SETTING ASIDE A BINDING CHILD SUPPORT AGREEMENT IN “EXCEPTIONAL CIRCUMSTANCES” & THE IMPACT OF THE COVID-19 PANDEMIC

Binding Child Support Agreements are written agreements between parents covering financial support arrangements for children. Both parties must obtain independent legal advice prior to entering into a Binding Child Support Agreement, and after an agreement has been entered into, they are difficult to set aside.

Parties generally enter into Binding Child Support Agreements to fix the level of child support payable as opposed to relying on a statutory assessment based on a complex formula. A Binding Child Support Agreement may also define financial obligations for a payer parent including paying educational, out of pocket health-related expenses and extracurricular activity costs.

A key ground to set aside a Binding Child Support Agreement is pursuant to section 136(2)(d) of the Child Support (Assessment) Act 1989 (“the Act”). The Court must be satisfied that:

a. There are exceptional circumstances which relate to a party to the agreement or child in respect of whom the agreement is made;
b. Those exceptional circumstances arose after the agreement was made; and
c. The applicant or the child will suffer hardship if the agreement is not set aside.

Agreements may also be terminated if the parties enter into a termination agreement by consent.

It is not intended that Binding Child Support Agreements should be set aside lightly. How does the COVID-19 pandemic come into play when applying to have a Binding Child Support Agreement set aside?

The recent decision in the case of Martyn & Martyn [2020] examined the unprecedented effects of the COVID-19 pandemic and the “exceptional circumstances” under which a Binding Child Support Agreement can be set aside. In that case, the Father sought to set aside the Binding Child Support Agreement which required him to pay the Mother the sum of $1,350 per month (increasing by 2% at the commencement of each calendar year). The Father argued that his business, which manufactured products for export, had suffered a 90% reduction in turnover due to the COVID-19 pandemic. As a result of this loss, he claimed that he was only able to make payments in the sum of $120 and foreshadowed that he may be forced to declare bankruptcy if interstate and international borders remained closed. He ultimately argued that these factors amounted to “exceptional circumstances” which deemed him unable to make child support payments pursuant to the Agreement.

The Mother did not dispute that the Father’s business had suffered a significant loss, however, she argued that the Agreement should be suspended for a specific period of time rather than being terminated.

The Court applied the 3-step approach and determined that the impact of the COVID-19 pandemic on the Father’s business amounted to “exceptional circumstances”. The Court noted that the COVID-19 pandemic “is an exceptional circumstance and…that the father would suffer hardship if the Agreement is not set aside”.

The case of Martyn & Martyn suggests that parties may apply to have a Binding Child Support Agreement set aside or suspended on the basis that their financial obligations have been significantly impacted. It is important to note, however, that the threshold for determining “exceptional circumstances” is high. In the case of Martyn & Martyn, the Court did not accept that a party’s deteriorating financial circumstances would be sufficient to set aside an Agreement. A reduction in business activity and or income would not, in and of itself, amount to “exceptional circumstances” unless the party’s financial circumstances were weakened significantly by the negative economic effects of the COVID-19 pandemic.

It is important to note that whilst a once in a lifetime event such as the COVID-19 pandemic may constitute “exceptional circumstances” and may warrant the termination or suspension of a Binding Child Support Agreement, each case will be assessed on an individual basis. As noted in the case of Keane & Keane (2013), “it may be that one circumstance alone cannot be described as exceptional but the whole of the circumstances, when looked at cumulatively, might be described as exceptional”.

In circumstances where parties will suffer hardship if the Agreement is not set aside, parties should seek legal advice as soon as possible so as to avoid accruing substantial child support debts, which, in the matter of Martyn & Martyn, were not written-off despite findings of hardship.

The team at Vic Rajah Family Lawyers regularly prepare Binding Child Support Agreements and are able to advise clients on the merits or otherwise of entering into a Binding Child Support Agreement and the redress they can seek where their arrangements have changed after entering into the Agreement.

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