Capitalisation of Child Maintenance
Capitalisation of child maintenance payments does not happen very often; in fact it was described as ‘a rare bird’ in a recent case. The jurisdiction to make an order that capitalises and replaces future payments of periodical payments in favour of a child, called “commutation lump sum,” was recently confirmed by Mostyn J under certain conditions, which include:
- Incessant litigation between the parties, especially if one or both parties is running up increasingly large costs in doing so.
- Repeated defaults by the maintenance-paying parent.
- The age of the child (in this case the child in question was already nineteen and support was due to come to an end soon).
- In the case in question, the jurisdiction of the Child Maintenance Service would not be able to obstruct the award, partly because of the child’s age but also because the maintenance paying parent lived mostly abroad.
Since 1998 the courts have had the powers to change spousal maintenance orders, capitalising them and ordering payment of a lump sum that replaces periodical payments. In making the decision in AZ v FM  EWFC 2, Mostyn J interpreted s31 Matrimonial Causes Act 1973 differently, suggesting that it allowed for capitalisation of child maintenance – something that the courts weren’t previously thought to be able to order. Despite this change in interpretation, it’s still likely that this type of decision will only be made in exceptional circumstances.
Previous legislation had frustrated the courts as it has stopped them from implementing a clean break in cases where it had become an affordable option, for example after a sale of a business or an award of a pension lump sum. The Family Law Act 1996 introduced changes that allowed for an exception to existing rules, allowing the court in some cases to vary spousal maintenance, capitalise the payments and order that the party in whose favour the order was made not be able to make any further applications for maintenance. Although this amendment had only been thought to apply to spousal maintenance, in this case, Mostyn J found that it also empowered the court to capitalise child maintenance by way of a lump sum order.
The original child maintenance order
The financial aspects of the case had been agreed in 2011. There was one child of the marriage, who was 19 years old and at university. The child lived mostly with his mother.
The original order was for a clean break, with child maintenance of £1,700 per month until the child was 18 or finished education.
Change in circumstances
The husband moved to the US – and in 2017 he applied to have maintenance payments reduced to £800 as he couldn’t afford the original amount. He argued that the child no longer needed such a high amount. The application was heard in 2018, judgement was reserved until January 2019 and eventually completed in October 2019.
The order allowed a small reduction in periodical payments, and also ordered that “payments shall be made entirely in advance” – capitalising the award. The wife agreed not to make any further applications for child maintenance, and gave an undertaking that if she were to seek further maintenance for the child, she would repay any sum awarded.
The trial judge commented that it was, “extremely depressing … to see that [the final order in the original proceedings] which was designed to address the financial matters between them and bring finality has given rise to such an extraordinary level of conflict“.
The couple had spent £124,586 on costs (despite their positions being only around £50,000 apart), and it was noted the husband seemed to “thrive on litigation“. The judge decided that could not ignore this fact when he made his decision.
The husband appealed, complaining that the trial judge had no jurisdiction to make the order capitalising maintenance for the child. At this point, he had paid nothing since March 2020. He also said that he was intending to file yet another application to vary the maintenance order.
Mostyn took into account the husband’s arguments that:
- Applications for child maintenance cannot be statutorily dismissed, so the child may have been able to claim after capitalisation.
- The child’s circumstances may change.
- Child maintenance is intended to be flexible, and take into account factors like the paying parent’s income and the needs of a child.
He decided that, “The language is completely clear. Where the application is to vary a periodical payment order in favour of a child of the family then there is power to award a lump sum“.
He added that where there is an application to vary child maintenance, the court is permitted by s31(5) to discharge the order and instead order a “commutation payment”.
Mostyn J noted that this type of order was unusual, and he had not encountered one before, but suggested that this didn’t mean the court had no jurisdiction to make the order.
The future of child maintenance agreements
He made it very clear that he did not expect the power to capitalise child maintenance to be widely used, saying “it will remain a very rare bird indeed“.
It’s more likely that this type of child maintenance order will be used to enforce an existing order in the case of a parent who repeatedly defaults on regular payments, especially in cases where the paying parent lives outside of the court’s jurisdiction (making other procedures such as an attachment of earnings order unavailable). They are also unlikely to be made unless there is a limited amount of time left to pay maintenance, due to the child’s age. Family practitioners have welcomed the judgment as a helpful new tool to help them enforce child maintenance orders in unusual situations.
For more advice on child maintenance, and other aspects of family law, contact Gillbanks Family Law.