What happens if the Child Maintenance Service (CMS) has determined that a non-resident parent (NRP) is required to pay child maintenance to the parent-with-care (PWC), but payments are also being made towards the mortgage secured on the property in which PWC still lives with the qualifying child/children (QC)? Does it matter if the property is jointly owned by NRP and PWC? Will those mortgage payments reduce the amount of child maintenance?

Guidance for parents on the gov.uk website states that:

‘If you’re the paying parent, you can ask for the following types of expenses to be taken into account … mortgage, loan or insurance payments for the home you used to share with the receiving parent – if the receiving parent and your child still live there.’

For the CMS to consider this, a ‘variation’ application has to be made, after the child maintenance calculation has been received. The CMS will consider representations from both parties and make a decision.

The role of the First-tier Tribunal (Social Entitlement Chamber)

Any dispute regarding a CMS decision as to variation may be resolved by either parent making an application to the First-tier Tribunal (Social Entitlement Chamber) (FtT(SEC)). The tribunal is inquisitorial (as opposed to adversarial). This is oddly referred to as an ‘appeal’, despite it being a non-tribunal decision that is being challenged. Appeals from the FtT(SEC) are to the Upper Tribunal (UT). No-one under any circumstances may recover costs of litigating in the FtT(SEC) (or the UT) and consequently the attendance of lawyers is not commonplace.

On 11 September 2024 UT Judge Kate Marcus KC provided clarity in LM v SSWP & NM [2024] UKUT 259 (AAC) as to two subtly different regulations in the Child Support Maintenance Calculation Regulations 2012 (SI 2012/2677) (the CSMC Regs 2012) that determine how the CMS treats mortgage payments.

Relevant facts

The parties, formerly a couple, LM and NM, had jointly purchased a home in 2018 with the assistance of a joint mortgage. They had lived in it, and jointly discharged equal proportions of the mortgage payments due. Their child was born in 2019, but the couple separated in 2020. LM (the PWC) and the child remained living in the home, with NM (NRP) moving out, but of course remaining a joint owner and a party to the joint mortgage.

The CMS determined in November 2020 that NM was liable to pay child support, but in February 2021 the CMS varied the decision and allowed a ‘special expenses’ downward variation to NM’s liability, pursuant to reg 65 of the CSMC Regs 2012 in respect of the mortgage payments which he continued to pay.

LM appealed this decision, contending that reg 67 prevented NM from benefiting from payments towards a joint mortgage.

Legal framework

By way of brief digression, child maintenance law is (unfortunately) complicated. There have been three statutory regimes since the Child Support Act in 1991, and for several years different rules applied depending on the date of the initial application. This has largely settled now with most cases being determined under the third regime. The voluminous legislation is supplemented by case-law, but the case-law is not (all) easily accessible on the commercial legal databases. UT Decisions may be found in this database by filtering for ‘Child Support’ under ‘Categories’, and then selecting appropriate sub-categories (such as ‘Child support – variation/departure directions: other’). In recent years there have been around four or five UT decisions each year. Pre-2016 decisions are in a different database, to which there is a link at the top of the (current) ‘Administrative Appeals tribunal decisions’ page.

Secondly, many lawyers find the legislative complexity of multiple statutory instruments and hard-to-locate case-law confusing and opaque. Imagine how lay parties feel, many of whom also have their vision clouded by a heightened, but understandable, sense of injustice and incomprehension at the complex child maintenance regime. It can also be very difficult for parents to accept that child maintenance under the CMS regime in England and Wales is a function of ‘ability to pay’ as opposed to ‘need’.

That sense of injustice is compounded by the fact that certain factors are not considered in the initial maintenance calculation but require one or other of the parties to make an application for a ‘variation’.

Variation applications

Variations have their statutory origin in s 28F(1) of the Child Support Act 1991, which enables variations to be agreed by the SSWP if various criteria in Part 1 of Schedule 4B to the CSA 1991, or in Regulations, are met and it is ‘just and equitable’ to agree to the proposed variation.

Variations can be made with respect to the following items (in summary form – there are many nuances to the list below, and a few additional unusual expense considerations: bespoke advice should be taken by anyone making anything but the most straightforward variation application).

Reductions in child maintenance may arise from the CMS taking account of:

(1) Special expenses (as identified in §2(2) of Schedule 4B to the Child Support Act 1991) of the paying parent, namely:

(a) costs of maintaining contact with the qualifying child(ren);

(b) costs of a long-term illness or disability of a ‘relevant other child’ (namely, a child who lives with the paying parent);

(c) previous debts, incurred before the couple separated;

(d) boarding school fees paid for qualifying child(ren);

(e) costs of repaying a mortgage on the home of the parent with care and the qualifying child(ren).

Alternatively, liability to pay child maintenance may increase upon the CMS considering:

(2) Additional income (of the paying party, thus potentially increasing child maintenance due), being:

(a) Unearned income (subject to UK income tax) from:

(i) land or property (e.g. rent or licence income);

(ii) savings and investments (e.g. interest, dividends, payments from a trust, payments from the estate of someone who has died);

(iii) other miscellaneous sources (e.g. microgeneration of domestic electricity, a lottery or gambling win etc); and

(b) Diverted income

(i) i.e. if the paying party can control, directly or indirectly, the income received / the amount that is taken into account as their gross income; or

(ii) where there has been an unreasonable reduction in income as it has been diverted to a third party or diverted for some other purpose. Examples of diversion are:

(1) where income is diverted to a family member or new partner;

(2) where a reduced income is being taken as a result of excessive pension contributions; or

(3) where business funds are used for personal expenditure or company assets deployed for personal use.

c) Notional income from assets:

(1) a variation may be made by the CMS / FtT(SEC) if a parent is asset-rich: a notional income (currently at the statutory rate of 8% per annum) may be attributed to an asset or class of assets (including property, shares, cryptocurrency, trust assets) whose value exceeds £31,250.

The effective date of a variation application varies according to whether or not the facts underlying it existed at the time of the initial maintenance calculation, and according to various other bespoke factors.

Joint mortgage liabilities

So, considering just one of the above variation conditions, the common situation of joint mortgage liabilities, we return to LM v SSWP and NM.

Judge Markus KC set out the relevant jurisdiction, starting with paragraph 2 of Schedule 4B to the CSA 1991 which ‘provides for a special expenses variation of a variety of descriptions to be prescribed by variation’.

Paragraph 2(3) states:

‘(3) In prescribing descriptions of expenses for the purposes of this paragraph, the Secretary of State may, in particular, make provision with respect to – …

(c) debts of a prescribed description incurred, before the non-resident parent became a non-resident parent in relation to a child with respect to whom the maintenance calculation has been applied for:

(i) For the joint benefit of both parents; …

(e) the cost to the non-resident parent of making payments in relation to a mortgage on the house he and the person with care shared, if he no longer has an interest in it, and she and a child in relation to whom the application for a maintenance calculation has been made still live there.’

The Secretary of State has indeed made provision, and it is to be found in reg 65 of the CSMC Regs 2012 headed ‘Prior debts’ and reg 67, entitled ‘Payments in respect of certain mortgages, loans or insurance policies’ (relevant parts of which are annexed below).

The CMS had decided that the mortgage qualified as a ‘prior debt’ under reg 65(2)(a) (‘repayment of debts … incurred ... for the joint benefit of the NRP and the PWC’), and that the mortgage debt was not to be disallowed pursuant to reg 65(3)(a), which prevents the CMS taking account of a debt where the NRP ‘has retained for the NRP’s own use and benefit the asset in connection with the purchase of which the debt was incurred’.

The wording of reg 67(2)(a)(i) covers:

‘payments, whether made to the mortgagee, lender, insurer or the [PWC] … in respect of a mortgage or loan … taken out to facilitate the purchase of, or repairs or improvements to, a property…by a person other than the [NRP].’

The PWC (NM) was arguing that reg 67 should have applied, it specifically referring to mortgages, and that it was clear that, because LM retained a legal and equitable interest in the home, there should be no variation, because of the prohibition associated with such retained interests in reg 67(2)(a)(iv).

NM also pointed out that publicly-available documents from the CMS supported her position,1 as did letters sent directly to her by the CMS.

The FtT(SEC) agreed with the CMS as to the mortgage being caught by reg 65, and also found that the information provided by the CMS about mortgages was incorrect (‘incorrect or misleading’ per the UT).

Considering reg 67, the FtT(SEC) also found that the mortgage was not taken out by ‘a person other than the [NRP]’ as it was taken out jointly (i.e. NRP was a party to the mortgage): therefore the mortgage payments did not fall within reg 67 (§18).

On appeal to the UT, the CMS argued that ‘the strict wording’ of reg 67 ‘suggests that the mortgage should have been taken out by the PWC’. NM’s somewhat hard-to-follow argument was that the words ‘not taken out’ in the FtT(SEC) Statement of Reasons added a ‘different meaning’ from the wording in reg 67 and that a joint mortgage should have been considered under reg 67 (that argument in any event didn’t persuade the UT). The UT decided that ‘The plain meaning of the words used is that the [NRP] should not have been involved in taking out the mortgage. That meaning is compatible with subparagraph [67⁠(2)(a)]⁠(ii)’. The FtT(SEC):

‘had to decide whether the mortgage was taken out by a person other than the non-resident parent, and the FtT found that it had not been. In any event, LM’s submissions on [r]egulation 67(2)(a)(i) do not advance her case because a) the mortgage was excluded from [r]egulation 67 by virtue of subparagraph (iv) and b) this is the result for which LM contends, i.e. that the debt was not a special expense.’ (§35)

Retention for ‘own use and benefit’

NM also argued (amongst other weak arguments that are not traversed here) that, as LM retained the benefit of the asset (his continued legal and beneficial interest) and as LM was due to receive a share of the net proceeds upon sale, reg 65(3)(a) applied (i.e. the home was retained for NRP’s ‘own use and benefit’).

The UT agreed with the FtT and with the CMS. However, it devoted some time to the interpretation of ‘use and benefit’ (§27): ‘Parliament has used two words deliberately and they are plainly intended to denote different things’ (§27).

‘28.⁠ There are two other important features of the provision. First, it requires a finding as to the purpose for which the asset was retained and this may be different to the purpose for which it was acquired. Second, the sub-paragraph requires a finding as to the purpose for which the asset was retained by the [NRP]: “the [NRP] has retained [the asset] for the [NRP]’s own use and benefit” (original emphasis).

29.⁠ The same phrase in the predecessor to [R]egulation 65 ([R]egulation 2 of the Child Support (Variations) Regulations 2000) was addressed by Commissioner Williams in CCS/3674/2007. He said this at paragraph 19:

“The second area of contention is whether A retained the assets for his own use and benefit. To be caught by this test, it is not enough that A has retained the assets. That may be simply because – as was one contention here – someone must retain them until they are sold, but they are retained solely to ensure an orderly sale. It must be considered whether that retention was, at the time of the retention, for the retainer’s own use and benefit (emphasis mine). That is a question of fact, but it involves forming a view on the facts about the retainer’s intention at the relevant time. It is not enough that the retainer has some use and benefit at some later time. Nor is it enough the other way to show that someone else has some use and benefit at some later time.”

30.⁠ In that case A (the [NRP]) was still living at the property, but that did not of itself mean that the asset was retained for his use and benefit.’

The UT considered that in the present case the purpose had indeed changed: in 2018 that purpose had been to provide a home for LM and NM, but ‘the purpose for which it was retained was for LM and the child to live in. It was not retained for NM’s use’ (§31).

The UT pointed out that it was arguable that the property was not retained for NM’s benefit and:

‘[t]he fact that NM would ultimately have a share in the proceeds of sale does not mean that that was the purpose of retaining the asset. However, in the light of my decision that the FtT was correct in concluding that the asset was not retained for NM’s use, I do not need … decide that matter.’ (§32)

Finally, the mortgage was not excluded by reg 65(3)(h):

‘The wording of the provision is clear and its application on the facts was without doubt. The mortgage was taken out to purchase the property which was and continued to be the home of LM and the child’ (§34).

Conclusion

The CMS, and then the tribunals, are faced with many unrepresented parties addressing them on complex points of law. Those cases likely take longer than they would do were the parties represented, and in any event the perfect storm of the opacity of the law on ‘variations’, perception of injustice by one or both parties, and the overall complexity surrounding child maintenance is presumably a burden on tribunal judges.

It is perhaps no wonder that (according to anecdotal evidence from various child support lawyers) there is a considerable delay (c. three years) in cases being heard by the tribunal.

This appeal provides some clarity, the key points being that:

‘Regulations 65 and 67 address different situations in regard to mortgages. Regulation 65 is capable of including a joint mortgage held by the two parents whereas I have found that regulation 67 is not (see above). In addition and in any event, regulation 67 does not apply where the non-resident parent has a legal or equitable interest in the property but regulation 65 may do so’ (§37)

To conclude:

• Beware of the guidance emanating from the CMS itself, which is incorrect (until it is hopefully soon updated).
• Child maintenance may be reduced by way of a ‘variation’ application in the following circumstances:
• The NRP retains an interest in the property, the mortgage payments are a joint liability, and the NRP is contributing to them: Regulation 65 applies – co-ownership of the property is not enough by itself to activate the prohibition in Regulation 65(3)(a) – retention for the NRP’s ‘own use and benefit’;
• Even if the NRP is still living at the property ‘that [does] not of itself mean that the asset was retained for his use and benefit (where reg 65 applies) and so child maintenance may still be reduced;
• The NRP is making contributions to PWC’s (or a third party’s) mortgage on a property solely owned by the PWC in which the PWC is living with the qualifying children: reg 67 applies;

Annex A – Extracts from Child Support Maintenance Calculation Regulations 2012, SI 2012/2677

‘65 Prior debts

(1) Subject to the following paragraphs of this regulation and regulation 68 (thresholds), the repayment of debts to which paragraph (2) applies constitutes special expenses … where those debts were incurred—

(a) before the non-resident parent became a non-resident parent in relation to the qualifying child; and

(b) at the time when the non-resident parent and the person with care in relation to the child referred to in sub-paragraph (a) were a couple.

(2) This paragraph applies to debts incurred—

(a) for the joint benefit of the non-resident parent and the person with care;

(b) for the benefit of the person with care where the non-resident parent remains legally liable to repay the whole or part of the debt; …

(3) Paragraph (1) does not apply to repayment of—

(a) a debt which would otherwise fall within paragraph (1) where the non-resident parent has retained for the non-resident parent's own use and benefit the asset in connection with the purchase of which the debt was incurred; …

(h) amounts payable by the non-resident parent under a mortgage or loan taken out on the security of any property, except where that mortgage or loan was taken out to facilitate the purchase of, or to pay for repairs or improvements to, any property which was, and continues to be, the home of the person with care and any qualifying child;…’

‘67 Payments in respect of certain mortgages, loans or insurance policies

(1) Subject to regulation 68 (thresholds), the payments to which paragraph (2) applies constitute special expenses …

(2) This paragraph applies to payments, whether made to the mortgagee, lender, insurer or the person with care—

(a) in respect of a mortgage or a loan from a qualifying lender where—

(i) the mortgage or loan was taken out to facilitate the purchase of, or repairs or improvements to, a property (“the property”) by a person other than the non-resident parent;

(ii) the payments are not made under a debt incurred by the non-resident parent and do not arise out of any other legal liability of the non-resident parent for the period in respect of which the variation is applied for;

(iii) the property was the home of the applicant and the person with care when they were a couple and remains the home of the person with care and the qualifying child; and

(iv) the non-resident parent has no legal or equitable interest in and no charge or right to have a charge over the property; …”