Understanding the impact of Universal Credits

Universal Credits are set to replace a variety of existing benefits next month, with pilots running in a handful of regions. The new regime is the biggest overhaul of the benefits system in decades and is intended to streamline the benefits system.

It is important that those divorcing and claiming the main means-tested state benefits including tax credits understand how the new Universal Credit regime is likely to impact on them when negotiating a financial settlement within divorce proceedings, in particular if they are seeking to claim spousal maintenance.

Spousal maintenance is awarded if one spouse cannot adequately support themselves without financial support from the other spouse after the divorce.  Under the current benefits system, those receiving Tax Credits for example, would not suffer a reduction in their Tax Credit award simply because their ex pays them spousal maintenance; this is however all set to change under the new Universal Credit system.

If a wife, for example, is reliant on her Tax credits it is important that she is aware that under the new regime, her Universal Credit award will be subject to a pound for pound reduction by the amount of spousal maintenance she receives from her ex. Child maintenance payments received by the wife on the other hand will not reduce her Universal Credit award.

The Universal Credit Regulations suggest that if a spouse receives significant spousal periodical payments, then this may mean that he or she is unable to receive Universal Credit or that the Universal Credit award may be claimed only for a limited period. This must be considered when calculating an appropriate amount of spousal maintenance where a Universal Credit award will also be relied on. If claiming spousal maintenance and Universal Credits, there may be the possibility of receiving greater child maintenance payments (which will not reduce the Universal credit award) with lesser spousal periodical payments with a view to avoiding a reduced Universal Credit award.

At this stage there will be an element of crystal ball gazing to predict the payments that will be received after the new regime has been implemented or when the changes will take effect regionally, however it is important that recipients of a means tested benefit such as Tax Credits take account that a spousal maintenance award made in divorce proceedings will impact on their ability to claim the new Universal Credit.

Kerry Russell

Associate Solicitor at Gorvins.