Jo Carr-West discusses the capitalisation of child maintenance in Family Law Week

This article was originally published in Family Law Week and can be accessed here.

Capitalisation of child maintenance: a very rare bird

Since 1998 the courts have had the power, on an application to vary spousal maintenance, to order capitalisation by terminating the periodical payments order and making a capital award to meet income needs. In his innovative judgment in AZ v FM [2021] EWFC 2, Mostyn J interpreted s31 Matrimonial Causes Act 1973 as also permitting capitalisation of child maintenance on a variation application, a power the court was not previously considered to have. However, whilst this is a significant development, it is clear that for now at least capitalisation of child maintenance will be ordered in only very limited circumstances.

What are the relevant provisions of the Matrimonial Causes Act 1973?

Prior to 1 November 1998 the court was expressly prohibited from capitalising maintenance on a variation application by s31(5) MCA 1973, which then provided:

No property adjustment order shall be made on an application for the variation of a periodical payments or secured periodical payments order made (whether in favour of a party to a marriage or in favour of a child of the family) under s. 23 above, and no order for the payment of a lump sum shall be made on an application for the variation of a periodical payments or secured periodical payments order in favour of a party to a marriage (whether made under s. 23 or under s. 27 above).

This provision was a source of frustration to the judiciary, as it prevented judges from imposing a clean break if (as is often the case) it had become affordable only after the final order was made in financial remedy proceedings for example on the sale of a business or receipt of a pension lump sum.

The Family Law Act 1996 introduced changes amending s31(5) to create an exception, set out in s31(7A)-(7H), which empowered the court, on an application to vary spousal maintenance, to capitalise the payments and direct that the party in whose favour the order was made not be able to make any further applications for maintenance.

Whilst s31(7A)-(7H) explicitly relate only to spousal maintenance, in AZ v FM [2021] EWFC 2 Mostyn J considered whether s31(5) empowered the court to capitalise child maintenance by way of a lump sum order.

What were the facts of the case?

The parties were both well-respected architects in their mid-50s whose financial remedy proceedings had been determined in 2011. There was one child of the marriage, now 19 and studying at university but otherwise based with the wife. The financial remedy order had provided for a clean break as between the parties, with the husband paying child maintenance of £1,700 per month until the later of the child reaching 18 or concluding tertiary education.  There had been parallel proceedings in the Chancery Division in respect of the parties’ architecture practice which concluded in 2014.

The husband had moved to the US and in October 2017 applied to vary child maintenance to £800 per month on the basis that the child’s needs had reduced and that the order was no longer affordable for him. His application was heard in July 2018, with judgment reserved and given in January 2019 (a delay Mostyn J regarded as “unacceptably long“). Following requests for clarification and supplemental judgments, the order was not perfected until October 2019.

The order was largely in accordance with the wife’s open position. It provided for a small reduction in periodical payments and ordering that that the “payments shall be made entirety in advance” essentially capitalisation.  In recognition of the fact that future child maintenance claims cannot be dismissed, the wife agreed not to make any further applications for the child’s maintenance, and gave an undertaking that were she to seek further maintenance for the child, she would immediately repay any sum awarded (though Mostyn J referred to this is a “symbolic gesture” given that the court could release the wife from her undertaking if a further application was made).

In making this order, the trial judge noted that it was “extremely depressing to see that [the final order in the original proceedings] which was designed to address the financial matters between them and bring finality has given rise to such an extraordinary level of conflict“. He also noted that they had spent £124,586 on costs (despite their positions being only around £50,000 apart), and that the husband seemed to “thrive on litigation”. The judge considered he could not ignore this history in seeking to arrive at the correct solution.

How did Mostyn J address the question of the court’s jurisdiction to capitalise child maintenance?

The husband appealed on the basis that “the judge made a fundamental error of law by capitalising child maintenance when there is no jurisdiction under the Matrimonial Causes Act to do so“. The trial judge’s order was stayed pending the husband’s appeal with the original order remaining in force, but the husband had paid no child maintenance since March 2020, and informed Mostyn J that, in any event, he intended to issue a further application to vary.

The husband argued that there were three main reasons for the prohibition on capitalisation of child maintenance:

1. Unlike applications for spousal maintenance, applications for child maintenance cannot be statutorily dismissed, so the child cannot be prevented from making a further claim after capitalisation.
2. The child’s circumstances may change; for example they may move to live with their other parent, or drop out of university.
3. Child maintenance is intended to be variable based on the paying parent’s income and the child’s needs. This is precluded if child maintenance is capitalised.

As Mostyn J noted, some of these points went to the question of whether it was appropriate for child maintenance to be capitalised, rather than to the question of whether the jurisdiction to capitalise existed.

In determining whether the court had the power to capitalise child maintenance, Mostyn J considered the proper interpretation of s31(5). The subsection currently reads as follows (emphasis added):

Subject to subsections (7A) to (7G) below and without prejudice to any power exercisable by virtue of subsection (2)(d), (dd), (e) or (g) above or otherwise than by virtue of this section, no property adjustment order or pension sharing order or pension compensation sharing order shall be made on an application for the variation of a periodical payments or secured periodical payments order made (whether in favour of a party to a marriage or in favour of a child of the family) under section 23 above, and no order for the payment of a lump sum shall be made on an application for the variation of a periodical payments or secured periodical payments order in favour of a party to a marriage (whether made under section 23 or under section 27 above).

Mostyn J held that this sub-section means that whilst the court cannot, on an application to vary spousal or child maintenance, make a property adjustment or pension sharing order, and cannot, on an application to vary spousal maintenance, make a lump sum order, there is no equivalent prohibition on making a lump sum order on an application to vary child maintenance.

Mostyn J concluded: “The language is completely clear. Where the application is to vary a periodical payments order in favour of a child of the family then there is power to award a lump sum“. He added that where a variation application relates to child maintenance, s31(5) “permits” the court to discharge the order and instead order a “commutation payment”.

Arguably, s31(5) fails to prohibit such an order rather than actively permitting it, whereas s31(7A)-(7H) explicitly permit the court to capitalise spousal maintenance. It is however the case that s31(5) does seem to imply a difference in approach between spousal and child maintenance in respect of making lump sum orders on a variation application.

Mostyn J “readily admit[ted]” that an order capitalising child maintenance would be “extremely unusual”, and that he had no memory of ever encountering one, but noted that this did not mean the court lacked jurisdiction to make such orders.

It was recognised that, unlike spousal maintenance claims, claims for child maintenance cannot be dismissed.  Mostyn J addressed this by providing that “where the court has made a capitalisation of child maintenance it would need a change of circumstances of exceptional magnitude before the court would augment what was intended to be a one-off commutation payment”.

When should child maintenance be capitalised?

Mostyn J made clear that he did not expect the power to capitalise child maintenance to be widely used, saying “it will remain a very rare bird indeed”.

In particular, the inability of the court or the parties to exclude the jurisdiction of the CMS for more than twelve months under the Child Support Act 1991 meant that capitalisation of child maintenance could only properly be considered where the 1991 Act “could not apply” for example because one of the parents or the child was habitually resident abroad, or because the child was over 19.

Further, in the “overwhelming majority” of cases, the “risks and uncertainties” inherent in capitalisation would lead the court to make traditional periodical payments orders. However, capitalisation of child maintenance had been appropriate in this case due to the combination of:

• Incessant litigation on which the husband thrived;
• Repeated defaults by the husband in the payment of child maintenance; and
• The child being 19 meaning there was a relatively short period of maintenance remaining.

By the end of the hearing before Mostyn J, the parties had spent £224,000 disputing approximately £50,000 (even with the wife now acting in person); the husband was in default and had indicated his intention to issue a fresh variation application, whilst only a couple of years of child maintenance remained. These circumstances make it entirely understandable that Mostyn J was keen to uphold the solution of the trial judge which aimed to avoid further litigation between the parties or default by the husband. Whilst the interpretation of s31(5) MCA 1973 is novel, it is well-grounded in the wording of the statute.

What if the MCA 1973 does not apply because the parents were never married can child maintenance still be capitalised?

Mostyn J’s decision relies on the wording of the MCA 1973, which applies only to parties who were married.

Where a child’s parents were never married, and the CMS does not have jurisdiction, child maintenance is governed by Schedule 1 to the Children Act 1989. In MT v OT [2018] EWHC 868 (Fam), Mr Justice Cohen made a child maintenance order based on a capitalisation approach. The circumstances bore some similarities to AZ v FM: the father lived abroad meaning the CMS lacked jurisdiction, there had been incessant litigation between the parties since their separation in 2003, the father had failed to comply with previous maintenance orders, and the children (twins) were now almost 17.

Cohen J ordered that the father pay a lump sum to cover maintenance for the next five and a half years, as well as educational and other costs, to the mother’s solicitors, who would make monthly payments to the mother. If there was a surplus for example if the children did not go to university it would be returned to the father. Thus Cohen J’s order achieved the security of capitalisation for the mother, but without the risk of over-payment for the father.

When might capitalisation of child maintenance be useful?

In practice, capitalisation of child maintenance seems likely to be used as an enforcement mechanism where there has been past default, in particular where the paying parent resides outside the jurisdiction meaning the CMS lacks jurisdiction and other enforcement mechanisms suitable for maintenance claims (such as attachment of earnings orders) are unavailable. Orders are only likely to be made where the remaining period of maintenance is limited, making predicting the child’s future arrangements a less uncertain task.

Mostyn J addressed only the possibility of capitalisation of child maintenance on a variation application, and it is not clear whether the court would countenance such an order within the initial financial remedy proceedings. For example, there may be cases where the parties both prefer to capitalise child maintenance, e.g. if there will otherwise be a clean break, the period of child maintenance is limited, and they are keen to have no ongoing financial nexus. Equally, there may be cases where it is apparent from the outset that compliance with a child periodical payments order is unlikely, for example where the payer is abroad and has defaulted on interim maintenance payments, making capitalisation of child maintenance desirable from the start. It would be interesting to see how the court would approach such situations.

Overall, the potential scope and extent of the power to capitalise child maintenance remains to be seen, but for now family practitioners are likely to welcome the judgment as providing a helpful new tool to enforce child maintenance obligations in certain scenarios.