Binding Child Support Agreements
The breakdown of a family is unavoidably painful, especially when there are minor children involved
One of the most immediate issues requiring attention for both parents, but particularly for a parent with day-to-day care of the children of that relationship, is the issue of security in payment of child support. This article is intended to be a general discussion about this area of the law for the benefit of non-lawyers.
Binding Child Support Agreements
primary purpose of child support
The primary purpose of child support has always been to ensure that children receive regular periodic support from their parents to meet their day-to-day needs and this principle has always underpinned the law.
In an ideal world, a child would receive the same overall percentage of parental income that the child would have if the parents were still living together. In practice, if a parent provides a larger percentage of care than their share of the total income, they’ll generally receive child support payments from the other parent. If a parent provides a smaller percentage of care than their share of the income, they’ll generally pay child support to the other parent. The balance is not always there.
Who is considered a "parent" and who is a "child"?
A parent is clearly a biological parent living in either a marriage or de facto relationship, whether same sex or not. However, the definition is extended by the Family Law Act 1975 (Cth) to include adoptive parents and in some cases parents who become so as a result of artificial conception like IVF.
A child for the purposes of child support includes those born to the parents out of a marriage or a de facto relationship, adopted children, those born as a result of artificial conception and in some cases a child born after the relationship ended. A child will not include the child of a former partner from a previous relationship for whom you might have supported voluntarily during the relationship.
Sometimes children are cared for by someone other than their parent, such as a legal guardian, grandparent or other carer. In some circumstances those carers can seek child support payments from the parents, but they must fit within a certain prescribed criteria.
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Child Support Agency (CSA) administrative assessment
Financial support for children in Australia is generally determined by an administrative assessment of child support made by the CSA. The assessment is triggered by the application of one party and the liability to pay child support arises upon the registrar accepting the application for administrative assessment and not before. The assessment is made using a complicated formula set out in the Child Support (Assessment) Act 1989 (Cth) (the Assessment Act).
Estimating child support payments
A good first step in any relationship breakdown where children are involved is to obtain an approximation of the amount of child support you could expect to receive (or pay) from the Child Support Agency (CSA) using their online calculator. If you choose to, you can lodge an application with the CSA to manage the payment of child support that it determines is appropriate based on their formula.
Parents may negotiate and agree on a different method
Rather than relying on the formula in the Assessment Act to determine the child support amount, child support can be arranged between the parents by consent using a child support agreement. Under the Assessment Act, a child support agreement can take the form either of a Limited Child Support Agreement or a Binding Child Support Agreement (BCSA). For the most part, a BCSA is the appropriate choice. If you want to enter into a private child support agreement, the second step you should take is to gather together the documentation relevant to your circumstances and retain a lawyer.
Child Support Agreements
Binding Child Support Agreements
Binding Child Support Agreements are intended to allow parents the freedom and flexibility to make different arrangements regarding child support whilst providing a high level of certainty and finality. It is for that reason that the Assessment Act provides that independent legal advice must be obtained so that the parties to the Binding Child Support Agreement understand the advantages and disadvantages of making such an agreement. The intention is also to ensure that a party is not exposed to coercive or misleading behaviour. Section 80C of the Assessment provides that a Binding Child Support Agreement will be binding on the parties to the agreement only when it complies with the provisions in that section. The upshot is that the legislation provides that parties cannot enter into a Binding Child Support Agreement without each retaining their own lawyer.
Scope of a Binding Child Support Agreement
The flexibility of a Binding Child Support Agreement means that it can provide for a lower or higher rate of child support than would be payable under the Child Support Agency formula because binding agreements do not have to comply with the Assessment Act. Child support and the Family Tax Benefit scheme are closely linked. A party's entitlement to be paid the Family Tax Benefit Part A will be made having regard to a notional assessment that could have been made by the Child Support Agency and not having regard to the terms of any Binding Child Support Agreement entered into between the parties, so there is no advantage to those who may see it as an opportunity to find security in higher Family Tax Benefit Part A payments by accepting a lower weekly child support payment.
Periodic and non-periodic Child Support payments
Generally speaking, a Binding Child Support Agreement will make provision for the payment of child support (called a periodic payment) and payment of other expenses related to costs incurred in raising a child (called a non-periodic payment). Those non-periodic payments usually relate to payment of, or contribution towards, medical expenses, school fees and other school expenses like uniforms. It might provide that neither of those payments is to be made because you have agreed to accept a lump sum payment in lieu of child support, and that could be by way of cash or by way of transfer of an interest in real property, like your family home. Or, it might be that a combination of the above may be agreed.
Legal advice mandatory
A Binding Child Support Agreement is only valid where a certificate of independent legal advice has been provided for each party. It is vitally important for your lawyer to carefully examine and understand your financial and other circumstances (and those of your former partner and potentially a new partner) before recommending that you enter into a Binding Child Support Agreement because there are very limited circumstances in which a Binding Child Support Agreement will be set aside by the Court. For that reason, it is important that you tell your lawyer everything that is relevant and taking comfort that everything you tell your lawyer is privileged and confidential.
Consider future changes in circumstances
You will need to bear in mind that when you agree to enter in to a Binding Child Support Agreement, it takes into account each of your circumstances at that time. What if 12 months down the track your former partner starts earning a lot of more or reduces his or her hours of work to part-time? What if one of you loses your job? What if the payer has investments that can be sold while claiming he or she cannot pay child support? What if he or she re-partners and has another child? Is that person's income or assets relevant? What if an AVO has been issued? The skills of your lawyer in drafting the BCSA are very important in ensuring that the agreement properly reflects the intentions of the parties and ties off the possible risk areas that a change in a party's personal circumstances may mean. For example, considering matters such as what happens if a payer loses his or her job and receives social security payments requires careful consideration and precise drafting by your lawyer to ensure that the obligation to pay child support continues. Your lawyer's negotiation skills are also very important because it is common for the proposed BCSA to be revised multiple times before the terms are agreed upon by the parties to the agreement and your lawyer needs to understand what are your non-negotiable needs as opposed to your wants that can be used to bargain on your behalf.
Child Support Agreements
Advantages of a Binding Child Support Agreement
The principle advantage of entering into a BCSA is certainty for each party. A bird in the hand is worth two in the bush and, sometimes, reaching a compromise that sees the parties outside of the CSA is preferable to everyone. However, if there has been a history of family violence, then it may be that outsourcing child support to the CSA is preferable. Making a BCSA is nearly always cheaper than approaching the Family Court to make Consent Orders. There will always be advantages that are unique to your circumstances when entering into a BCSA, particularly where you are both on reasonably amicable terms and you can agree between yourselves about the basic provisions in the agreement.
Disadvantages of a Binding Child Support Agreement
There are inherent disadvantages to entering into a BCSA. One is that it cannot be varied. It must either be terminated by agreement or set aside or terminated by the Court. Other disadvantages usually arise in relation to the property settlement whereby your assets are split between you both and you are compromising financially. Sometimes, will recommend that you do not enter into a BCSA because the CSA assessment may mean you have to pay less per week. What you decide to do is a matter of balancing what is best for you as an individual against what is best for your children.
Costs of preparing a Binding Child Support Agreement
Naturally, the costs of preparing a Binding Child Support Agreement will depend on factors such as the willingness of the parties to compromise, the complexity of the family arrangements and whether there is a previous Binding Child Support Agreement that must be terminated. Each case is different. In general terms it will usually be far more cost effective to reach agreement outside of the Court system rather than becoming stuck in a quagmire of litigation.
Limitations of a Binding Child Support Agreement
Issues relating to parenting, like what days the children spend with their parents each week and what happens on Christmas Day or birthdays, vaccination or baptism and the like are dealt with separately, by way of a Parenting Plan or court orders. This will not form part of the Binding Child Support Agreement.
Child Support Agreements
Terminating a Binding Child Support Agreement
Section 80D of the Assessment Act provides that you can agree to terminate that Binding Child Support Agreement and enter into a fresh agreement or alternatively a termination agreement (for which you must obtain legal advice) if you agree not to continue with the agreed child support arrangements. Otherwise, it has to be set aside by an order of the Court. This is because the intention of a Binding Child Support Agreement is to give the parties a sense of finality in respect of child support and each party is entitled to feel a sense of security in the arrangement that has been agreed and undoing that is significant.
Sometimes a payee will stop making some or all of the payments in accordance with the BCSA due to a change in personal circumstances or they may simply refuse to keep paying. Those arrears payments accrue as a debt owed to the payee. A range of other situations could arise in this context that will mean you need to obtain prompt legal advice from an experienced family lawyer to find out what you can do to protect yourself and devise a strategy about what comes next.
There is often a lot of resistance from one party to a proposal that a Binding Child Support Agreement be terminated for fear that the other party will be a lot worse off financially. It is helpful if the parties participate in a mediation to resolve these issues (which are often not the only issues of concern) but, if the parties cannot agree to terminate an existing Binding Child Support Agreement and enter into a new Binding Child Support Agreement, the only real recourse where negotiations have failed is to approach the Court for an order setting aside the Binding Child Support Agreement.
Setting aside a Binding Child Support Agreement
Section 135 of the Assessment Act sets out the circumstances in which the Court may set aside a Binding Child Support Agreement. Those reasons include a "significant change in circumstances"; the annual rate of child support payable is not proper or adequate; or the Binding Child Support Agreement was entered into as a result of fraud, undue influence or unconscionable conduct.
Usually, an application to the Family Court will be on the basis of a change in circumstances. The threshold for what amounts to a change in circumstances is high, and a person's employment status (or change therein) is not enough. The change in circumstances must be "exceptional" and because of those exceptional circumstances, the applicant or the child will suffer hardship if the BCSA is not set aside. The circumstances that will convince a court to set aside a Binding Child Support Agreement are not finite and the family law cases highlight that whilst the Court will carefully consider all circumstances relevant to a particular matter, the criteria for setting aside a Binding Child Support Agreement are strict and the court has the ultimate discretion to refuse to set aside a Binding Child Support Agreement, even where it can be shown that exceptional circumstances exist.
In making an application the Court, the burden is upon the applicant to prove that there are exceptional circumstances that have arisen since the Binding Child Support Agreement was signed and that the applicant or the child will suffer hardship if the Binding Child Support Agreement is not set aside.
In the case of Jessup and Jessup [2010] FMCAfam 124, the father contended that he had encountered a significant decline in his finances and also that there was a significant improvement in the mother's financial position. The court held that it must consider whether the hardship is of such a serious nature and results in such inequity that it can only be rectified by the extreme step of setting aside or varying an existing order, and in that case the financial evidence relied upon by the applicant was insufficient to support the father’s assertions about his change in financial position and the application was dismissed.
In the case of Lincoln [2015] FCCA 18, a Binding Child Support Agreement was set aside in circumstances where the father's business went into liquidation three months after signing a Binding Child Support Agreement (and the evidence supported this contention). The court concluded that it was clear that the father simply could not pay the child support amount and this constituted an exceptional circumstance that had arisen since the Binding Child Support Agreement was made and the agreement was set aside. These two cases nicely demonstrate that convincing the Court to set aside a Binding Child Support Agreement will depend upon the facts in each circumstance.
It is worth noting too that just because the Court may be prepared to make an order setting aside a Binding Child Support Agreement, it does not mean that the Court will also make an order setting aside the arrears in periodic child support or non-periodic child support. That, too, will depend on the unique circumstances of each case.
Bainbridge Legal Binding Child Support Agreements
At Bainbridge Legal we will appoint an experienced family law solicitor to act for you in negotiating the terms of the Binding Child Support Agreement. Our lawyers will do the work competently and cost effectively. Our view is that is always preferable to reach agreement outside of the Court system and our objective is to facilitate an arrangement that you can happily live with.