COVID-19 and Changes to Child Support Agreements

For Lawyers, Accountants and Financial Advisors, our jobs are now more than ever crucial to a society facing a global economic crisis. Unfortunately added financial pressure can at times lead to divorce as well as issues surrounding child support. In these unprecedented times, what we are starting to see is adaptive outcomes beginning to happen within the Court.

If you are a Lawyer, Accountant or Financial Advisor, here’s what you need to know.

Child support agreement set aside due to impacts of COVID-19

In general, the setting aside of a child support agreement is notoriously difficult to achieve. But in recent times, a case came before the Court where a father was able to have the Binding Child Support Agreement set aside due to financial hardship as a result of COVID-19.

The case was Martyn & Martyn [2020] FamCA 526 and the father sought to set aside a Binding Child Support Agreement and extinguish arrears payable as a result of his business being significantly impacted by the effects of the pandemic.

The original agreement was made in 2012 and required him to pay $1,350 each month which increased by 2% every year. Then in 2016, he had advised his business was failing and as a result, he reduced the child support he was paying and fell into arrears.

When he made this application this year to set aside the agreement, he already had outstanding arrears because he had been paying a reduced amount. So pre-COVID, he was wanting those arrears to be extinguished.

His business had reduced by 90% as a result of the pandemic and the impact on international trade. Unless the international trade borders reopened by September 2020, he said that he would have to liquidate his business and declare bankruptcy.

As a result of his application to the Court, the Judge was not prepared to accept the extinguishing of arrears pre-pandemic. But the Judge did conclude that the impact of COVID-19 on his business was enough to justify the setting aside of the agreement because his personal income had been reduced to such a level where he was no longer able to pay child support. Assisting in this judgment was the fact that there was no evidence as to how long the pandemic was likely to continue for.

The Court did not terminate any of the arrears accumulated pre-COVID-19, but they did set aside his agreement going forward. In this particular case, the Court said the impact of the pandemic on the father’s business was an exceptional circumstance.

What to consider if about to embark on the divorce process

When embarking on the divorce process there are many things to consider in terms of child support agreements. The age of your client’s children and whether or not they are in private schools are considerable factors. Now with the uncertainty brought about as a result of the pandemic, the stability of your client’s job or business is now increasingly important factors when it comes to the child support paid.

While many separating parents opt to go with periodic child support payments that are collected by Services Australia, some parents agree to enter into their own Binding Child Support Agreement. If this is the path your clients choose to take then it is crucial the parent paying child support is confident they will be able to pay whatever it is they agree upon. Because once an agreement has been made, it’s extremely difficult to set it aside.

To prevent disputes around setting aside or reducing child support payments, your client should look to lawyers to negotiate clauses in their Binding Child Support Agreement to detail how the agreement will change for a temporary period of time if someone loses a job or their income drops below a certain level. An option can be a clause where the agreement will terminate or be suspended if this was to occur. In either case, both parties will need to agree to any clauses that have been made but it will provide more certainty in today’s world.

What to do if COVID-19 has impacted child support

If you’re a financial planner or accountant and you’re likely to be one of the most informed people when it comes to understanding the impact COVID-19 has had on your client’s finances.

If your client has had the pandemic impact their ability to pay or receive child support, then they should look to get legal advice. If you have a client paying child support as assessed by the Department and they have had a major drop in income, they need to make sure they contact the Department to let them know.

If the person is paying child support through a private agreement with their former spouse, then they should be contacting their former spouse and give them as much detail as possible. This will help to justify why your client has to change what you are doing. Depending on the nature of the relationship this exchange may best be done through family lawyers or through you as their accountant or financial planner.

If your client is paying child support pursuant to a Binding Child Support Agreement, they should obtain legal advice as to their options.

It’s important to remember that every case is different, and the Court is going to approach each case differently. In the past, we would be advising clients that there is a very limited prospect of trying to set aside a Child Support Agreement, but the recent case has shown that these unprecedented times will be taken into account. For your client to be successful in setting aside an agreement they would need to be significantly impacted financially as a result of COVID-19.

Given the uncertainty for many in business, presenting these insights to your clients who have children and are facing separation and divorce will be helpful.