One of the main considerations of any divorce or separation is the ongoing welfare of children. Along with living arrangements, one of the most pressing factors to be decided will be the value of monthly child maintenance to be contributed by the paying parent. Calculating this contribution is often more straightforward when a fixed salary is the sole source of income — but it can become more complex when the non-resident’s earnings include the likes of share dividends.
To better understand the topic of child maintenance and dividends it’s useful to first understand what child maintenance can include, how it is calculated, and how less typical forms of income are assessed by the Child Maintenance Service (CMS).
What is Child Maintenance and How is It Calculated?
Child maintenance (also called child support) refers to regular payments made by a non-resident parent to support their child’s financial needs. Payment of child maintenance is not generally determined by the court following divorce as it is usually handled between the parents and the CMS. If outside the remit of the CMS, the courts will intervene.
Who Handles Child Maintenance?
- Parents: A family-based agreement is often the quickest route to resolution — and can be made informally between parents.
- CMS: If an agreement isn’t practical, parents can apply for a legally enforceable CMS calculation.
- The Courts: Some cases fall outside the CMS’s remit and require court intervention.
In most cases a child support lawyer will encourage parents to reach their own (non-binding) family-based agreement independently. It’s also possible to include the details of child maintenance in a divorce consent order, which would prohibit an application to the CMS for at least 12 months from the date of the order.
When Does the CMS Not Apply?
Although most cases go through the CMS, it’s important to note that there are some scenarios in which they would not be able to intervene. The following situations fall outside of the remit of the CMS, so would instead be looked at by the courts:
- High-Income Cases: If the paying parent earns over £156,000 per year, the CMS will only assess income up to this threshold — any additional payments must be arranged through the courts.
- One Parent Lives Overseas: CMS cannot enforce payments if one parent lives abroad (except for UK government employees like diplomats and military personnel).
- Special Expenses: School fees, higher education costs, or special needs expenses must be settled privately or via court orders.
If you are in any way unsure about potential exceptions to maintenance payments, it’s advisable that you discuss your circumstances with a legal professional who can advise on finances after separation.
How Does the CMS Calculate Child Maintenance?
The amount that the paying parent must contribute is mainly determined by how much gross pay is declared to HMRC. Other factors that will be considered include any additional income, the number of children, the amount of shared residential time, and more. The CMS calculates maintenance payments using six steps. They are:
- Check Gross Income: The CMS gets income details from HMRC tax records.
- Factor in Other Income: Pensions, state benefits, and additional earnings are considered.
- Apply a Maintenance Rate: One of five maintenance bands* is assigned (from ‘default’ to ‘basic’).
- Account for Other Dependents: Other children receiving maintenance affect calculations.
- Final Calculation: The maintenance figure is determined.
- Adjust for Shared Care: Time spent with the paying parent reduces payments accordingly.
*The maintenance rates discussed in step three are as follows:
- Default: If the CMS was not able to establish gross weekly income, the default rate is applied. This is £38 per week for one child, £51 per week for two children, and £64 per week for three or more children.
- Nil: If gross weekly income is below £7, no maintenance payments are due.
- Flat: If weekly income is between £7 and £100 per week — or the paying parent receives any benefits — the flat rate of £7 per week is applied.
- Reduced: This rate is applied when the payer’s weekly income is above £100 and below £200. This rate uses a formula based on a flat £5 fee plus a percentage of gross weekly income.
- Basic: The basic rate is applied for gross weekly income of £200+ per week. The formula will calculate payments based on two income brackets: £200 to £800 and £800.01 to £3000. Any earnings above £3000 per week will not be taken into account by the CMS.
As you can see, these calculations are based on gross taxable income, so don’t cover all eventualities. However, other sources of income aren’t automatically included in weekly maintenance contributions. If you would like to check maintenance payments, you can do so using the official government calculator.
Are Dividends Included in Child Maintenance Calculations?
Dividends may not be included in the initial assessment as, depending on when they were declared, they may not show on the relevant tax return. However, they do represent a relevant source of income and will be taken into account. The paying parent should ensure that their income is recorded accurately to avoid action being taken against them.
If the non-paying parent wishes for undisclosed investment earnings to be taken into account, it’s possible to recalculate child maintenance and dividends payments by requesting a variation. It can take up to three months for the adjustment to be applied.
Therefore, either the paying or receiving parent can ask for a variation based on a number of reasons. When it comes to child maintenance and dividends, these are included with the likes of rental income, stocks, and other high value investments.
How to Request a Child Maintenance Variation for Hidden Income
If you suspect that your ex isn’t declaring all their income, you can ask the CMS to review their finances. To do this you will need to gather evidence and submit a request. Any further action will need to be pursued through the courts.
The process for varying maintenance is as follows:
- Provide Evidence: Legally gather proof of undeclared income (e.g., company records, past tax returns).
- File a Variation Request: CMS allows variations for dividends, rental income, and investment earnings.
- Seek Legal Advice: If CMS doesn’t take action, the court can order additional financial disclosure.
Failure to disclose income can lead to enforcement action, including arrears, deductions from earnings, or legal penalties. Additionally, by not disclosing something as significant as dividend income, it’s much easier to create an atmosphere of mistrust and hostility. This could affect relationships in the long-term and lead to greater scrutiny of finances in court.
Because of these legal implications, a specialist child support lawyer will always encourage transparency regarding child maintenance and dividends.
If you are unsure about any aspect of these payments, it’s advisable that you enlist the services of a solicitor for child maintenance as soon as possible. Thorough and comprehensive advice about this difficult subject could provide peace of mind, both for now and the years to come.
Lowry Legal: The Experts in Child Maintenance and Settlements
Lowry Legal is an experienced law firm with an exemplary record of representing high net worth clients. We realise that resolving issues of child maintenance and dividends can sometimes be challenging, so we will take steps to ensure that you understand all of your available options ahead of dealing with the CMS.
Our specialism in complex financial cases, can help to ensure that child maintenance calculations accurately reflect all sources of income, including dividends, investments, and business profits. We can handle high net worth child maintenance disputes, challenge unfair CMS calculations and hidden assets, and provide tailored legal strategies for financial settlements.
Need expert guidance? Contact us today or email enquiries@lowrylegal.co.uk for further advice.
