One of the main considerations of any divorce or separation is the ongoing welfare of any 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 parent’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 predictable forms of income are assessed by the Child Maintenance Service (CMS).
Child Maintenance and How it Has Changed
Firstly, it might be useful to clear up any confusion over terminology by noting that child maintenance is effectively the same thing as child support. Although the Child Support Agency (CSA) was replaced by the Child Maintenance Service (CMS) in 2012, regular financial payments made by the paying parent are often referred to as either child maintenance or child support. Payment of child maintenance is not generally determined by the court following divorce as it is usually handled between the parents and the CMS.
In most cases a child support lawyer will encourage parents to reach their own (non-binding) family-based agreement independently. If this is not practical, either parent may instead choose to make an application to the CMS. 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.
Can the CMS Always Intervene?
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:
- One of the Parents Lives Overseas: The CMS cannot get involved if either the paying or receiving parent (and child) lives abroad. The only exceptions to this are when said parent is a diplomat, in the Armed Forces, on secondment, or working for a UK-registered company
- Higher Earnings: The CMS cannot assist if the paying parent earns more than £156,000 per year in gross pay. This equates to £3000 per week
- Fees and Higher Education: The CMS cannot help with calculating school fees or costs beyond secondary education (for instance University tuition and maintenance/lifestyle fees)
- Special Needs: If the child has special needs, any extra costs would need to be arranged between the parents and the courts
If you are in any way unsure about exceptions to maintenance payments, it’s advisable that you discuss your circumstances with a legal professional who can advise on finances after separation.
How Child Maintenance is Calculated
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:
- Calculate Income: The CMS will look at gross pay (via the HMRC) and will take into account any benefits received.
- Factors Affecting Income: Any extra incomings or outgoings will be factored in here. These can include pensions and dependents from other relationships.
- Maintenance Rate is Calculated: One of the five maintenance rates* will be applied.
- Other Children: Any existing maintenance agreements for other children will be taken into account at this point.
- Calculate Payment: The previous four steps are combined in order to calculate the value of weekly maintenance.
- Joint Care: If the child stays with the paying parent during the week, this is classed as shared care and will be deducted from the weekly payments.
*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 here.
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 take steps to ensure that their income is recorded accurately otherwise this could result in significant arrears being accrued and action being taken against the paying party.
If the non-paying parent wishes for other earnings to be taken into account, due to their non-disclosure, to recalculate maintenance payments, they can apply for a variation. It can take up to three months for the adjusted payments to be applied.
Therefore either the paying or receiving parent can ask for a variation based on a variety 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.
Ultimately, any attempt to ‘short change’ your former spouse or partner, by not disclosing something as significant as your dividend income is likely to create an atmosphere of mistrust and hostility down the line. This could affect relationships in the long-term and lead to greater scrutiny of finances in court. A specialist child support lawyer is much more likely to encourage transparency regarding child maintenance and dividends.
If you are unsure about any aspect of child maintenance 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 Family Law
Lowry Legal is an experienced law firm with an exemplary record of representing high net worth clients. We realise that calculating maintenance payments can sometimes seem unclear, so we will take steps to ensure that you understand all of your available options ahead of dealing with the CMS.
Our longstanding experience of representing clients with significant wealth has helped to establish Lowry Legal as specialists in these multifaceted cases. We know that high net worth divorces often demand protection of finances, trusts, investments, and more. Therefore, if your divorce or separation has an international dimension, such as overseas properties or offshore assets, we’re in the perfect position to work towards a positive outcome for you.
We understand that clear, practical advice is essential to making a sound decision that works in your best interests and prioritise jargon-free communication and thorough guidance.
To speak to a specialist solicitor for child maintenance, contact us today, or email enquiries@lowrylegal.co.uk.
