The COVID-19 pandemic and ensuing economic crisis has had a significant impact on the livelihood of many Australians. The Grattan Institute estimates that between 14 and 26 per cent of Australian workers could be out of work in the coming weeks as a result of social distances measures implemented by the government to contain the spread of the virus. Many Australian families are juggling job losses or reductions in income, managing children’s schooling from home, accessing Centrelink and meeting their obligations under social distancing and self-isolation measures. These issues are often compounded for single parents and separating families.
To assist families during this unprecedented challenge, Farrell Family Lawyers have published a series of blogs addressing family law matters during the COVID-19 crisis. In previous articles, we have addressed how to manage the progression of your family law matter, talk to your children about COVID-19, adapt to co-parenting challenges and arrange your financial settlement. In this article, we address your concerns regarding child support and how to manage your ongoing obligations in this economic downturn.
I’ve lost my job or experienced a reduction in my income. Do I still have to pay child support?
The answer to this depends on the type of child support arrangement you have in place with your ex-partner, and the extent to which your income has reduced.
If you have an informal arrangement in place
If you have an informal, private arrangement in place whereby you pay child support directly to your ex-partner, it may be best for you to communicate frankly with your ex-partner about your financial circumstances and discuss how you can continue to contribute to the children’s expenses. You might find that you can contribute in a reduced capacity, or you may need to temporarily pause all payments until your employment re-commences. Work with your ex-partner to negotiate a new child support arrangement that accounts for the change in your financial circumstances.
If you find that you cannot reach agreement with your ex-partner, services such as Relationships Australia offer low-cost family dispute resolution services to facilitate discussions surrounding child support matters.
If you are subject to a Child Support Assessment from the Child Support Agency
If you have an assessment in place and are paying child support through the Child Support Agency (CSA), is it is important that you notify the CSA as soon as possible of your change in income. In determining the amount of child support payable, the CSA consider each parent’s income, the average annual cost of caring for a child, and how much time each parent cares for the child. If your current taxable income is at least 15% lower than your income in the previous financial year, you can file an estimate of your income with CSA in order to obtain a new child support assessment. The CSA will lower your child support payments accordingly.
Equally, if you receive family tax benefit payments, you should tell Centrelink about the changes in your situation as this may affect your payments.
If you are party to a Limited Child Support Agreement
If you have a Limited Child Support Agreement in place, it is important that you obtain legal advice as to your specific rights and obligations under the Agreement and in particular whether you have any grounds to terminate the Agreement.
Limited Child Support Agreements cannot be varied. They can only be terminated and replaced with a new child support agreement.
Generally speaking, you can terminate a Limited Child Support Agreement in any of the following ways:
- By agreement, if you and your ex-partner enter into a new Child Support Agreement;
- By entering into a written Agreement with your ex-partner stating that the Limited Child Support Agreement is terminated;
- By obtaining a Court Order setting aside the Agreement on the grounds that, either:
- A “significant” change in circumstances makes the agreement “unjust”; or
- The agreement provides for an annual rate of child support that is not “proper or adequate”.
- By giving 60 days written notice, if you or your ex-partner request a notional Assessment from the Child Support Agency and the notional Assessment varies by greater than 15% in circumstances not contemplated by the original Agreement.
- With no reason, by simply electing to terminate the agreement if it is more than 3 years old.
A limited child support agreement can therefore be terminated in a number of ways in circumstances where one parent suffers a significant reduction or loss of income.
If you are party to a Binding Child Support Agreement
Similar to Limited Child Support Agreeements, Binding Child Support Agreements cannot be varied. To terminate a Binding Child Support Agreement is a significantly more complex and difficult process.
Parties can terminate a Binding Child Support Agreement in one of the following ways:
- By entering into a new Binding Child Support Agreement. Note that both parties must obtain independent legal advice to enter into a new Binding Child Support Agreement, and a Limited Child Support Agreement cannot terminate a prior Binding Agreement.
- By entering into a subsequent Binding Child Support Agreement to the effect that the previous child support agreement is terminated, known as a “termination agreement”;
- By obtaining a Court Order setting aside the Agreement on the grounds that:
- a party’s agreement was obtained by fraud or failure to disclose material information;
- a party to the agreement exerted undue influence or duress in obtaining the agreement, or engaged in unconscionable or other conduct to the extent it would be “unjust” not to set aside the agreement;
- because of “exceptional circumstances” that have arisen since the agreement was made, the applicant or child will suffer “hardship” if the agreement is not set aside.
If you cannot reach agreement with your ex-partner about terminating the Agreement or entering into a new Binding Child Support Agreement, you will have to apply to the Court to set aside your Binding Child Support Agreement.
Assuming that there has been no fraud, duress or unconscionable conduct, the only ground on which to terminate a Binding Child Support Agreement due to a reduction or loss of income is by arguing that “exceptional circumstances” have arisen and you or a child will suffer “hardship”. The requirement of “exceptional circumstances” is a high threshold and difficult to meet. It reflects the legislature’s desire to afford parties sufficient certainty when entering into a binding agreement.
Whether or not a loss or reduction of income due to COVID-19 constitutes “exceptional circumstances” will be dependent on the facts and circumstances particular to you.
In the 2010 case of Jessup & Jessup,1 the Father sought to terminate a Binding Child Support Agreement on the basis of exceptional circumstances which, he argued, would cause him hardship if the Agreement was not set aside. The Father contended that, due to the global financial crisis, he was unemployed for a period of 6 months and found it difficult to obtain employment again in the banking industry at the age of 58. He had significant debts, had depleted his savings and had another child who was 2 years old. The Court did not set aside the Binding Child Support Agreement, having found the Father’s evidence of “exceptional circumstances” inadequate. The Court considered that the Father had other assets available to him and had resumed employment by the time of the hearing.
This judgment is not a definitive account of how the Court will treat a case where a party experiences a loss of income due to unemployment caused by the COVID-19 pandemic. The Court will consider carefully the particular factual context surrounding your change in financial circumstances.
To obtain tailored advice on how a loss of income due to the recent COVID-19 crisis impacts on your child support obligations, contact one of our experienced family lawyers on 03 8393 0144.