We have often seen on this blog how a parent will seek to reduce, or even extinguish, their liability to pay child support maintenance for their children by reducing their (apparent) income. The problem is, of course, particularly an issue in cases where the non-resident (i.e. paying) parent is self-employed. Where they are employed the opportunities to reduce their income are somewhat limited, but where they are self-employed, the opportunities can seem almost limitless.
The latest case of this type to come to my attention is AS v Secretary of State for Work and Pensions, a decision of the Upper Tribunal last month.
For the purposes of simplicity (a rare thing, when it comes to dealing with the intricacies of child support!) I am going to simplify the facts and limit this post to the two essential points in the case, with as little reference to the various child support rules and regulations involved as possible.
The case concerned a father’s appeal against a child support assessment. The basis of the appeal was that the Child Support Agency had taken into account 100% of the dividends that he received from his company, when it should have taken into account only 60% of those dividends, as the father had transferred 40 of the 100 shares in the company to his new wife in 2011. The First-tier Tribunal had basically found that there was no proof that the transfer had ever taken place, and that it was a sham, designed to reduce the father’s child support liability. The father appealed against that decision, to the Upper Tribunal.
So the first point for the Upper Tribunal to decide was: was the First-tier Tribunal correct to find that there was no proof that that the transfer of shares had ever taken place? The First-tier Tribunal had come to this conclusion as it found that the father’s evidence in relation to the transfer was “at best inconsistent” and lacked clarity. It was not impressed by his evidence, particularly as the father was not able to show the date when the transfer took place, or that there had been any valuation before the transfer, or that the transfer was the result of an arm’s length agreement for consideration.
However, the Upper Tribunal found that there was evidence that there had been an effective transfer of the shares. Apart from anything else, a transfer between spouses did not require the same formalities as any other transfer, such as a valuation of shares.
But that was not the end of the matter. The second point that the Upper Tribunal considered was: did the father’s new wife do enough work for the company to earn 40% of the dividends (a not inconsiderable amount, as we shall see) as the father claimed, or was it just a sham arrangement to unreasonably reduce the father’s income?
The First-tier Tribunal had not been satisfied about the nature and extent of the father’s wife’s involvement in the business. The Upper Tribunal found it unsurprising that the First-tier Tribunal was not impressed by the father’s evidence:
“He was vague as to when his wife had started work. There was no documentary evidence that she had done any significant amount of work by comparison with him, or at all, and no suggestion that any attempt had been made to relate the amount of any work to the amount of her share of the dividends. (The total dividends declared on 30 April, at the end of each accounting year, were £30,000 in 2011, £51,750 in 2012 and £48,000 in 2013.) In particular, the First-tier Tribunal was plainly not impressed by the assertion that the father’s wife worked 20 hours a week for the company when there was evidence that she was working on five days a week for another organisation for much of the period in issue.”
In addition to all of this, the First-tier Tribunal would have been aware of the history of the case, to which the mother had drawn attention, including adverse findings as to the father’s truthfulness made by judges in financial remedy proceedings – a warning of the consequences of not telling the truth to the court!
In the circumstances, the Upper Tribunal found that the father had unreasonably reduced his income, and therefore the full amount of the dividends should have been taken into account in the assessment.
Accordingly, the father’s appeal was dismissed. Whilst the First-tier Tribunal was wrong to find that the transfer had not taken place, that did not affect the outcome, and therefore the decision was not set aside.
You can read a full report of the decision here.