A novel judgment in the Family Court: capitalising periodical payments for children

When parents separate or get divorced, they need to consider how the financial needs of their children will be met. This can be decided by agreement between the parents, by an application to the Child Maintenance Service, or, in some circumstances, by a court.

Until now, the common understanding amongst family lawyers has been that a judge can only make orders for regular monthly payments for the benefit of a child, known as 'periodical payments', as opposed to making an order for a single, larger lump sum.

The recent appeal case of AZ v FM [2021] EWFC 2 makes it clear that, in fact, there are circumstances in which a court will make a lump sum order in respect of child maintenance, rather than order the payment of regular, smaller, amounts. This article will consider the context surrounding the case, the Judge's justification for making this novel decision, and the particular circumstances that would need to be present for a similar decision to be made in the future.

Background to the appeal

The parties separated after 15 years of marriage. In 2011, a financial order was made which included periodical child maintenance payments to be paid by the husband for the benefit of the child. These payments were to end when the child turned 18 or finished full-time tertiary education to first degree level. The husband, who was based in the USA, failed to make payments on time on many occasions. In November 2017, the wife, who was based in the UK, had brought enforcement proceedings in respect of the payments. The husband then made an application for the level of child maintenance to be reduced.

The parties had engaged in lengthy litigation in relation to their divorce. By the time the appeal was before the Court, they had spent a combined total of £224,000 arguing over child maintenance of around £50,000.

In July 2018 the Court made an unusual decision by ordering for the husband to pay a one-off lump sum payment for the benefit of the child in discharge of his obligation to make any future periodical payments.

The appeal

By the time of the appeal, the child  was studying for her undergraduate degree at a university in London, lived with her mother during the holidays, and had very little contact with her father.

The appeal was brought by the husband on three separate grounds, with the second ground challenging the jurisdiction of the Court to translate future child maintenance payments into a single lump sum (known as 'capitalising' periodic payments).

The husband represented himself during the appeal hearing. He advanced three arguments to justify his claim that the Matrimonial Causes Act 1973 (MCA 1973) does not give jurisdiction to the court to capitalise child maintenance payments. These were:

1. A judge cannot statutorily dismiss an application for child maintenance, which means that a child who has already been awarded a lump sum payment could return to Court at a later date to make further applications for payment.
2. By capitalising periodical payments, adjustments cannot be made when circumstances change, for instance if a child leaves university earlier or later, or moves in with the paying parent.
3. Child maintenance is meant to be variable in accordance with the paying party’s income and the child’s particular needs, and if there is capitalisation this cannot be achieved.

The decision

In his judgment, the Judge acknowledged that, throughout his time in full-time practice since 1981, he had never come across a case where a judge had decided to capitalise future periodical child maintenance payments. However, as the Judge astutely put it "the rarity of such an order is of no assistance in answering the question whether there is jurisdiction to make it."

In dismissing the husband's appeal on the second ground, Mostyn J looked to s.31(5) MCA 1973 to determine that lump sum payments can be ordered where a variation application relates to a child of the family.

S.31(5) MCA 1973 does not explicitly state that lump sum payments are allowed in this context. However, they are not explicitly prohibited either, which is significant because in applications to vary existing orders for payments to a party to the marriage, lump sum payments are explicitly prohibited. In contrast, this option is left open for variation applications relating to child maintenance payments.

The Judge concluded that lump sum payments can be made when variation applications are brought relating to child maintenance orders.  

A novel decision, but in specific circumstances

While at first glance it seems like a major change to the Court's approach to child maintenance, in practice it seems unlikely that this decision will have a far reaching effect.

The Judge made it clear that there were several conditions that made the case exceptional (though not necessarily unique). The most important was the fact that the Child Maintenance Service did not have jurisdiction to override an award (because of the child’s age and the husband living in the USA). It is clear therefore that this decision does not change the position with regards to child maintenance payments which are paid in accordance with the Child Maintenance Service.

The other points which made a lump sum payment justified in this case were:

1. The wholly disproportionate costs that had accrued in the case.
2. The parties' history of longstanding litigation against one another to resolve disputes.
3. The history of inconsistent and missed payments by the husband.
4. The child's age, being 19, and the limited time left for periodical payments to be made.

It should also be noted that this will only apply in circumstances where the parent who is due to make the payment has sufficient funds to enable a lump sum to be paid.

Despite these limited circumstances, this novel judgment has certainly paved the way for future orders to capitalise periodical payments for the benefit of children. While it is unlikely to apply in the majority of cases, lump sum orders may be made in cases where there is a consistent failure to pay or a pattern of incomplete payments. The prospect of lump sum orders may be a useful tool in circumstances where a paying parent is uncooperative and has the funds to make the payment.