It is very difficult to terminate or set aside a Binding Child Support Agreement once it has been entered into.
Terminating a Binding Child Support Agreement
There are limited ways to terminate a Binding Child Support Agreement, and those limitations depend on the drafting of the agreement.
Under section 80D of the Child Support & Assessment Act 1986, a Binding Child Support Agreement is generally terminated by:
- A fresh Binding Child Support Agreement terminating the old agreement;
- A termination agreement which terminates the old agreement;
- A court order setting aside the previous agreement under s136 (see below – need to approve exceptional circumstances and hardship); or
- Notification to the Child Support Registrar that the parent receiving child support ceases to be an eligible carer (section 80D(2A))
Legal advice must be obtained in relation to any binding child support agreement / termination agreement, if you agree not to continue with the previously agreed child support arrangements. Otherwise, it can be set aside by a Court. This is because the intention of a Binding Child Support Agreement is to provide finality to the parties in respect to their child support obligations.
A person ceases to be an eligible carer if the person has less than 35% care of the child (s5 and s7B Child Support & Assessment Act).
If this occurs, you should notify the child support Registrar (if the agreement is registered) and seek a fresh child support assessment for the child based on their new living situation.
Sometimes, a payer will stop making payments required to be made in the Binding Child Support Agreement due to a change in their financial circumstances and payments will accrue as a debt owed to the payee.
In this situation, we recommend obtaining prompt legal advice about your individual circumstances, including securing payment of the accrued debt and enforcement of the Binding Child Support Agreement.
Setting Aside a Binding Child Support Agreement
Under section 136 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. The Court has wide discretion to determine what constitutes exceptional circumstances and hardship.
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.
Masters & Cheyne – Unsuccessful at setting aside a Binding Child Support Agreement
In Masters & Cheyne [2016] FamCAF 255 the parties entered into a binding child support agreement in 2008, when the children lived with the Mother and spent time with the Father.
In 2012, the youngest son (15) started spending 6 nights per fortnight with the Father and one night with the mother as she wished to relocate. Later in 2012, she moved again to Melbourne and the Mother’s care percentage reduced further as a result (under 2%).
The parties binding child support agreement provided that the Father would have to continue to pay $220 per week to the Mother until the child turned 18.
The Court was required to determine whether exceptional circumstances were made out on the facts and whether the father would suffer hardship if the agreement were not set aside.
The Court held observed that ‘exceptional circumstances’ went beyond simply a significant change in circumstances and there would need to be hardship to the applicant or child if the agreement was not set aside.
Exceptional circumstances was defined by the ordinary English meaning, that being something that is not encountered regularly, routinely or normally.
Hardship was defined to mean severe suffering, hardness of circumstances and is not confined to financial hardship and hardship could include to applicant or to the child.
In this case, the court initially set aside the Binding Child Support Agreement stating that both exceptional circumstances and hardship were satisfied.
In relation to hardship, the Trial Judge concluded that whilst there was hardship to the Father as he would have to pay child support in circumstances not contemplated by the legislation, this was not financial hardship given his income, but it was hardship nevertheless because it is unjust.
The Mother appealed and the appeal court concluded that the binding child support agreement was not set aside as there were exceptional circumstances but no hardship.
In summary of the Appeal Court’s findings:
- exceptional circumstances existed, which included that when the agreement was made in 2008, the care arrangement was at that time 80% care to the Mother and in 2013, the care arrangement was 2% to the mother which was a ‘radical revision’ of the care arrangements and there was no prospect for a return to the previous arrangement;
- hardship was not satisfied as the Father was well off financially (after child support payments, he had $500 of excess income per week).
The appeal was allowed and the binding child support agreement was not set aside.
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 regarding satisfaction of the ‘exceptional circumstances’ requirement
In the case of Martyn, 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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