The Family Court does not generally have powers to order child support maintenance for children.
Maintenance for children is dealt with by the Child Support Agency (‘CSA’). All applications for child support (child maintenance) are by way of an application to the CSA. If you are not satisfied with an assessment that has been made using a formula set out in the legislation, then you may seek a review of the assessment with the CSA. If you are not satisfied with the Review Officer’s report, then you can lodge an appeal with the CSA and, if you are not satisfied with the decisions made on the appeal, you can then apply to the Family Court for a variation of the assessment that has been made.
If you and your partner reach your own decisions about how child maintenance is to be applied and paid, you can enter into a child support agreement. Once drafted by your lawyers, the agreement can then be lodged with the CSA.
The CSA will accept an agreement if you and your partner are gainfully employed and not receiving pensions or government assistance (apart from child assistance). Child support payments will then be paid in accordance with the terms of that agreement. If either you or your partner want to vary the child support agreement in any way, this can only be done by making an application to the Family Court. The CSA does not have the power to vary or alter a child support agreement.
Changes to Child Support Scheme
In 2006, the Federal Government announced a number of changes that had to be made to child support agreements within three years. The changes were made to adapt child support arrangements to adequately reflect changes in the circumstances of Australian families. The overall goal of federal government in changing
the law was to induce reluctant parents to take responsibility for the upbringing of their children, by providing adequate financial support.
Capacity to pay vs. capacity to earn
There are two basic categories of applications to change an assessment of child support, these are, ‘capacity to pay’ and ‘capacity to earn’.
Capacity to Pay
Decisions based on a capacity to pay usually involve arguments that the parent required to pay child support (‘the Payer’) has earned more than they have disclosed to the CSA. In these circumstances, the parent receiving child support payments (‘the Payee’) usually alleges that the Payer has minimized their taxable income, using methods such as company or trust accounting.
Capacity to Earn
Decisions in relation to capacity to earn recognise that the Payer is stating their true income, but they have a capacity to earn a higher amount than that disclosed. The Payee must prove that the Payer has deliberately chosen not to disclose their higher earning capacity, in order to reduce their child support liability.
Legal uncertainty arises in capacity to earn cases
‘Capacity to earn’ cases are more complicated than ‘capacity to pay’ cases. The two main concerns of the federal government in relation to ‘capacity to earn’ cases are that:
- there is uncertainty about the extent of the Payer’s obligation to earn an income to support their children
- this uncertainty has resulted in inconsistent decisions being made
Child Support Legislation
The federal government has legislated to provide decision makers with a four-step process for
deciding ‘capacity to earn’ cases.
Step 1: Determine if the Payer has a greater earning capacity than they have disclosed to the CSA
The basic test, from previous case law, is to look at the following three issues –
- The Payer’s ability to generate income (e.g. their skill base and experience).
- The Payer’s opportunity to generate income (e.g. availability of work opportunities or circumstances necessary to enable an income to be generated).
- Whether the Payer’s pursuits in relation to earning money are appropriate and willing for child support.
‘Earning capacity’ falls within the following 3 categories:
- Does the Payer not work, despite ample opportunity to do so?
- Has the Payer reduced their hours of work significantly since the relationship broke down?
- Has the parent changed his or her occupation, industry or working pattern since the relationship broke down?
- The parent has caring responsibilities for your child
- The parent’s state of health justifies the change in employment circumstances
Note: The Payee must prove that the other parent’s child care responsibilities or health difficulties do not justify the change in employment circumstances. A problem that arises here is that there may be insufficient evidence for the decision maker to decide this point. If so, the Payee will have to rely on the fact that there is a strong legal obligation on the parents to make full disclosure to the Court. There may also be a need for cross-examination of the parents and other witnesses and the decision maker may take into account surrounding circumstances to assist their decision in this regard.
Step 4: The Payer must prove that their change in circumstances was not principally done to avoid paying child maintenance.
The Payer needs to prove to the decision maker that the main reason they decided to change their employment circumstances was not to avoid paying child support.
Child Support Agreements
If you and your former spouse reach an agreement in relation to child support matters, this agreement can be formalized by way of a Child Support Agreement. In addition to specifying a weekly or fortnightly payment for the child’s general living expenses, you and your former spouse can agree on matters concerning payment of private school fees, medical insurance and extracurricular activities. There are two types of Child Support Agreements, Binding and Limited Child Support Agreements.
Binding Child Support Agreement
A Binding Child Support Agreement can provide for a lower rate of child support to be paid than what would otherwise be payable under the child support formula.
A Binding Child Support Agreement can only be set aside if –
- You and your former partner enter into a new Binding Child Support Agreement
- You and your former partner enter into a Termination Agreement
- By seeking an Order from the Court if one of the following circumstances apply:
(a) the child support agreement was obtained by fraud, or a failure to disclose material information
(b) a party to the child support agreement:
- exerted undue influence or duress in obtaining that agreement
- engaged in unconscionable conduct or other conduct to such an extent that it would be unjust not to set aside the child support agreement
(c) exceptional circumstances have arisen since the agreement was made that a party to the agreement or the child will suffer hardship if the child support agreement is not set aside
Limited Child Support Agreement
A Limited Child Support Agreement must provide for a higher rate of child support to be payable than would otherwise be payable under the formula. A Limited Child Support Agreement can only be set aside if:
- you and your former partner enter into a new Limited Child Support Agreement
- you and your former partner enter into a Termination Agreement
- by providing written notice to the Registrar of the Child Support Agency if the agreement is three years old or more
- if a new Notional Assessment varies by more than 15% of the amount payable under the Agreement
- by seeking an Order from the Court if one of the following circumstances apply:
- a) the child support agreement was obtained by fraud, or a failure to disclose material information
- b) a party to the child support agreement:
- exerted undue influence or duress in obtaining that agreement
- engaged in unconscionable conduct or other conduct; to such an extent that it would be unjust not to set aside the child support agreement
- c) exceptional circumstances have arisen since the agreement was made and a party to the agreement or the child will suffer hardship if the child support agreement is not set aside
- d) the agreement provides for an annual rate of child support that is not proper or adequate, taking into account all the circumstances of the case (including the financial circumstances of the parties to the agreement)
ABOUT CHILD MAINTENANCE AND CHILD SUPPORT
In regard to child maintenance or child support terms for child support, terms can be inserted in a financial agreement but such terms must meet the requirements of the Child Support (Assessment) Act. Effectively a child support provision in a financial agreement can only set out on a temporary basis the child support obligations of a party to the agreement. Once a child support assessment is made by the Child Support Agency, any child support provision in a financial agreement ceases to have an effect and is unenforceable.
- Provisions can be incorporated into a financial agreement to determine superannuation interests of the parties. That is pursuant to the terms of the agreement the parties can determine how their superannuation entitlements will be paid if there is a separation of the parties and when the terms of the agreement come into effect. However, careful consideration must be given to the drafting of terms in regard to superannuation. A number of a person’s entitlements will only become known when the agreement comes into effect upon a separation or the death of one party. As in a court order, there can be a splitting of a person’s superannuation entitlements. However, the drafting of such terms must satisfy the requirements of the trustee of the particular fund. The superannuation determination will only affect the policy that is taken into account. There may be other superannuation funds that a party enters into in subsequent years and therefore provision for these superannuation entitlements may not have been envisaged at the time that the agreement was entered into. The agreement could take effect many years later. Where a superannuation fund has not been specifically referred to the entitlements of a party to that fund upon death will be given to the nominated beneficiaries in the fund itself. To ensure that a party obtains an interest in a person’s superannuation entitlements upon death then the party must be aware of the beneficiaries in his actual superannuation fund. For the benefits in a superannuation fund to be paid to the other party upon separation, the provisions must be specifically set out in the financial agreement and the trustee of the fund must be given procedural fairness to approve the provisions set out in the agreement.
- The parties in a financial agreement can limit the agreement if it is their wish to do so to name only certain assets to be dealt with upon a separation. For instance, if there is a family farm and the family require that it remain in the family and not be given to another party then provisions can be set out in the financial agreement to ensure that occurs. As well if there is to be a partial transfer of an interest in an asset upon a separation then again the provisions can be drafted to ensure that partial separation does occur. A financial agreement may cover assets of the parties or can be limited to certain assets if the parties so wish. This means that the assets falling outside of the agreement will be dealt with under the general provisions of the Family Law Act and in relation to the law applicable at the time of the separation.
- The financial agreement may include third parties and the third parties can be bound by the terms of the agreement. The Family Court does not have the power to make orders against third parties and therefore a financial agreement has a greater advantage over court orders in this regard.