Father not liable for child support after disposing of a non-income generating asset

The issue of how ‘other assets’ held by a non-resident parent (‘NRP’) should be taken into account (if at all) when considering the NRP’s child support liability is of course quite topical at the moment. A further discussion of the issue comes in the form of the latest Upper Tribunal decision in the long-running case Green v Secretary of State for Work and Pensions and Adams. Eagle-eyed readers will recognise this as the very same case in which Mr Justice Mostyn bemoaned the fact that under the current child support scheme a millionaire father was able to get away with paying child support for his son of a mere £7 per week because his income was so low.

Before I come to the case, a little history. Since it came into being in 1993 child support has been governed by three schemes: the ‘1993 scheme’, the ‘2003 scheme’, and the current ‘2012 scheme’. The rules under each scheme have been different. For example, under the 2003 scheme if the NRP had assets worth £65,000 or more, the Child Support Agency (as it then was) could assume that the NRP took a notional income from the assets, which would be taken into account when calculating how much child support they should pay. There is no such provision under the 2012 scheme.

Green concerned the 2012 scheme. The essential facts in the case are quite straightforward (even if the NRP’s financial arrangements were not). The NRP had owned a property from which he could have derived an income. However, he chose not to do so. He then sold the property in 2013 for £151,000, thereby relinquishing all control over it. The purchaser subsequently let the property out, at an annual rent of £50,000.

Clearly, had the 2003 scheme applied then the NRP may have been given a notional income, from which he would have been liable to pay child support. However, the 2012 scheme applied, and the NRP was found to have no liability at all (or perhaps just the £7 a week mentioned by Mr Justice Mostyn).

The parent with care appealed against this decision, claiming that the NRP had diverted income that would otherwise be taken into account in the child support calculation. Under the 2012 scheme, the child support calculation can be varied if the NRP has an income which he controls and reduces that income by diverting it elsewhere, whilst still retaining control over it. Effectively, the income is ‘returned’ to him, and taken into account in the child support calculation.

So the question was, did the rule on diversion of income apply in this case?

Upper Tribunal Judge Edward Jacobs found that it did not. On his way to reaching that decision, he put forward various hypothetical situations. Suppose, for example, that the NRP has acquired a house, which can be held without generating income, and simply retains it for any one of a number of reasons, including just to spite the parent with care and keep their child support liability to a minimum. The income that would otherwise have been produced has been reduced (eliminated), but it has not been diverted – it has simply not been generated. The diversion of income rule does not apply just because an NRP has failed to take advantage of an opportunity to generate income, as they are free to do.

And then there is the issue of control. As Judge Jacobs said:

“…what is the position if the parent transfers an asset and puts it beyond their control? It does not matter whether the asset is being exploited to produce income or not. Once the parent transfers the asset to someone else in circumstances that involve relinquishing legal and practical control over it, any income that the other person generates would not have arisen had it not been for the transfer. It looks like a diversion but [the rule] does not apply, because the control condition is not satisfied.”

Applying this analysis to the case, Judge Jacobs found that the rule on diversion of income did not apply, because the NRP did not divert the income that might have been generated, and once he sold the property he ceased to have any control over it. The appeal was therefore dismissed.

Of course, all of this may soon become academic, at least for future cases, if and when the Department for Work and Pensions’ new strategy for child maintenance is implemented. As I mentioned here, the strategy will include a return to something like the 2003 scheme, whereby the NRP will be given a notional income from assets above a certain threshold. No doubt this will be welcomed, not just by Mr Justice Mostyn but also by aggrieved parents with care such as Ms Green (even if it might be too late to assist her – her son, for whom the maintenance is (or should be) payable is now 17 years old).