Navigating a divorce and the financial issues which will subsequently arise can be complex, especially when considering how a financial remedy order under the Matrimonial Causes Act 1975 might impact your entitlement to welfare benefits. Joel Tyson, Solicitor-Advocate based in our Chelmsford office, explores the key aspects that someone ought to be aware of when considering a financial remedy when receiving certain welfare benefits.
What is a Financial Remedy Order?
A financial remedy order is a court order designed to resolve financial issues between separating spouses and civil partners. It can include provisions for lump sum payments, property transfers, spousal maintenance, and pension sharing. While these remedies provide much-needed financial support, they can also influence your eligibility for various welfare benefits.
Impact on Means-Tested Benefits
Means-tested benefits are those where eligibility depends on your financial circumstances, including income and capital. Common means-tested benefits include Universal Credit, Housing Benefit, and Income Support. Here’s how a financial remedy order might affect them:
Lump Sum Payment – If you receive a lump sum as part of the financial remedy, this will be considered capital. Most means-tested benefits have a capital threshold. Exceeding this threshold can reduce the amount you receive or disqualify you from certain benefits altogether. For example, for Universal Credit, capital over £16,000 would disqualify you, and capital between £6,000 and £16,000 will reduce your entitlement.
Regular Payments – Regular spousal maintenance payments are treated as income. An increase in income can reduce your entitlement to certain means-tested benefits. In particular, payments in the form of spousal maintenance will usually replace your income from welfare benefits on a pound (£) for pound basis. This means that for every pound you received in spousal maintenance, your welfare benefits would decrease by that amount.
Property Transfers – If you receive property, its value can be considered as part of your capital. Owning additional property could impact your eligibility, especially if you do not reside in the property and it is not your primary residence. The value of other capital assets received could also impact eligibility in the same, for example the value of shares within a company, premium bonds, and other investments.
Impact on non-means-tested benefits
Non-means-tested benefits, such as Personal Independence Payment (PIP), Disability Living Allowance (DLA), and Attendance Allowance, are generally unaffected by changes in your financial circumstances due to a financial remedy order.
These benefits are based on your health and disability needs rather than your financial situation.
Tax Credits and Other Considerations
If you receive tax credits, a financial remedy order can also impact your entitlement. Tax credits are partially means-tested, so any increase in income due to maintenance or lump sum payments can affect the amount you receive.
It should be noted that child maintenance which is received is not counted as income for most means-tested benefits to ensure that parents receiving these payments do not see a reduction in their benefit entitlements due to the support received for their children. As such, child maintenance payments would not usually impact entitlement to welfare benefits but it is always advisable to check with the Department for Work and Pensions (DWP) to confirm the treatment of child maintenance under their particular rules.
Council Tax Reduction
Many people overlook the potential impact on Council Tax Reduction, a means-tested benefit designed to help with council tax payments. Any change in your financial circumstances, including those resulting from a financial remedy order, should be reported to your local council to ensure you receive the correct level of support.
Practical Steps to Take
Due to the impact a financial remedy can have on welfare benefits, this may be a decisive factor in what financial arrangement is agreed or decided. If you are concerned about your eligibility, especially during or after financial proceedings, then here are some practical steps which can be considered:
- Inform Relevant Authorities: It’s crucial to inform the Department for Work and Pensions (DWP) or relevant authorities about any changes in your financial situation. This ensures that you receive the correct amount of benefits and avoid overpayments, which could result in future penalties.
- Seek Professional Advice: Consulting with a financial advisor or a legal professional who specialises in family law and welfare benefits can provide you with tailored advice. They can help you understand the full implications of a financial remedy order on your benefits and guide you on the best course of action.
- Review Your Finances: Regularly review your financial situation, especially after receiving a financial remedy order. Understanding how your benefits are calculated and the thresholds for means-tested benefits can help you manage your finances more effectively.
Conclusion
A financial remedy order under the Matrimonial Causes Act 1975 can significantly impact your entitlement to welfare benefits, particularly those that are means-tested. Being aware of these potential changes and taking proactive steps to manage your benefits and finances can help you navigate this challenging period more smoothly. Remember, professional advice is invaluable in ensuring you make informed decisions that best suit your circumstances.
If you or anyone you know would like advice in relation to a financial remedy, please contact our family team, or call us on 01206 835300.
