won't count as capital but any spare cash or other investments resulting from the divorce settlement almost certainly will.

    There are transitional provisions for those currently on tax credits so that if they move on to UC in due course they will be no worse off due to the change. See:

    http://revenuebenefits.org.uk/universal-credit/guidance/entitlement-to-uc/transitional-protection/ 

    Advice to clients

    Because currently tax credits are unaffected by spousal maintenance or excess capital (although the income from capital can be taken into account) we can find ourselves taking account of the availability of tax credits when dealing with spousal maintenance in negotiations or litigation including at the following points. 

    1. At the assessment of quantum stage

    2. When considering any recitals about variation (eg consider including a change from tax credits to UC as an exception to a non-variation recital)

    3. A change as a reason to vary

    More resources

    Money Advice
    https://www.moneyadviceservice.org.uk/en/articles/universal-credit-an-introduction 

    Low Incomes Tax Reform Group
    https://www.litrg.org.uk/tax-guides/tax-credits-and-benefits/universal-credit 

    Benefits Training Company
    http://www.benefitstraining.co.uk/

Article, published: 04/09/2013

This item was last reviewed on 24/10/2017

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Published: 04/09/2013
, and was last reviewed on 24/10/2017

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