Universal Credit – to be reduced pound for pound by spousal maintenance

22 April 2013

Labelled ‘the biggest shake up of the welfare system for a generation’, Universal Credit is a new welfare benefit in the United Kingdom that will replace seven of the main means-tested benefits and tax credits: Child tax credit; Housing benefit; Parts of the social fund; Working tax credit; Income support; Income-related employment and support allowance; and Income-based jobseekers allowance.

Universal Credit represents a new single payment for people who are looking for work or on a low income.

Supporters believe the new structure will help simplify an overcomplicated benefits system and provide an incentive for those reliant upon benefits to work, without the fear of losing out financially. Critics consider that it risks leaving society’s most vulnerable families, couples and individuals worse off. 

In cases relying upon means tested benefits, family lawyers will struggle to estimate the timing or quantum of any impact upon receipt of benefits or the future entitlement of their client or client’s spouse. It will be crystal ball gazing to attempt to predict with any accuracy the payments that will be received after the changes have been implemented or when they will take effect in the appropriate region.

Most crucial, however, is the treatment of unearned income under the new Universal Credit system. There will be a pound for pound reduction in Universal Credit Support for income received from ‘Universal Credit Equivalents’, which includes pension income from early retirement and most notably for family lawyers, spousal maintenance payments.

Child maintenance payments will not have any effect on the award of Universal Credit.

Where one party is the traditional breadwinner and the other has perhaps not worked throughout the marriage and is now looking to return to work after many years, we must be careful not to trust the steady provision of child tax credit (if there are children) and working tax credit (if that party is to work at least 16 hours a week) to meet income needs. Those amounts will now be subject to a pound for pound reduction by the amount of spousal maintenance received.  There will be little opportunity of avoiding this decrease, although in suitable cases it could be mitigated by paying higher child maintenance (which does not reduce the Universal credit award) and reduced spousal periodical payments.

Regulation 66 of the Universal Credit Regulations 2013 and the Government’s Universal Credit briefing notes suggest that if a party receives significant spousal periodical payments, then this will probably eliminate their entitlement to Universal Credit. This may mean that the recipient never receives Universal Credit or, more likely, (s)he may only receive Universal Credit for a limited period. This must be considered and factored into any award of maintenance where tax credits are relied upon, if we are to avoid an increase in variation claims.

The phased introduction of Universal Credit will begin in October this year with a handful of test regions and is expected to be completed by October 2017.

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