Welcome to my belated blog which has been delayed because I wanted to confirm that the information that I am about to impart is to the best of my knowledge, factually correct.
To begin with, there is no “one size fits all” solution to clean break settlements, but the Agency are very prescriptive as to how such arrangements are evaluated. I am not going to attempt to cover all bases by second guessing every eventuality arising from a clean break settlement agreement. What I will do is consider my agreement and discuss the issues that this generated.
Background to the settlement agreement: I had always financially supported the PWC since I separated in January 2004. I paid the mortgage, utilities and provided a generous allowance for the weekly shop.
In 2006, the PWC asked if she could take her equity out of the house which I duly did. A few months later, the PWC asked that we agree a clean break settlement. I was reluctant because I had already shared half the house proceeds. Furthermore, I was not keen for the PWC to move away from the area as this would result in my youngest son having to change schools.
I arranged to see a solicitor and as we were not married, we agreed to a Minute of Agreement (MoA) which is a separation agreement that is legally binding in Scotland and can be enforced in the same way as a court order, providing the agreement is registered. In my case the MoA was registered with the Registers of Scotland. See following link to acquire an overview of such separation agreements: –
Settlement Terms: The terms of the agreement could not be considered as anything other than generous. The PWC received a further £40,000 in cash and I agreed to take on all the joint debt, her household arrears and even settled her solicitor fees. In return, both parties acknowledged that the terms of the agreement represented a full and final settlement of all financial claims arising from the breakdown of the relationship with “both parties herby renouncing and discharging for all time coming, all and any rights they have or may have in the future against the other…..for payment of any funds or transfer of any property, whether at common Law or in terms of statute or in death and Bankruptcy.”
The agreement was signed by both parties in October 2007 and there was an unwritten understanding between myself and the PWC that when circumstances demanded, I would financially contribute to the wellbeing of my son (e.g. school trips, one off occasions etc)
Settlement Justification: It was at the PWC’s insistence that the clean break be agreed. The settlement offered was considerably more than was her entitlement and part of my rationale was that she would have capital to put down as a deposit on a property, which would afford greater security for my son.
What happened: Two years elapsed, the PWC spent the £40,000 and was now seeking from me regular maintenance payments. Over the same period, my personal circumstances had changed dramatically on account of the Credit Crunch, which meant I had been unemployed for 9 months. I did not claim benefits and was therefore without income.
The self-employed amongst us will know that when I took out the £40,000 from the business, I could defer the tax in the first year by considering this as a Director’s loan. If the money was not paid back in the second year, then the loan would crystalize as a dividend. This is exactly what happened and in July 2009 I received a tax demand totaling £32,000 corporation tax and £28,000 personal tax
Despite my straitened circumstances, the PWC had asked that I fund a school trip for my son which I said I would meet. The PWC also said that she wanted a regular payment from me in respect of maintenance. As I had a clean break settlement agreement in place, I dismissed her request for regular maintenance, partly because I was of the conviction that the terms of the MoA was more than generous and partly because the PWC had squandered the £40,000 she had received in just over two years and I saw the maintenance claim as a way to support a lifestyle that was beyond her own means. It was particularly irksome that the money I had provided had not been spent on my son.
CSA Involvement: The CSA contacted me on the 13th August 2009 stating that they had received a claim from the PWC asking for child maintenance. As described in previous blogs, I believed my MoA was a legally binding clean break settlement. However, the Agency took a very different view: –
- Under the Child Support Act 1991 – Para 4 Section 10 a & b; Section 54 8(11) and in particular Section 9(4) where “any agreement contains a provision which purports to restrict the right of any person to apply for a maintenance assessment, that provision shall be void.” My agreement made no provision for maintenance nor restricted the rights of the PWC to make a maintenance assessment
- Unsubstantiated statement: I was told by a CSA case worker that a clean break settlement was only valid for two years. Thereafter, the Agency had the right to pursue a maintenance claim. I do not know whether this is correct and would welcome the reader’s view on this matter
- Section 8(11) states “In this Act “maintenance order”, in relation to any child, means an order which requires the making or securing of periodical payments to or for the benefit of the child”
- Given reference to section 8(11), the CSA wrote on the 03rd September 2009 that the Minute was “not a maintenance order within the meaning of child support legislation”.
Although the legislation seems to support the CSA, I am less convinced that the legislation allows legally binding agreements to be simply set aside. I struggle to accept that it is a given that family law takes precedent over common law or that an English Court has jurisdiction over Scots Law. The link I have provided would suggest that the PWC has entered into a legally binding agreement. So does this mean she is legally restricted to make any further claims against me or my estate. The fact that the link specifically calls out childcare arrangements would suggest the separation agreement has authority in this matter, but as I never took legal advice on the Minute and the Minute itself makes no provision, I was faced with no other choice than to accept the decision that maintenance was to be an additional cost consideration.
However, what I think is fair to argue is my point that the MoA still has a role to play in the maintenance calculation. In particular, the July 2009 tax demand was in part based on the £40,000 taken from the business to pay the PWC. As I was now faced with a tax bill arising from that payment, could it be argued that the PWC was enjoying a benefit in kind ? Likewise, as I was still servicing the joint loans and credit cards, should this not also be considered a benefit in kind?
Variation: Variations to a maintenance calculation can only be made by the PWC or the NRP; it has to be submitted in writing and within one month from the order being calculated. I certainly was not aware of what a variation was. However, I have often wondered whether by default I had indirectly triggered a variation request by notifying the Agency that as a consequence of the on-going servicing arrangement (known as the prior debt arrangement), the PWC was in receipt of a financial benefit. See link: –
Needless to say, nothing that might reduce my liability was ever taken into consideration by the Agency, because their focus was clearly to find ways in maximizing the award calculation which will be featured in my next blog
Do’s and don’ts: Given my experience, I would not recommend a clean settlement break under any circumstances. In my case, it proved ruinous financially. I was aiming to provide security for my son, but in providing the money as a lump sum, that was then spent within two years, it had the exact opposite effect.
My advice, should you do decide to go down the route of a clean break settlement, is to ensure that: –
- There is nothing within your agreement that limits the PWC from making a future maintenance assessment request
- That an adequate proportion of funds is held back to settle any future maintenance order award that is pursued by the Agency on behalf of the PWC
Blog 6: In the next blog, I will detail the liability order calculation and outline the process of appeal
Taking on Child Support 