The Interplay Between Welfare Benefits and Financial Remedy Orders – A Practitioner’s View

Published: 27/03/2023 09:41

It is now 10 years since the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) came into force. Reflecting back, the obvious impact on my firm’s practice has been the reduction in the number of financial remedy cases we deal with where clients have the benefit of public funding. Inevitably, in drastically reducing the availability of legal aid for financial remedy applications, there are fewer clients on lower incomes who instruct us, no doubt because they cannot afford to pay private legal fees. For the bulk of cases where we are advising clients on low incomes and they may be in receipt of benefits, the assets of their marriage or civil partnership are often very modest. For me, these are often the most difficult cases to advise upon as there simply is not enough to split between two households. Whether a client is in receipt of public funding or paying privately, it is very important that practitioners understand the interplay between benefits and financial remedy orders when advising clients on financial settlements. This article aims to assist in flagging up the issues that practitioners need to be aware of to help ensure the best outcome for their client.

What orders can the court make in a financial remedy application?

Under section 23 of the Matrimonial Causes Act 1973 the court has the power to make orders for, inter alia:

(1) periodical payments for the benefit of a spouse;

(2) periodical payments for the benefit of a child;

(3) lump sums;

(4) in respect of property including transfer of a jointly owned property or the sale of a property;

(5) in relation to pensions including pension sharing orders.

When dealing with a case where a party is in receipt of benefits, particular consideration needs to be given to the impact of any capital or income payments made to the recipient of any benefits.

Overview of Universal Credit

For those clients we are dealing with who are on benefits, the majority will now be on Universal Credit. The claiming of Universal Credit does not affect any Personal Independence Payment (PIP) or Carer’s Allowance.

The aim of the new Universal Credit system was to simplify the benefits system. It is fair to say there have been teething problems in its rollout and a decade later you may still have clients who are still claiming on the old legacy benefits system. It appears that the rollout is planned to continue until at least December 2024 and possibly beyond that. A change of circumstances, for example a claim as a single applicant rather than a previous joint claim, which may well arise on separation, would trigger a move to the new system.

Universal Credit can be claimed by both claimants who work and those who are not currently working. As a result of the COVID-19 pandemic and other economic factors, the economic landscape has changed in the last few years, and you may find you have an increasing number of clients who are in receipt of Universal Credit. Any new claims made for benefits will now be made under the Universal Credit system.

Those making a claim for Universal Credit can claim a standard allowance. On top of that they can claim for other financial needs, such as housing and child care. There are basic rates of monthly standard allowance and additional payments can be made on top of that, such as child care or a work allowance. Where someone is claiming Universal Credit while they are unemployed, they must be able to demonstrate they are actively looking for work. Clients may be eligible for help with housing costs and financial support can cover rent and some service charges. If they are a homeowner, they may be able to get a loan to help with interest payments on their mortgage.

Unlike the legacy benefit payments which were paid weekly or fortnightly, Universal Credit is paid once a month. It can take 5 weeks or more to get a first payment, but it is possible to apply for an advance payment in some circumstances. I have mentioned applying for help with housing costs but claimants can only apply for this after being on Universal Credit for 39 weeks, so clients could be left vulnerable for that period.

How do financial remedy settlements impact on benefits?

Previously, under the legacy benefit system, any child maintenance or spousal maintenance paid was not taken into account when assessing the level of benefits received. A significant change occurred with the introduction of Universal Credit and practitioners must be aware that spousal maintenance will now be considered as unearned income and will impact on benefits received. Unearned income can also include income from a Trust or annuity, pension income or capital treated as income. There is of course no substitute for specialist advice on benefits, and practitioners should be advising parties to obtain advice on all state benefits that may be available to them and to check with a specialist benefits adviser about the impact of a settlement on their entitlement to benefit.

The other key issue for practitioners to be aware of are the capital limits which impact on eligibility for Universal Credit. Any capital held under £6,000 will not be considered. However, any capital between £6,000 and £16,000 will be treated as generating income. Any capital over £16,000 will make an individual ineligible to claim Universal Credit. In other words, any capital settlement providing a client in receipt of Universal Credit with anything over £6,000 will have an impact on their eligibility for Universal Credit and will either mean they are not eligible at all if they receive over £16,000 or that their income will be reduced.

There is a disregard for money received from the sale of a former home if it is to be used to purchase another home and has been deposited with a housing association as a condition of the person occupying the premises as their home or is a grant made to the person for the sole purpose of purchasing a home. Beware that this disregard only applies where the amount has been received in the last 6 months, although in some circumstances that may be extended. The rules are complicated and clients need specialist benefits advice on the point.

As a matter of public policy, the court will not generally take in to account the fact that a party is in receipt of state benefits and therefore unlikely to derive any real benefit from any financial order made in their favour. One can see the argument that if there are private assets available, then they should be shared fairly and if that helps someone be less reliant on benefits, that can only be a good thing. It also would not sit particularly comfortably for the party not in receipt of benefits to be better off financially both in terms of capital and income as a way of ensuring the party in receipt of benefits continued in their reliance on benefits.

Where you are representing a client where they are going to receive spousal maintenance, then the other thing to bear in mind is that although they may see no difference in their income where their benefits are deducted pound for pound for spousal maintenance received, there may also be some implications which have not been thought of, such as a reduction in other areas where they may have had support, for example a council tax reduction.

Key issues to be aware of

Whilst practitioners are not expected to be specialist benefit advisers, it is important to bear in mind the following when advising clients who either already claim benefits or may need to apply for them due to the financial circumstances they find themselves in after separation:

  • Universal Credit is available to those on a low income, out of work or unable to work. If a client may be eligible, they should apply as soon as possible.
  • Spousal maintenance is no longer ignored when it comes to benefit claims. As it is now counted as unearned income, it will reduce the Universal Credit received on a pound-for-pound basis.
  • Capital payments of over £6,000 will impact Universal Credit and capital over £16,000 will mean that the recipient cannot claim Universal Credit at all.
  • Where there is a jointly owned property, it may be the only asset of the marriage. A property occupied as the main family home will not be considered as capital, so a transfer of the property to the recipient or, where that is not possible, a Mesher-type order may be the best outcome.
  • Child maintenance remains outside the unearned income consideration, so a child maintenance order would not lead to a reduction of Universal Credit.

There may also be ways for the non-claiming party to offer financial assistance in a way which would not reduce the recipient’s benefits. The paying party could, for example, pay the recipient’s creditors or landlords without the funds first being sent to the claimant. The Department for Work and Pensions would need advising about this to ensure no additional housing funds are being received on top of the basic Universal Credit allowance.

All of these are points to consider when advising clients around settling a financial remedy claim whilst in receipt of benefits. Clients can be signposted to the following online resources for further advice:

©2023 Class Legal
Class Legal


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