We work closely with our clients and their financial advisors when a relationship is coming to an end and there are dependent children involved. It is an area that has a significant amount of misapprehension, particularly of late.
There have been significant changes to the Child Support (Assessment) Act 1989 and it appears to be an ever-changing field. Just last year in 2018, the changes to legislation were made retrospectively. When this occurred we contacted all of our clients with a Child Support Agreement in place to let them know they needed to speak with us about their agreement because it may have been no longer valid.
How does the child support process work?
When a separating couple is looking to determine who will contribute funds for what for their children now and into the future, there are four main ways in which that can happen. People either:
- Apply for a child support assessment
- Enter into a Binding Child Support Agreement;
- Enter into a Limited Child Support Agreement; or
- Apply to the Court for Child Support Departure Orders.
Each of these options are used in different situations. Here is each option explained:
- A child support assessment is done through the child support agency (Department of Human Services – Child Support). An assessment for periodic child support is made and issued determined by a number of factors including what each parent’s income is, the existing parenting arrangements for the children (which is generally based on the number of nights that the children are spending with each parent), the age of the children and the cost of living index. The agency reviews the assessment yearly as they have access to both parents’ tax returns, although parents can seek to have it reviewed at any time, which is discussed below. The agency has power to ensure that periodic child support is being paid. It is the most widely used approach. This option is easier to change taking into account those variables, and may have positive or negative impacts depending on the circumstances.
- If parents have a child support assessment in place they can apply to the Child Support Registrar to seek to change the amount of child support received or paid, based upon special circumstances. For instance, if both parents had agreed for a child to attend a private school and one parent is only paying child support as per the child support formula assessment, a parent can apply to the Child Support Registrar to say they wish the child support to increase as a result of them having to pay those school fees. Other arguments taken to the Child Support Registrar might be that the amount provided is unfair because of the other parent’s income or earning capacity; or if a parent’s necessary expenses significantly affect their capacity to support a child; or whether the costs of supporting a special needs child affect the parent’s ability to support the child effectively.
- A Binding Child Support Agreement is done with both parents seeking legal advice and it is very difficult to terminate unless certain significant issues have arisen. Reasons for termination might include a child turning 18 years, a significant change in the parenting arrangements, the parent paying child support ceases to be an Australian resident or other extenuating circumstances. We recommend including a termination clause in binding financial agreements to allow for changes in circumstances such as the instance of one person’s income becoming significantly reduced. I am adamant in my advice to clients – do not enter into a binding child support agreement unless you can commit to it. It is far better to get an attainable agreement in place now. Because once an agreement is in place, it cannot be amended, it is required by law to be drawn up again in it’s entirety and the other parent must agree. Getting this right the first time means you will avoid the need to seek additional legal advice, and incur additional costs.
- A Limited Child Support Agreement is a short term agreement for only three years. A new Limited Child Support Agreement can be entered into after that time or alternatively, a child support assessment or binding child support agreement might be the next step. This limited agreement is sometimes applied when the parents have very young children and there may be uncertainty about the future arrangements for the children such as how much time the children will spend with either parent into the future and/or where the children will attend school. At the end of the three year period the agreement can be reviewed and decisions can be made in relation to parenting arrangements and other significant decisions such as where they will go to school. Parents are not required to obtain legal advice before entering into a Limited Child Support Agreement although we recommend that they do as again, it is difficult to terminate an agreement during the three years it is in place.
If the parents have an administrative assessment in place, they may be able to apply to the Court to seek Orders to depart from the assessment in place if special circumstances exist. A parent can only apply for Child Support Departure Orders in certain circumstances such as there being Court proceedings already pending and the Court is satisfied that it would be in the interests of the parents to consider making orders having regard to the special circumstances. In addition to the Court being able to make Orders regarding the periodic payments of child support, the Court also has the power to make orders for non-periodic child support to be paid. As most parents are able to resolve matters without the need for a Court to make a final determination, parents will often consent to enter into Departure Orders or a Binding or Limited Child Support Agreement.
What were the legislative changes?
Terminating Events – if a parent who is receiving child support as agreed in their binding child support agreement has the children in their care less than 35% of the total time shared, that is now considered a ‘terminating event’. That is, the agreement is no longer valid. A new child support agreement may need to be entered into.
Binding or Limited Child Support Agreement Suspension – there is now the provision for an agreement to be suspended for a period of time if a parent ceases to be an eligible carer (that is, providing less than 35% of care for the children) but continues to be entitled to receive child support pursuant to the terms of the agreement. The time frame is up to 28 days unless the agreement states otherwise or the parents agree or the Child Support Registrar determines it is appropriate in the circumstances. For example, the person who ceased to be an eligible carer is in hospital for a period of time. The maximum time frame for this agreement suspension is 26 weeks. However, an agreement cannot be suspended if both parents are no longer eligible carers of the child and there are no non-parents carers entitled to be paid child support.
What these changes required us to do was to determine if our client or their former partner would be deemed to have ceased to be an eligible carer of a child (that is, someone who is caring for their children less than 35% of the time) and also make them aware of the provision for an agreement suspension period.
What does this mean for parents, accountants and financial advisors?
Due to the retrospective changes made to Child Support legislation last year, be aware that any agreements may need reviewing in the future.
For parents it means that if they want further security about ensuring that their child support arrangements are upheld, they may need to take a further step beyond the child support assessment. What is not always known from the outset is that the child support agency does not have any power to enforce payments made to third parties such as private schools or sport providers. So if parents are concerned about ensuring the payment of third party expenses and want to enforce payments of that nature, they need to seek legal advice about what they should do, such as enter into a child support agreement and registering the agreement with the Family Court, to increase the likelihood of those arrangements being upheld.
For accountants and financial advisors it means that if you have clients who are going through separation and divorce and they have children who are dependents, recommend they seek legal advice. We like to be involved with our clients advisors from the start to know what is being contemplated by both parents. Then you and your client can discuss what is realistically achievable based on the financial information and insights you have at hand. We can then work together to enter an agreement that is realistic and reduces the chances of needing to enter a new child support agreement, and minimise the emotional and financial costs associated.