Self-varying maintenance orders and the cost of living crisis

Increases in the cost of living have had a significant impact over the past year or two. The annual rate of inflation reached 11.1% in October 2022, a 41-year high. Although the latest report shows it eased to 6.3% in September 2023, prices are still on the increase, and affordability is an issue for many.

If, following a divorce, you are in receipt of maintenance from your ex-spouse, you will have found that the money doesn’t go as far as it did when the order was made. Similarly, if you are paying maintenance to a former spouse, you may have found it more difficult to afford.

Unlike capital settlements, maintenance orders can always be varied – they can be increased or reduced by the court as fairness and circumstances dictate. When the cost of living has increased as dramatically as it has done recently, this provides a real tension. The payee needs more, but the payer can afford less.

Some maintenance orders have a built-in variation mechanism, which means that each year the amount payable is increased by reference to one of the inflation indices published by the Office for National Statistics (ONS). The order will typically say something like:

“On the first anniversary of this order, and annually thereafter, the maintenance will be varied by the difference (if any) between the relevant index for the month 15 months before the variation date and the relevant index for the month 3 months before the variation date.”

The use of 15 months and 3 months as reference points is so that there is enough time for the relevant data to be published by the ONS.

Historically, the relevant index used to be the retail prices index but more recent orders tend to reference the consumer prices index.

This means that each year, on the anniversary of the order, the new amount should be calculated by applying the following formula:

X * (A/B)’
Where X is the figure to be inflated
A is the index number three months before the variation date
B is the index number for 15 months before the variation date

A self-varying order is often welcomed by divorcing couples as a means of avoiding the need to renegotiate and the possibility of having to go back to court to sort out maintenance as the years go by. The reality however is that many people do not then recalculate, and the payer continues to pay the original amount for years.

The effect of this can be startling. Let’s take a fictional couple to see how this works in practice. Sue, who was married to Graham, had a maintenance order made in April 2017 for £1,000 per month, and the order stated that it should be varied automatically by reference to the consumer prices index (CPI). This is what happened:

1. In April 2018, the maintenance should have been increased to £1,029.59 by reference to the CPI numbers for January 2018 and January 2017
   However, Graham carried on paying the original amount
   By April 2019, he had underpaid by £266.30
2. In April 2019, the maintenance should have been increased to £1,048.32 by reference to the CPI numbers for January 2019 and January 2018
   However, Graham carried on paying the original amount
   The underpayment is now £48.32 per month
   By April 2020, he had underpaid by a total of £701.18
3. In April 2020, the maintenance should have been increased to £1,067.06 by reference to the CPI numbers for January 2020 and January 2019
   However, Graham carried on paying the original amount
   The total underpayment is now £67.06 per month
   By April 2021, he had underpaid by a total of £1,304.72
4. In April 2021, the maintenance should have been increased to £1,074.95 by reference to the CPI numbers for January 2021 and January 2020
   However, Graham carried on paying the original amount
   The total underpayment is now £74.95 per month
   By April 2022, he had underpaid by a total of £1,979.27
5. In April 2022, the maintenance should have been increased to £1,133.14 by reference to the CPI numbers for January 2022 and January 2021
   However, Graham carried on paying the original amount
   The total underpayment is now £133.14 per month
   By April 2023, he had underpaid by a total of £3,177.53
6. In April 2023, the maintenance should have been increased to £1,246.55 by reference to the CPI numbers for January 2023 and January 2022
   However, Graham carried on paying the original amount
   The total underpayment has now leapt to £246.55 per month
   By April 2024, he will have underpaid by a total of £7,195.27

Notice how low inflation during the early years results in minimal increases but that due to soaring inflation during 2022 and 2023, arrears began to accumulate exponentially.

This example shows how inflation would affect a relatively modest maintenance order. If the order was originally for £5,000 per month, then by April 2024 Graham would owe Sue nearly £36,000.

If the order was originally for £10,000 per month, then by April 2024 Graham would owe Sue nearly £72,000.

Naturally, those in receipt of more generous maintenance will have more flexibility with which to navigate the hardships of inflation. A “lost” £72,000 over 7 years may be bearable, and perhaps more bearable than trying to get the payer to make the necessary increases.

On the flip side, those in receipt of maintenance at the more modest end of the spectrum will notice those losses, particularly the more dramatic ones seen in the later years.

As mentioned above, many people do not enforce the automatic variation mechanism which is baked into their maintenance orders. If they realise the error of their ways and try to correct it, they face another hurdle: they are not automatically entitled to enforce arrears of maintenance which are more than 12 months old. This means that if Sue were to apply in April 2024 to enforce the arrears she would only be entitled to recover:

• Under the £1,000 a month order – £2,958.58
• Under the £5,000 a month order – £14,792.90
• Under the £10,000 a month order – £29,585.80

Although Sue could ask the court for permission to enforce arrears which are more than a year old, a mere failure to ask Graham to increase payments in line with the automatic variation provision would be unlikely to persuade the court that permission should be given. The court’s focus will be on need and if Sue didn’t need the increased payment back then (and presumably she didn’t, as she had failed to ask for the increase) the court may well be disinclined to help Sue.

What, though, of Graham? There is no guarantee that he can afford to increase payments in line with inflation – his own earnings may not have kept pace with inflation and his expenses will have increased, leaving less available from which to pay even the original amount. He could apply to the court to reduce the maintenance, but this might also be problematic.

First, the costs might very well outweigh the benefit. Applications to vary maintenance orders are expensive, and it might take some years of reduced payments to recoup the legal costs. And that’s assuming he succeeds in having the order reduced.

Second, in order to justify a reduction, Graham must demonstrate a material change in circumstances since the order was made. Inflation such as we have seen may amount to a material change of circumstances, but if it does, then that must be the case for both sides. In other words, Sue is just as much entitled to the increase as Graham is entitled to the reduction.

Maintenance is always a thorny issue – with the payer insisting that that the payee can live off less, and the payee insisting on the contrary. Anything that can reduce the opportunity for further conflict must be a good thing, and that is certainly what the automatic variation provision is designed for. But, as with anything, the user must know how to operate it, and it should be operated with caution and common sense.

If you find yourself in this position, and unable to reach a compromise with your ex-spouse, you may want to consult one of our team of experienced and specialist family lawyers and mediators. There is a whole variety of ways and means of resolving issues like these, including mediation, collaboration, and negotiation with your ex-spouse. We will discuss with you the best way of approaching the problem, and guide you through to a resolution.