The coronavirus outbreak has a major impact on the operations of businesses. The economic impact is unprecedented, a recession is unavoidable and will likely have a greater impact than the 2008 credit crisis. Many entrepreneurs, self-employed persons and employees are facing declining sales/revenues, which will cause them financial problems. The result may be that the stipulated alimony obligation cannot be met (anymore). Frequently asked questions are: “What can I do if I cannot pay child and/or spousal support (any longer)?” “Are there possibilities to modify – temporarily or otherwise – the child and/or spousal support? If so, what are the options?” These questions are answered below.
It is possible to modify a child and/or spousal support obligation. This can be done by mutual agreement, through mediation or through the court in a procedure. Below we give you a step-by-step plan and some tips if you can no longer meet your child support obligations as a result of the corona crisis.
- Do not stop or change the payment of alimony contribution unannounced. If the alimony contribution is not paid (in full), the person entitled to alimony can call in the LBIO or the bailiff to still collect the alimony contribution. This involves additional costs.
- Contact the person entitled to alimony and indicate that payment of alimony is not possible. Then try to come to mutual agreement, preferably through mediation, on a (temporary) reduction or (temporary) suspension of the alimony obligation.
- If a mutual agreement cannot be reached then a modification procedure can be initiated, asking the court to reduce the alimony contribution. The following is important here. The loss or reduction of income can be reason to modify the alimony obligation. Modification is possible if the loss of income is not culpable and, in addition, the loss of income is not reparable. It is plausible that loss of income due to the corona crisis is not considered culpable. The second question then is whether the loss is recoverable. This depends on whether there are reserves in the company with which the loss of income can be absorbed. This should not jeopardize the continuity of the company. If there are no reserves, or tapping into them endangers the continuity of the business, then the loss of income is not recoverable. It is also important here whether the entrepreneur can make use of government measures, such as the Temporary Bridging Scheme for Self-Employed Entrepreneurs (TOZO) or the deferral scheme for paying taxes to the Tax Office. It will also play a role in what sector the alimony obligor works in and whether that sector is hit hard by the corona crisis. Next, the obligor must make it clear that he is no longer able to pay the stipulated alimony. This will require the submission of a number of financial documents showing that income has been drastically reduced. The documents that are important for this are: the last annual documents, the balance sheet, the profit and loss account and most relevant the forecast and an overview of the cash flows. The latter documents show that a debtor can run into serious liquidity problems if a maintenance obligation is imposed that cannot be paid from a cash flow actually available to him at that time. If this shows a reduction in ability to pay, the alimony may be reduced.
- There may be acute financial distress that makes it impossible to wait for the outcome of the amendment procedure, for example, because bankruptcy is then imminent. In that situation, preliminary injunction proceedings can be initiated. In the meantime issued the first ruling regarding the impact of the Corona crisis on an alimony obligation. This ruling, and the proceedings conducted during the 2007-2008 credit crisis, showed that in an acute emergency situation, the alimony obligation is temporarily reduced or set to zero.
- Finally, it follows from previously established case law that courts do not readily rule that an alimony modification is retroactive. This is because it would create a repayment obligation for the maintenance recipient. Alimony is usually not changed any sooner than from the announcement that can no longer be paid or from the filing of the petition with the court. Therefore, we advise to initiate proceedings to reduce alimony as soon as possible if it is not possible to reach mutual agreements.
If you find yourself in (acute) financial distress that prevents you from meeting your child support obligation, please contact one of our family law attorneys. We are happy to be available to assess your situation and advise you on possible solutions.