Binding Child Support Agreements – Lump Sums

Binding Child Support Agreements allow parents to make binding financial agreements about child support. They can include an agreement to transfer a Lump Sum payment of cash or non-cash. For example, transferring equity in the former matrimonial home can constitute a lump sum child support payment. Some necessary features of lump sum binding agreements are listed below:

• An administrative assessment must be in force prior to entering the agreement;

• Each party must receive legal advice from a legal practitioner, and a Certificate of Independent Legal Advice must be annexed to the lump sum Binding Child Support Agreement;

• Actual payment of the lump sum will be transferred between the parties (not paid to Services Australia – Child Support);

• The lump sum credit will be recorded at Services Australia – Child Support where it will reduce each year by the annual rate of child support, and the remaining credit will be indexed by the CPI;

• The amount of the lump sum must equal or exceed the current annual rate of the administrative assessment;

• The lump sum will be credited at the rate of 100% of the child support payable (unless the agreement specifies a lesser percentage);

• Unless the Binding Child Support Agreement also changes the rate of child support payable, the Department will continue to produce formula assessments in the usual way;

• Family Tax Benefit (A) entitlements will be calculated by reference to the formula assessment of child support, or if the agreement has also changed the rate of child support payable, by reference to the notional assessment; and
• A lump sum Binding Agreement can prescribe that the lump sum can represent either 100% or some other proportion of the amount payable under the administrative assessment.

How are lump sum payments credited?

It is important to note that lump sum payments do not change the child support liability under the administrative assessment. Instead, they are credited at the end of the financial year against the liability. The ongoing child support payments are still payable at the time they become due, but they are reduced by the amount of the lump sum payment which will be credited against the liability at the end of the financial year.

At the end of each financial year, the Registrar must reduce the remaining lump sum payment by the amount which has been credited against the liability under the child support assessment for that financial year.  On 1 July each year, the remaining lump sum payment is indexed in accordance with the CPI, this is to protect the value of the lump sum over time. The remaining lump sum payment continues to be credited against the payer’s annual liability until the full value of the lump sum has been credited.

Example: David and Carla enter into a binding agreement with lump sum payment provisions. David is liable to pay child support of $5,000 per annum to Carla under an administrative assessment. The lump sum is for an amount of $20,000. David is not required to pay child support to Carla as their child support assessment is met from the remaining lump sum payment. At the end of the financial year, the Registrar reduces the remaining lump sum by $5,000 which covers the full amount of the administrative assessment for that year. The amount credited annually from the lump sum payment is equivalent to the annual amount of child support payable under an administrative assessment for that year (or part thereof if the remaining lump sum does not equal the full amount of the administrative assessment for that year). The remaining lump sum is increased annually in accordance with CPI.

The team at Family Lawyers Mackay are dedicated family lawyers available to assist you in all of your family law matters. If you have a family law matter, questions about family law or family law property settlements and want to find out more please contact us at (07) 4847 0198 or email us at mail@familylawyersmackay.com.au