It is very difficult to set a Binding Child Support Agreement aside once it has been entered into.
Under s136 of the Child Support Assessment Act, a Binding Child Support Agreement may only be set aside where the court is satisfied of the following:
- There are exceptional circumstances relating to a party to the agreement or a child in respect of whom the agreement is made;
- Those exceptional circumstances have arisen since the agreement was made
- The applicant/child will suffer hardship if the agreement is not set aside.
The test of exceptional circumstances sets a very high bar for setting aside a binding child support agreement.
In the circumstances that have arisen as a consequence of the Covid-19 pandemic, the Court recently held that the effects of the Covid-19 pandemic were sufficient so as to satisfy the Court that there were exceptional circumstances such that if the Binding Child Support Agreement were not set aside, it would have caused the father hardship.
Martyn & Martyn – Successfully set aside a Binding Child Support Agreement
In Martyn & Martyn [2020] FamCA 526, the Father sought to set aside a Binding Child Support Agreement which required him to pay the mother the sum of $1,350 per month, increasing by 2% each year and to extinguish arrears payable by him under the agreement because his commercial business, which manufactures and supplies products internationally, had been significantly impacted by the Covid-19 pandemic.
The parties entered into the agreement in 2012, which provided for the father to pay the mother the sum of $1,350 per month, to increase by two percent each year, in relation to their only child born in 2008.
In 2016 the father ceased paying child support to the mother and commenced proceedings to set aside the agreement due to his his company failing and accruing significant debt. After using personal loans to keep the business afloat, the father relocated the business. Soon after relocation the business sustained property and equipment damage in the sum of $600,000.
Subsequently, the Court ordered that enforcement of the agreement be stayed on the basis that the father would pay the mother $580 per month in child support until determination of the application. Although the father did continue to meet payments in that amount until the beginning of 2020, his child support liability, assessed in accordance with the agreement, continued to increase. The arrears owing to the mother in 2020 was $32,000.
The father sought that the binding child support agreement be set aside and that his outstanding arrears be extinguished.
While father’s application was on foot, international commerce was abruptly terminated as a result of the COVID-19 pandemic. The Mother did not dispute that due to the pandemic, the total sales of the father’s business had reduced by about 90 percent, over 100 casual employees had been stood down and the remaining employees, including the father and his new wife, were placed on JobKeeper.
The father argued that unless interstate and international borders reopened by September 2020, he would need to liquidate the business and declare bankruptcy. The father also submitted that unless the agreement was set aside, his debt and arrears would continue to increase in circumstances where he was unable to pay more than $120 per month for child support.
The mother argued that the father continued to derive substantial income from the business and that the effects of the Covid-19 pandemic would eventually pass. She further submitted that the father’s company had previously remained solvent through challenging periods and that she should not be ‘cut out’ of the agreement by virtue of the temporary hardship faced by the father.
While the Court did not agree that the earlier events in relation to the husband’s business were “exceptional”, the court said that the impact of the Covid-19 pandemic on the business was a circumstance justifying the setting aside of the agreement. The court made the following findings:
- the father’s personal income had been reduced to such a level where he was no longer able to pay the child support in accordance with the Agreement; and
- given the absence of evidence as to the likely duration and impact of the virus on international commerce, it could not be determined whether the father’s finances would ever sufficiently recover to the extent that he could satisfy the obligations imposed on him by the agreement.
The Court ordered that the agreement be set aside having satisfied themselves that the drop in business experienced by the Husband was an ‘exceptional circumstance’ and as a consequence he would suffer financial hardship if the agreement were not set aside.
The Court retrospectively terminated the agreement from the start of Covid-19 but refused to set aside the father’s child support arrears payable to the mother prior to that date, as ‘exceptional circumstances’ had only commenced from the start of Covid-19 pandemic and the Court considered that it would be contrary to section 136 of the Child Support (Assessment) Act 1989 (Cth) for the father’s arrears that had accrued prior to those exceptional circumstances to be extinguished.
What does this mean?
The Court did not accept that deteriorating financial circumstances were ‘exceptional circumstances’ but appears to have accepted that the significant financial impact of Covid-19 can amount to “exceptional circumstances” for the purpose of setting aside Binding Child Support Agreements entered into prior to the pandemic.
Notably, the impact of Covid-19 on the Husband’s business was extreme in this case as he experienced a reduction in business sales by 90%.
The test of exceptional circumstances sets a very high bar for setting aside a binding child support agreement.
In the circumstances that have arisen as a consequence of the Covid-19 pandemic, the Court recently held that the effects of the Covid-19 pandemic were sufficient so as to satisfy the Court that there were exceptional circumstances such that if the Binding Child Support Agreement were not set aside, it would have caused the father hardship.
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