Navigating divorce and the resulting financial issues can be complex, particularly in understanding how receiving spousal maintenance can effect your benefits.
What is a Financial Remedy Order?
A financial remedy order is a court order intended to address financial matters between separating spouses and civil partners. It can include arrangements for lump sum payments, property transfers, spousal maintenance, and pension sharing. While these remedies offer essential financial support, they can also impact your eligibility for various welfare benefits.
Impact on Means-Tested Benefits
Means-tested benefits are those for which eligibility is determined by your financial situation, including both income and capital. Common means-tested benefits include Universal Credit, Housing Benefit, and Income Support. Here’s how a financial remedy order may impact these benefits:
Lump Sum Payment: If you receive a lump sum as part of a financial settlement, it will be classified as capital. Many means-tested benefits have a capital threshold. Exceeding this threshold can reduce the amount you receive or disqualify you from certain benefits altogether. For instance, with Universal Credit, having capital over £16,000 will disqualify you, while capital between £6,000 and £16,000 will decrease your entitlement.
Regular Payments – Regular spousal maintenance payments are considered income. An increase in this income can affect your eligibility for certain means-tested benefits. Specifically, spousal maintenance payments typically replace your welfare benefits pound-for-pound. This means that for every pound you receive in spousal maintenance, your welfare benefits will decrease by the same amount.
Property Transfers – When you receive property, its value is part of your capital. Owning extra property may affect your eligibility, especially if you do not live in it and it is not your primary residence. Additionally, the value of other capital assets you receive—such as shares in a company, premium bonds, and other investments—can also impact your eligibility.
Impact on non-means-tested benefits
Non-means-tested benefits, such as Personal Independence Payment (PIP), Disability Living Allowance (DLA), and Attendance Allowance, are typically not impacted by changes in your financial situation that result from a financial remedy order.
These benefits are determined by your health and disability needs rather than your financial circumstances.
Tax Credits and Other Considerations
A financial remedy order can affect your eligibility for tax credits. Since tax credits are partially means-tested, any increase in your income from maintenance or lump sum payments may reduce the amount you receive. It’s important to note that child maintenance payments are not considered income for most means-tested benefits. This means that parents who receive these payments will not see a decrease in their benefit entitlements due to the support they receive for their children.
Therefore, child maintenance payments typically do not impact eligibility for welfare benefits. However, it is always wise to check with the Department for Work and Pensions (DWP) to confirm how child maintenance is treated under their specific rules.
Council Tax Reduction
Many overlook the potential benefits of Council Tax Reduction, a means-tested program designed to assist with council tax payments. You should inform your local council if your financial circumstances change—such as those resulting from a financial remedy order. This will help ensure that you receive the appropriate level of support.
Practical Steps to Take
- Inform Relevant Authorities: It’s essential to notify the Department for Work and Pensions (DWP) or other relevant authorities about any changes. This ensures you receive the correct benefits and helps you avoid overpayments, which could result in penalties later.
- Seek Professional Advice: Consulting with a financial advisor or legal professional specialising in family law and welfare benefits. They can help you understand how a financial remedy order may affect your benefits.
- Review Your Finances: Consistently assess your financial situation after receiving a financial remedy order. Clarifying how your benefits are calculated and understanding the thresholds for means-tested benefits can enhance your financial management.
Conclusion
A financial remedy order under the Matrimonial Causes Act 1975 can significantly affect your eligibility for welfare benefits, especially means-tested. Understanding these potential changes and taking proactive steps to manage your benefits and finances is essential. Doing so can help you navigate this challenging time more smoothly. Seeking professional advice is necessary to ensure you make informed decisions best suited to your circumstances.
If you need advice on a financial remedy, please contact our specialist family team or call 01484 810210