Rainscourt Family Law Solicitors

Will my maintenance increase with inflation? A guide to “index linking”

A recent research paper* has found that from a sample of 369 final financial orders in divorce, only 8 contained an order for “joint lives maintenance”, which is a sum of maintenance to be paid for life from one spouse to the other.  This data was obtained from  three courts around the country, one in the North, one in the South and one in the West, and it would be interesting to know if the outcome was affected by the geographical location of the sample courts.  Nevertheless, the spousal maintenance order remains a valuable tool in resolving a financial division on divorce.  The length of that clause, and the conditions which are placed upon it, are entirely dependent on the circumstances of each case, and it may provide a spouse with a sum for a limited period or alternatively, for the rest of the parties’ respective lives, or be linked to another time frame, such as the ages of the children, or cohabitation.

Any clause for maintenance which is for a specific sum to be paid each month will diminish in value over time, as a result of inflation.

The Office of National Statistics publishes the Consumer Prices Index, the Retail Prices Index  and other indices each month, which can be used to establish how the spending power of your pound has changed over a period of time.  Using different indices will give you different answers: RPI for example, includes the cost of mortgage interest payments, and council tax, whereas the CPI excludes housing costs.

If a spousal maintenance clause is going to maintain its buying power, then it will need to be linked to inflation, and the standard choice is an automatic annual uplift or variation in line with the Retail Prices Index.  Maintenance will only automatically vary with inflation if provision is made for this in the court order.   The order may make provision for your maintenance to only change in value if RPI increases, or may reduce or increase depending on whether RPI goes up or down.  The standard index linking procedure requires the recipient of the maintenance to carry out a calculation on the anniversary of the court order, based on the change to the RPI 15 months prior to the court order, and 3 months prior to the variation date.   This will need to be done each year on the anniversary of the order.

If your £2,000 per month spousal maintenance order dated May 2013 is now due for variation, you would need to find out the relevant index figure from the Office of National Statistics.  By way of example, the RPI figure for February 2014 (254.2) and for February 2013 (247.6), and calculate £2,000 x 254.2/247.6=£2053. Your maintenance would therefore need to increase by £53 to have the same purchasing power in May 2014 as it had in May 2013.

Link to the Bank of England site to have a look at the impact of inflation over the years, with the assistance of some rather compelling graphics:

http://www.bankofengland.co.uk/education/Pages/inflation/calculator/index1.aspx

 

 * Cardiff University report by Hilary Woodward with Mark Sefton: http://orca.cf.ac.uk/56702/

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