The Good, the Bad and the Ugly

Hazel Wright and Graeme Fraser examine the growth of Schedule 1 claims, why the law is so unclear, and why practitioners find this work so difficult

Introduction

The traditional model of the family has changed. As marriage rates have declined, nearly half of children are now born out of wedlock. [1] With no immediate prospects of family law reform, it is anticipated that there will be an increase in claims made under Schedule 1 of the Children Act 1989.

This article examines the potential of this work for family law practitioners, the constraints on making claims, and why the law does not work for fathers, mothers and for lawyers.  

The good

Nearly a quarter of children grow up in lone parent families[2], many of whom are not reliant on state benefits. This indicates a very large, disadvantaged group of families. In the year ending September 2007, the Child Support Agency received 294,400 applications, of which 75,200 were private cases, that is non-benefits related[3]. The perception, rightly or wrongly, that England and Wales has become a place where wives are favoured in financial claims on divorce, may mean fewer people marry, which would suggest more Schedule 1 applications by unmarried parents. However, in fact during this same period, Schedule 1 applications were made for only 1,221 children with only 592 orders made[4]. What is holding back mothers, fathers and practitioners from filing Schedule 1 claims to meet this vast legal need?

The bad

The problem seems to be the narrow scope of the legislation. Fundamentally, Schedule 1 empowers the court to meet some of the financial needs of children while they are dependant on their parents. Specifically, these are for the needs of the child, not the needs of the parent providing a home for the child. Except in exceptional circumstances, housing needs are met by settling property only until the child is an adult. Then the property has to be returned to the payer, usually the father.

So, irrespective of the parents’ own needs during the period of the children’s minority and when the children are no longer financially dependent, the provision for the children is only going to be limited and for a defined period.

Thorpe LJ made this clear in. Re P[5]:

“There can be no slack to enable the recipient to fund a pension or an endowment policy or otherwise to put money away for a rainy day”

The effect of a Schedule 1 claim can be to place a mother, who gave up her career in her late 20s or early 30s to have children, in a position where she is going to have to adjust to the termination of financial support as she reaches her 50s. She could be forced onto the property ladder as a first time buyer with only 10 to 15 years to go before retirement.

A family law paradox is created because a mother, following a long relationship, who has put in many more years of care than a young mother following a short relationship could find herself is in a weaker position if she claims under Schedule 1. A mother with a child in mid teens may only hold on to the family home for a couple of years. The father is guaranteed to recover the home in a few years’ time. He can regard the arrangement as a financial investment, since he, not the mother, can look forward to any profit made during the period occupied by the mother and the children, assuming also a rise in the housing market. However, a mother with a young baby, who was in a short relationship, could look forward to holding on to housing for perhaps 20 years until the child ends university education, while enjoying a long period to plan for termination of support from the father.

Contrast the rigidity of this approach with the flexibility and discretion available in ancillary relief applications on divorce. Section 25 MCA 1973 empowers the court to make a full range of orders with reference to broad statutory criteria. On a divorce, the court is able to redistribute assets so as to balance out any economic disadvantage suffered by a mother with the primary responsibility of child care. The court will ensure the financial needs of both the mother’s and father’s households are met.  

A father may often have to meet a Schedule 1 claim in the early earning years as he is climbing the career ladder, while he is in the mid net worth bracket. A solution imposed under Schedule 1 could see a father lose much of his financial resources at a time when those resources may be critical to his financial well-being. This may prevent him from investing in business or in property, or planning for retirement. However, by the time a property held by a mother during the child’s minority is returned to the father on the child’s majority, say 20 years later, the father may find this to be surplus to his requirements.

Child maintenance awards can be significantly higher in Schedule 1 cases than on divorce. Contrast the £70,000 per annum awarded to the mother in Re P with the child maintenance awards made on divorce, more normally at a threshold of up to £25,000 per annum.

The ugly

Schedule 1 claims create a minefield of difficulties for practitioners.

Firstly, the Court will look to determine the mother’s and father’s respective beneficial interests before considering what sums to award to the carer for the benefit of the child.

An application under Schedule 1 should always be run in tandem with any property claims under the Trust of Land and Appointment of Trustees Act 1996 (“TOLATA”). This was made clear in W v W[6]. The exercise of powers under TOLATA and Schedule 1 should, as a matter of sensible management, be considered by the same county court and at the same time as conjoined applications. This means that the Court will not be looking wholly at family law criteria when considering how the property shares are to be determined.

The criteria under s 15(1)(a) TOLATA is restricted to:-

• The intentions of the person or persons who created the trust
• The purposes for which the property subject to the trust is held
• The welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and
• The interests of any secured creditor of any beneficiary.

By contrast, Schedule 1 requires the court to consider:-

• The income, earning capacity, property, financial resources each parent has or is likely to have in the foreseeable future
• Their financial needs, obligations and responsibilities each are likely to have in the foreseeable future
• Financial needs of the child
• Income, earning capacity, property and other financial resources of the child;
• Physical or mental disability of the child
• The manner in which the child was being or was expected to be educated or trained.

It is difficult to reconcile the approach under TOLATA which involves a property law solution from the family law considerations arising out of Schedule 1. A father could seek an order for sale early on in the process by making a TOLATA application in the Chancery Division of the High Court or as a civil action in the County Court. He can justify the claim as achieving certainty clearly and quickly as a matter of property law, which is not as discretionary as family law. This could create enormous difficulties for a mother dealing already with disruption to the children following the breakdown of the relationship. For example, an immediate sale could mean that she will have to look for new schools for the children, alter her transport needs, and even force her to switch employment. So a mother may prefer to delay the process by making an application under Schedule 1 in the Family Division on the basis that she is looking to maintain stability for the children.

Secondly, the Child Support Act 1991 means that the court’s power to make periodical payments under the Children Act 1989 is very narrow.

Maintenance claims under Schedule 1 are mainly restricted to situations involving:-

• High earners ( above £104,000 net pa)
• Where the child is abroad, but the other parent is in England and Wales;
• Where the child is in England and Wales, but the other parent is abroad otherwise than on government or armed service or employed by a UK company
• Where there is an existing order in which the mother and father have agreed that the court rather than CMEC should deal with child maintenance.  

A qualifying parent must make his or her claim to CMEC unless there is agreement for the court to deal with child maintenance. This poses practical difficulties for a mother who is eligible for periodical payments because of the delays while CMEC is completing a calculation or if it fails to get to the bottom of the father’s wealth. This means that it takes a long time for the maximum assessment to be imposed. Even if the maximum assessment is made, a father may rearrange his finances to lead his income being reduced below the maximum, thereby preventing the court from dealing with income.

Thirdly, there is confusion about how to apply principles which have emerged from the case law in Schedule 1 claims.

The Resolution Guide to Claims under Schedule 1 to the Children Act 1989[7] identifies 15 principles which emerge from the case law. These include the following:-

• Parents’ financial responsibility exists regardless of the commitment in the relationship
• The focus should be on the child’s needs or welfare
• Provision is for the child, not for the parent with care
• There should be proportionality between the father’s and mother’s standards of living
• An established standard of living may have additional impact
• The duration of provision must be limited to the child’s dependency.

However, as few can afford High Court litigation, many of the decided cases deal with a father with significant resources which means that there is little guidance as to what housing and budget will be appropriate in cases where the resources are more modest. As the court outcome is often harder to predict than in ancillary relief cases, this creates a higher risk of a more unfavourable outcome for the client. The client may well suffer greater anxiety and fear because of the lack of certainty, making it harder to settle cases. The lawyers may pitch for a higher amount of financial provision than on divorce, because of the lack of guidance from case law, making a final hearing more likely. However, the solution imposed by the court at final hearing will often be an outcome no one wants

Fourthly, Schedule 1 cases can be very expensive to run because of the lack of clear, defined procedures. For example, disclosure may be very different to the standard required in ancillary relief applications. In high wealth cases, an exact schedule of assets may be secondary in importance to an examination of lifestyle expenditure such as holidays, cars and education for the children. This will involve more case preparation with costs often higher than in ancillary relief applications.

However, a mother cannot rely on obtaining an order for costs to fund the litigation. If child maintenance is to be governed by CMEC, this will prevent an application being made for periodical payments for costs. An application could be made for an interim lump sum towards costs, but there is legal uncertainty as to whether such an application would succeed.

A mother should therefore consider all avenues of funding before launching proceedings. The authors’ experiences suggest that obtaining such funding from litigation loan providers can prove difficult in recessionary times. Family litigation loans from private banks tend to be contingent on there being a large amount of immediate equity available from the sale of a family home, more normally on a divorce, where the outcome appears more certain. It remains to be seen whether this market will adapt should the anticipate rise in Schedule 1 claims take place.

Finally, practitioners should be aware of potential negligence pitfalls in doing this work.  Retrospective legislation such as changes to the trust regime introduced by the Finance Act 2006 can create real difficulties for the practitioner whose duty of care to the client could come into question even after the client relationship ends. Clients should be aware of the need for specialist tax advice in relation to trusts created before the Finance Act 2006, in particular regarding periodic and exit charges.

A solicitor could be open to a potential claim in negligence should a client not be advised to implement an agreement into an enforceable order. The failure to obtain an order could allow an applicant to return to court for higher financial provision.

Conclusion

The law is ill equipped to cater for the shift in family structure towards the majority of children being born to unmarried families. The lack of Schedule 1 applications made and orders obtained suggest that fathers, mothers and practitioners are being held back by the narrow scope of the legislation. The law urgently needs to be reformed, preferably by Parliament, to ensure that family law disputes for unmarried families with children are fairly determined.

For further information regarding the above issues, please contact:

Hazel Wright
Head of Family Department
hazelwright@cumberlandellis.com

Graeme Fraser
Associate, Family Department
graemefraser@cumberlandellis.com

Tel:  +44 (0)20 7242 0422

[1] Data published by the Office for National Statistics show that in 2007, 44.7% of live births were outside marriage
[2] Families with children in Britain: findings from the 2007 Family and Children Study
[3] DWP official statistics
[4] Judicial and Court Statistics, published 2007
[5] (Child: Financial Provision) (2003) 2 FLR 865
[6] (Joinder of Trusts of Land Act and Children Act applications (2003) EWCA Civ 924
[7] Charlotte Bradley, Andrew Greensmith, Jan Ellis and James Pirrie