Inflation clause in parental agreements on child support

Inflation clause

There is no need to go into detail about the concept of inflation here, so we will just briefly summarize that inflation is a decrease in the real value of money. Over time and with the current rise in inflation, the value of money decreases; this means that over time, we can buy fewer goods or services for the same amount of money.

The purpose of an inflation clause in contracts is therefore to stabilize the real value of the (one-time or recurring) monetary payment. An example of this is a very simple situation in which a debtor is to pay a creditor €250 every month at an inflation rate of 0%. If inflation reaches 5%, the creditor needs €262.50 to buy the same goods or services that they could have bought for the original €250 if inflation had remained at 0%.

The inflation clause therefore always benefits the creditor, as it protects them against inflation, and conversely burdens the debtor, as they must pay the creditor a higher amount of money if the inflation rate rises. It should be added that an inflation clause is not part of every contract, as it is not required by law and does not always apply. In private law relationships, it is an expression of the individual autonomy of will and contractual freedom of the contracting parties, and therefore only applies if it is expressly agreed between the parties.

Inflation in Slovakia is monitored by the Statistical Office of the Slovak Republic, which tracks its development and regularly informs the public about it. As a rule, the average annual inflation rate determined by the Statistical Office of the Slovak Republic is therefore the authoritative data used to modify the amounts of monetary payments in contracts. However, there is nothing to prevent the parties from mutually agreeing to use the month-on-month inflation rate, which is also determined by the Statistical Office of the Slovak Republic, as the relevant data. Alternatively, in contracts with a foreign element, the average annual inflation rate in the eurozone is usually the relevant data.

Parental agreements on maintenance

In general, according to Section 24(1) of the Family Act, in a decision to divorce the parents of a minor child, the court shall regulate the exercise of their parental rights and obligations towards the minor child for the period after the divorce. However, pursuant to Section 24(4) of the Family Act, this court decision on the exercise of parental rights and obligations may be replaced by an agreement between the parents. This agreement, also known as a parental agreement, must also be approved by the court, otherwise it is unenforceable.

Parents may therefore agree on the care of a minor child and, in the case of entrusting the child to the personal care of one of the parents, also on the amount of maintenance that the other parent is obliged to contribute to the maintenance of the minor child. The term “child support” is not precisely defined in the Family Act, but in judicial practice, the term “child support” is defined as satisfying not only basic needs related to livelihood, but also other needs customary for human life, such as housing, health care, educational needs, upbringing, cultural activities, or interests.

Since satisfying all of the above-mentioned needs requires the purchase of goods or services, alimony is a monetary payment in regularly recurring amounts and is therefore affected by inflation, which reduces its value. For this reason, the inflation clause is important not only in the aforementioned purchase or rental agreement, but also in parental agreements on alimony. In the event of rising inflation and a fixed amount of maintenance, the parent who has been entrusted with the personal care of a minor child is able to purchase fewer goods and services for the child with the amount of maintenance than they would have been able to purchase if inflation had not risen.

Rising inflation therefore has a direct impact on the amount of goods and services that can be covered by child support. In practice, it is therefore possible to include an inflation clause in a parental agreement on maintenance, because according to Article 5 of the Family Act, “the interests of the minor child are the primary consideration in all matters concerning him or her. When determining and assessing the interests of a minor child, the following shall be taken into account in particular: a) the level of care for the child (…).“

Since decisions on maintenance affect the minor child, as the amount and quality of the child’s needs that can be covered by it (also) depend on the amount of maintenance, the interests of the minor child must also be taken into account when deciding on the amount of maintenance. Taking into account the interests of the minor child undoubtedly means that the amount of maintenance will be exempt from the effects of inflation. This is the only way to stabilize the real value of maintenance and regularly cover the needs of the minor child.

This argument is also supported by the courts, which approve parental agreements with an incorporated inflation clause, the essence of which is that maintenance will be automatically adjusted to inflation and increased annually by the rate of inflation in the Slovak Republic for the previous calendar year as announced by the Statistical Office of the Slovak Republic.

Conclusion

It cannot be ignored that inflation causes a decline in the value of any monetary payments, especially those that are regularly recurring. A properly formulated inflation clause should therefore be part of any contractual relationship involving recurring or one-off monetary payments in the future. Such contractual relationships undoubtedly include not only purchase agreements, lease agreements, or contracts for work, but also parental agreements on child support. Ensuring the best possible outcome for clients lies in the details, including the inflation clause, which is often overlooked in practice.

References

1. National Bank of Slovakia: Inflation. [online] [cited 2023-10-26] Available at: <https://nbs.sk/inflacia/>
2. European Central Bank: Inflation in the euro area: interactive overview. [online] [cited 2023-10-26] Available at: <https://www.euro-area-statistics.org/digital-publication/statistics-insights-inflation/bloc-1a.html?lang=sk>
3. SLOBODOVÁ, V. Minors – maintenance and urgent court measures. Bratislava: C. H. Beck, 2018, p. 1.