The Spring Budget’s impact on divorcing couples

The 2024 Spring Budget ringfences funding for alternative dispute resolution (ADR) and creates new financial considerations for separating or divorcing couples. 

Here, our experienced family lawyer and divorce law specialist Kirsten Tomlinson explores what this means for family law matters.

£170m pledge to deliver a justice system “fit for the modern era” 

Those working in family law and the Family Court will be acutely aware of the extreme pressure that the courts are under to progress the backlog of cases caused by the pandemic and Government funding cuts. Without a significant injection of cash to lighten the load, the volume of court applications must be reduced by encouraging people to reach agreements outside of court. This strategy will be particularly relevant for straightforward cases where court intervention isn’t necessarily needed. 

The Chancellor of the Exchequer Jeremy Hunt has assured that £170m will be used to fund out-of-court dispute resolution methods as well as further investment in digitalising the court process — potentially with the use of artificial intelligence. 

As part of the proposed investment, only £55m has been ringfenced for the Family Court. It’s been suggested that this will be used to offer “online targeted guidance and earlier legal advice, shortening wait times and supporting families through non-court dispute resolution”. 

Plans have been announced to introduce the ‘Early Legal Advice Pilot’ and £12m has been ringfenced towards this scheme. This will expand the scope of legal aid to include early legal advice for private family law matters such as childcare arrangements and divorce financial settlements to prevent court applications from being made. 

There are also plans for a “new online information and guidance tool” to encourage early resolution in private family law disputes. This will also promote the use of non-court remedies and alternative dispute resolution (ADR) — alternative ways to reach agreements without the need for issuing proceedings such as mediation and arbitration. 

While it’s in the best interests of separating couples to resolve disputes amicably, this isn’t always possible when emotions are naturally heightened after a separation. Therefore, these proposals should sit alongside other initiatives in the court to reduce delays and improve services for families.

Changes that could impact divorcing couples

There are also changes to individual finances that will be significant to divorcing or separating couples:

High-income child benefit bracket

There is a much-welcomed policy change to child benefit eligibility. The threshold has been increased for the high-income child benefit charge from £50,000 to £60,000 from 6 April 2024. This means that anyone earning less than £60,000 can now claim child benefit with no tax consequences. There will be a tapered tax charge for those earning between £60,000 to £80,000. 

The Government will also consider moving to a household-based system rather than based on individual incomes from April 2026. 

This may impact those going through divorce and financial proceedings from April as single parents earning between £50,000 to £60,000 will be able to maximise their income by applying for this benefit. This is likely to assist with meeting monthly outgoings and could increase individual borrowing capacity when it comes to taking out a mortgage and re-mortgaging. 

National Insurance contribution (NIC) rates

NIC rates are reducing for employees and self-employed earners. Those going through a separation or divorce will need to consider the reduced rates when calculating net income as this will change and could affect overall financial need.

Capital Gains Tax (CGT)

CGT is relevant in matrimonial and finance cases where a divorcing couple has, for example, a second property. There will be a 4% reduction to the higher rate of CGT (from 28% to 24%) on residential properties from April 2024 onwards. The lower rate of CGT will remain the same (at 18%). 

Once again, couples must take into account the change to the higher rate of CGT when considering finances upon divorce.

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