For many years, child maintenance has been calculated based on the Statutory formula set out by the Child Maintenance Service (‘CMS’) (formerly the Child Support Agency (‘CSA’)). This is non-negotiable following a divorce or separation. However, there is a gross income ceiling using the CMS formula of £156,000. So, the question arises as to what the right approach is when a paying parent earns more than that amount.
For child maintenance above £156k, the Family Court retain the power to award an additional amount, and the issue came before the Court again in August this year.
The relevant Family Court decisions date back to 2003 and their content was endorsed once more in the case of CB v KB (2019) EWFC 78. The Court decided that, once the CMS taxable income ceiling of £156,000 per annum has been surpassed, then as a guideline, the CMS statutory formula should also be applied to the surplus - up to £650,000 per annum.
Accordingly, many parties in this income bracket agreed settlement terms that reflected this guidance and used the CMS statutory formula.
However, Mostyn J, the Judge who made that decision in CB v KB, drilled down into the formula methodology in a subsequent case of James v Seymour (2023) EWHC 844.
In doing so he found and acknowledged that the figures produced using the CB v KB method would produce figures that were “plainly excessive” and which were “not reasonably proportionate”.
The Judge did this by working through an example of someone earning £650,000 and identifying the per capita anomaly that the CMS formula produced. It showed single children would receive £60,000 per annum, compared to £80,000 in total for two children and £99,000 in total for three children. He believed that, although there are economies of scale in bringing up more than one child, the differential that the CMS formula produced was too great.
Not only that, but the CMS formula amount was also higher than comparable cases that did not involve the CMS. The Judge concluded that by sticking to the formula, the figures produced were too high and the correct approach should be to start with the formula and adjusted for the £156,000 to £650,000 income range.
The Judge then helpfully set out the approach to the adjustments in an appendix to his judgment and called it the ‘Adjusted Formula Methodology’ (AFM).
The approach, in essence, is to first work out a figure for the payor’s “eligible” income. This is the gross income less allowances for pension payments; school fees; student loans and for any children living in the payor’s household. If this figure is less than £156,000, then the CMS formula applies. If it is more, the AFM formula calculation is the starting point to which a tariff is then added. The judgment contains a spreadsheet that can be worked through to demonstrate the outcome at different income levels.
These words led to the case of De Renee v Galbraith-Marten (2023) EWFC 141. Here the parties had used the CB v KB CMS method to settle a figure for child maintenance by agreement.
Having seen the words of the Judge in James v Seymour an application was made to set aside the agreement and to re-calculate the amount payable.
It is not easy to set aside an order made by agreement. The Judge hearing the case had to consider whether the change in guidance gave rise to an application to set aside an agreed order.
The decision of the Judge was that it could. The reasoning was that the previous approach of simply adopting the CMS formula had become the norm and as such it was reasonable to conclude that this had influenced the payor to consent to an order that adopted that guideline. The Judge stated that there were not many parties who would have felt comfortable in ignoring such a clear guideline and the subsequent consent order was founded on it.
It was also now clear that the CMS formula guideline from CB v KB had been abandoned. In this case, if the Adjusted Formula Methodology had been adopted, the payor would be obliged to pay a significantly lower figure than the one agreed. The Judge believed that this invalidated a fundamental assumption on which the consent order was made, and that the application was not simply a second bite at the cherry.
The Judge was also influenced by the fact that the application to set aside had been made promptly and that there was no other route the payor could adopt.
Therefore, the Judge agreed that the order needed to be set aside and for a new order to be made. Whatever the amount is that needs to be agreed or ordered, there is no doubt the parties will focus their attention on the Adjusted Formula Methodology and the indicative calculations produced by the Court.
The lessons from these developments are threefold.
- The use of the conventional CMS formula for income over £156,000 and below £650,000 is now abandoned.
- The correct approach is to adopt the Adjusted Formula Methodology to achieve a starting point against which a final tariff can be agreed or ordered.
- Any payor who has recently entered into an agreement or been ordered to pay under the CB v KB guidance has a window of opportunity to have that order set aside and for a new order to be made.
The judges in each case acknowledged that fiscal drag may pull many more payors over the CMS threshold. Knowing how to approach an issue under which substantial payments will be made for many years is crucial to family practitioners.