Father transferring shares to reduce child maintenance payments

Child maintenance is designed to make parents responsible for maintaining their children. Non-resident parents make periodical payments to resident parents for the day to day care and upbringing of their children. These payments are usually applicable once parents have separated or undergone divorce. Our team of family law experts specialise in all aspects of child law and can assist parents who are looking to obtain child maintenance payments.

A common problem which occurs in child maintenance payments is that some non-resident parents avoid paying the correct and fair amount of child support by arranging their finances in a way which may help them conceal their income. This problem is more common in cases of parents who are self-employed and run their own businesses. Our family law specialists have experience in dealing with such cases and can provide you with the information you need to ensure your child is not being unfairly treated.

Courts consider the issue of parents hiding income for child maintenance purposes

A similar issue was considered in the case of AS v Secretary of State for Work and Pensions which was heard in 2018. In this case the father was a businessman and had been the sole shareholder in a particular company that he ran. The father claimed to have transferred 40% of the shares in the relevant company to his second wife and accordingly argued that only 60% of the dividends should be treated as his income from 1 May 2012.

The father produced part of a document to prove his wife was shown holding 40 of the 100 shares. The date of the document had been taken as being 2 April 2012 and, as the father

had previously been the sole shareholder prior to this transfer, it implied a transfer of shares to his wife during the preceding year.

The father states that his wife had been made redundant in about 2012, or it could have been in 2010. He suggested to her that she should join him in business and help with administration and health and safety. The wife did emails and checked his drafting. She started working for him in 2010, She had no contract and worked 20 hours a week until their daughter was born in 2012. She was not paid any salary or wages. As regards the transfer of shares, he explained that that was done because he “thought she should have a share”.

The father transferred 40% of the shares. No cash was involved. He wanted her to get an

income and thought that dividends were better than a salary because they would

depend on the profits. The wife had not given the husband any money on the transfer of the shares. He had given her money for housekeeping.

The court in this instance did not agree with the father and subsequently factored the 40% of the transferred shares into account as the father’s income.

Father appealed the decision of the 40% transferred dividend income to be factored as income

Following the fathers appeal to the First-Tier Tribunal, the Tribunal were not impressed with the evidence presented by the father 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 agreement for consideration”.

It considered that his evidence was “at best inconsistent” and lacked clarity. The father therefore appealed the decision of not finding a valid transfer of shares.

The First-Tier Tribunal refused permission to appeal on the ground that no error of law had been demonstrated but an application was then made to the Upper Tribunal, solely on the ground that the First-Tier Tribunal had erred in taking into account dividend income of his wife and permission to appeal was granted.

There were two points which required consideration from the upper tribunal which were:

  • Was the First-Tier Tribunal correct to find that there was no proof that that the transfer of shares had ever taken place?
  • Did the father’s new wife do enough work for the company to earn 40% of the dividends as the father claimed or was it just a sham arrangement to unreasonably reduce the father’s income.

When considering the first point the upper tribunal found that there was a valid transfer of shares as a transfer between spouses did not require the same formalities as a transfer to any other person. Therefore, the upper tribunal were also of the view that valuation of the shares was not a requirement which the father had to prove.

However, in relation to whether the fathers new wife did enough work to warrant the earning of the 40% of the shares transferred the upper tribunal agreed with the First-Tier Tribunal that they were not satisfied about the work the wife carried out in the business and her involvement.

The judge therefore dismissed the fathers appeal that only 60% of the dividend income should be taken into account when calculating his child maintenance payment and gave the following reasons:

“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. There was no detailed evidence as to what she did and no arrangement had been made for her to be remunerated before the transfer of shares”.

The outcome of a father reducing his income to avoid child maintenance payments

The Upper Tribunal had therefore found that the father had reduced his income unreasonably to try and reduce the payments he has to make and therefore the full income from the dividends must be considered when making an assessment for child maintenance.

This is therefore a reminder that without any valid reasons and evidence a parent who reduces their income on paper risks the finding of unreasonable diversion of income which can be held against them.

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If you feel your partner may be trying to hide or conceal their assets then call us today to speak to our family law specialists on 0330 094 5880 or contact us online to see how our how we can assist you today.  

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