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Covid-19 and Binding Child Support Agreements – When Binding simply cannot be Binding

Child Support

When parents seek to formalize their child support matters, it is becoming increasingly common for them to have certainty and security in that regard and for this reason, Binding Child Support Agreements are sometimes considered an agreement of choice.

A Binding Child Support Agreement enables parents to effectively oust the jurisdiction of the Child Support Agency and document their own private arrangement about how much child support is to be paid, and the manner in which it is paid. Payments can be made directly to schools, or activity providers and include apportionment of Private Health Insurance and other medical expenses in lieu of (or in addition to) a cash payment.

Provided it complies with relevant statutory requirements, a Binding Child Support Agreement is most difficult to set aside.  Those requirements are as follows:

  • It must be in writing, signed by both parents and/or the eligible non-parent care giver
  • It must include a statement that each party has received independent legal advice as to the effect of the agreement on their rights and the advantages and disadvantages of the agreement, such advice having to be provided prior to the signing of the agreement.
  • It must include as an annexure, a certificate of advice from the relevant legal practitioners.

Once prepared and executed correctly, the limited circumstances within which a Binding Child Support Agreement can be set aside by the Court (of course unless the parties agree to set it aside) if the Court is satisfied that there are:

  • Exceptional circumstances
  • Which have arisen since the agreement was made
  • Which would mean a party to the agreement or a relevant child will suffer hardship if it is not set aside.

The current COVID-19 Global Pandemic and its resultant economic effects will undoubtedly be impacting the capacity for many parents to pay Child Support, whether because of a Binding Child Support Agreement or pursuant to an Assessment or a private arrangement.

This exact circumstance brought parties before the Family Court of Australia in June 2020 with a judgment being delivered by Justice McClelland this month.

In the matter of Martyn & Martyn [2020] FamCA 526 the following circumstances were presented to the Family Court:

  • The parties had entered into a Binding Child Support Agreement which was dated 16 August 2012.
  • On 13 January 2020 the paying parent, the Father, applied to the Court to set aside the Binding Child Support Agreement pursuant to s136 of the Child Support (Assessment) Act 1989.
  • The Father owned and operated a business which supplied products to internationally based businesses.
  • As a result of the COVID-19 pandemic and the effect on international commerce, the Father’s business was functioning at a significantly reduced capacity.
  • The Father had acquired the business in 2015 with high hopes and dreams.
  • As early as August 2016 the Father indicated an intention to seek to apply to reduce the amount of Child Support payable.
  • There were proceedings commenced in the Federal Circuit Court in October 2016 within which various Orders including a stay on collection of payments pursuant to Agreement (provided that the Father pay a reduced amount per month).
  • By 2019 the Father’s business began to recover, however come May 2020, the Father deposed to the impact of COVID-19 on his business which was 90% based on manufacturing for international businesses. He indicated that all international orders were cancelled effective 27 March 2020 and by April 2020 he could not afford (on his case) any more than $120 per month by way of Child Support.
  • The arrears recorded by the Child Support Agency (based on the original agreement) was $31,928.22 as at May 2020. The Father sought to have the Court discharge these arrears.

The Court in Martyn explored what is meant by “exceptional circumstances” and “hardship” in determining the application.  His Honour noted that the authorities confirm:

  • We must construe exceptional as an ordinary adjective, not as a term of art. Out of the ordinary course, unusual, special or uncommon.  It need not be unique, unprecedented or very rare, but it cannot be one that is regularly, our routinely or normally encountered.

And what about “hardship”:

  • The concept involves a “hardness of fate or circumstance; severe suffering or privation”. Something more burdensome than “any appreciable detriment”.

Turning to the Father’s circumstances, the Court also turned its mind to a suspension of the Agreement rather than its termination, which was open to it.

In finding it appropriate to set aside the Agreement, rather than suspend it, the Court determined (at paragraph 72):

I decline to exercise a discretion to suspend rather than set aside the Agreement because there is an understandable absence of evidence as to the likely duration and impact of the COVID-19 pandemic on international commerce. In other words, it not possible to determine, on the basis of the evidence before the Court, whether it is likely that the father’s business would recover to the extent that he is capable of satisfying the obligation imposed upon him pursuant to the Agreement after any period of suspension.

In relation to the arrears component, the Court was not minded to discharge those amounts as it would effectively mean the Court would have to find that as at August 2017 (when the reduced payment was ordered by the Federal Circuit Court) there was in existence exceptional circumstances causing hardship.  Having found that the exceptional circumstances pertained to the current COVID-19 pandemic, the Court declined that Application.

It is important to note that the Mother conceded the current financial crisis the business was in as a result of COVID-19 and the hearing was still required in order for the Court to make the Order, particularly with respect to the arrears.

This case will be one of many, in our view, in the near future regarding this and other compliance issues to do with property matters, arising as a result of these unprecedented times.

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