13.1 The importance of encouraging agreements
When relationships break down, parents need to work out a range of issues, in particular, the parenting arrangements, and the division of the property (or debts, as the case may be). It is a fundamental axiom of family law that the best arrangements are those that the parties negotiate for themselves. They are more likely to last where people feel responsible for the choices and compromises that have had to be made. Imposed solutions can breed resentment and dissatisfaction. For that reason, adjudication should always be a last resort.
Child support, however, is the one area of family law where there has not been much of a focus on negotiated arrangements and dispute resolution. The child support formula is applied in the great majority of cases. This is not necessarily because parents do not want to make their own agreements about child support. There are certain restrictions that stand in the way of parents entering into negotiated settlements about child support that depart from the formula. These restrictions arise from the interrelationship between the Child Support Scheme and Family Tax Benefi t (FTB).
A further problem with the current arrangements about child support agreements is the lack of even the most basic safeguards to ensure that agreements that have long-term financial consequences for the parents and children are freely and fairly made. The law on child support agreements stands in marked contrast to the family law rules on agreements concerning property division and spousal maintenance. The extent of the difference is surprising, for child support agreements dealing with the support of children until 18 may be of much greater fi nancial significance in the long term than agreements about property.
The availability of Family Relationship Centres to provide parents with information, support and guidance when negotiating parenting related issues will provide practical assistance when parents wish to explore an individualised child support arrangement to match their particular circumstances. This then needs to be matched with a system of handling such child support agreements within the Child Support Scheme that provides adequate protection for the parents and the child, whilst maintaining the balance between parent and taxpayer contributions.
13.2 Agreements under the existing Scheme
Child support legislation allows parents to reach their own agreement on the amount of child support to be paid.
241 A child support agreement has to meet the requirements of the legislation and has to include matters that can be dealt with in a child support agreement. A child support agreement must be in writing, and signed by both parents.
242 An agreement must contain at least one of the following:
- provisions under which a parent is to pay child support for a child to another person in the form of periodic amounts paid to the other person;
- provisions varying the rate at which a parent is already liable to pay child support for a child to another person in the form of periodic amounts paid to the other person;
- provisions agreeing on any other matter that may be included in an order made by a court under Division 4 of Part 7243;
- provisions under which a parent is to provide child support for a child to another person otherwise than in the form of periodic amounts paid to the other person; or
- provisions under which a parent’s liability to pay or provide child support for a child to another person is to end from a specifi ed day.
A document that forms a parenting plan, maintenance agreement, or fi nancial agreement under the Family Law Act can also be an agreement for child support purposes if it contains at least one of the above types of provisions and complies with the other necessary requirements.
244Once parents have made a child support agreement, either parent can apply to the Child Support Agency (CSA) to have it accepted.
245 The only formal requirement for making a child support agreement is that it must be in writing and signed by both parents.
246 In many cases, the agreement will also need Centrelink approval.
247
13.3 The requirement of Centrelink approval
Generally, acceptance of the agreement depends upon whether there are fi nancial consequences in terms of increased FTB Part A payments flowing from the terms of the agreement. If the payee receives or has applied for more than the base rate of FTB Part A, CSA must refuse to accept the agreement unless there is a child support assessment in force immediately before the application is made.
248 If there is an administrative assessment in force on the day CSA received the application for acceptance of a child support agreement and the payee receives, or has applied for more than the base rate of FTB Part A, CSA must send a copy of the agreement to Centrelink.
249 Centrelink has to decide whether, if CSA accepts the agreement, the payee will have taken ‘reasonable action to obtain maintenance’ for the child (the Maintenance Action Test or MAT).
250 If Centrelink decides that the agreement does not pass the MAT it must advise both parents in writing.
251 In this case, CSA must refuse to accept the agreement. Otherwise, if Centrelink decides the agreement is acceptable, CSA must accept the agreement.
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13.4 Centrelink approval as a safeguard
Generally, Centrelink will only give its approval to an agreement if the amount or value of child support in the agreement is at least 100% of the amount that would be payable under the formula.
This provides little room for trade-offs to be made between levels of child support and other things that may be important to the parents. The provision for Centrelink approval is not there to protect the parents—or their children—from unfair agreements. Centrelink approval has a secondary effect of protecting payees from unfair agreements, but its purpose is to protect the taxpayer. Because the Government recovers some of its expenditure on separated families through the Maintenance Income Test (MIT), it needs to ensure that agreements about child support do not operate to reduce the amount that can be recovered for the Government.
It is not clear that the requirement for Centrelink approval protects either the children or taxpayers adequately. The requirement for Centrelink approval prior to an acceptance of an agreement only protects taxpayers based upon the circumstances in existence at that time. If the situation changes, the agreement remains in force, even if it would not have been acceptable if applied for on that day. Since agreements can last until the child turns 18, this creates a huge opportunity for manipulation and abuse. The Legal Aid Commission of NSW provided the Taskforce with one example of how child support agreements can be misused to avoid child support:
The parties had separated when the child was still a baby and the carer was in receipt of Parenting Payment and FTB Parts A and B at the time the agreement was entered into. The payer had a child support assessment using an income of $30,000 per year. The payer lodged an estimate that resulted in a nil child support assessment, since this was before the minimum $5 per week came in. The payer then placed some pressure on the carer parent to enter into a child support agreement requiring the payer to pay nil child support. The child was eight months old when the agreement was made and it ended when the child attained 18 years of age. A delegate of the Secretary of the Department of Social Security had to check that the proposed agreement was for an amount equivalent to the amount payable under the child support assessment. As the agreement met this amount at the time the agreement was entered, the delegate approved the agreement. Legal action had to be taken to bring the agreement to an end.
Another problem is that an agreement may be entered into at a time when the payer’s income is relatively low, and when the payer knows that those circumstances are likely to change. There is no requirement of full disclosure either to the payee or to Centrelink. The result may be that not only is child support lower than would be justified in the circumstances, but that the taxpayer is left to pay more of the support for the children through FTB than would be the case if the formula were applicable.
The Legal Aid Commission of NSW offered another example:
The payer in this case enjoyed a good income during the life of the marriage. Following separation, the payer went through a period of unemployment for approximately 18 months, and had a minimum child support liability. The carer struggled to support the two lower primary school aged children. The payer then offered the carer a child support agreement for $50 per week, payable until the children each attained 18 years. This agreement was for more than the current assessment and the carer entered the agreement to keep the peace, not fully appreciating how difficult it could be to vary this agreement. The Social Security Secretary’s delegate approved the agreement because it was for an amount higher than the current child support assessment. The carer then discovered three months later that the payer had returned to employment and was earning a similar income to the income earned during the marriage. This would have resulted in a child support assessment of $250 per week. Legal action had to be taken to bring the agreement to an end.
At 30 June 2004, 2,569 parents had an agreement with the other parent for a minimum liability of $260 per year.
252 In some cases, the payee may have been given something substantial in return, such as a greater share of the property on separation. Some agreements reduce the payer’s liability during periods of unemployment. However, the number of these minimum liability agreements is a cause for serious concern. It suggests that the cases cited above are not isolated examples.
13.5 Protecting the taxpayer
The present method of using Centrelink approvals to protect the taxpayer from agreements that would be to the detriment of government revenue is neither the most efficient nor the most effective method of doing so.
A simpler and more effective way of ensuring that the agreements do not disadvantage taxpayers is to provide that wherever periodic child support liabilities are reduced as a consequence of the operation of an agreement, the parties’ entitlement to FTB should be calculated on the basis that the person who is in receipt of the agreed child support is receiving the amount to which he or she would be entitled under the statutory formula.
253 Thus the MIT will be applied as if the parent was receiving the formula amount, while the actual amount transferred between the parents takes into account the terms of the agreement for child support.
This is the effect at the moment if a parent agrees that her or his FTB Part A payments should be based on the amount of child support to which he or she is entitled, rather than the amount which is actually received, and that there should be no reconciliation with actual receipt. This is universally the case where parents have a private collect arrangement, as the majority have. Neither the CSA nor Centrelink has any way of knowing whether in fact payees are receiving the child support to which they are entitled under the formula assessment since the transfer of money is a private one.
The consequence of not having CSA collect the child support is that for FTB purposes, the payee is assumed to be receiving the level of child support stipulated in the assessment.
The Taskforce proposal obviates the need to make child support agreements subject to Centrelink approval requirements. Taxpayers are in no way disadvantaged by the agreement. By breaking the nexus between child support agreements and FTB payments, there will be more room for private agreements since parents will be able to make bona fide agreements for less child support than the formula would yield in exchange for other benefits that may be valued by a payee parent.
There will also be an increase in revenue to the Government by reducing the scope for abuse of such agreements. Taxpayers cannot be disadvantaged if child support agreements cannot affect FTB entitlements. The present processes of approval of child support agreements by Centrelink based only on present circumstances cannot provide long-term protection for taxpayers and the system is wide open to manipulation.
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13.6 A discretion to refuse registration
If Centrelink no longer has to approve agreements, then it will mean that one safeguard, albeit an ineffective safeguard, from unfair agreements is removed. The Taskforce proposes that there should still be safeguards, but that these should be purpose-designed to protect payees and their children from unfair agreements, rather than being an accidental collateral effect of a process designed for other purposes.
At present, the Child Support Registrar has no discretion to refuse to register a child support agreement that has been made in the proper form. The Taskforce proposes that, as one safeguard, the CSA should have discretion to delay registration of an agreement in order for a parent to seek legal advice.
The procedure could be similar to the present process of Centrelink approval in situations where the parents have not both had independent legal advice. A formula assessment would need to be carried out and the agreement compared with the operation of the formula.
254 If the process is genuinely to check ‘adequacy’ for the parents, the comparison may need to be broader, comparing the amount produced by the agreement with something of the nature of an ‘average’ assessment, looking at the parents’ average rate of child support during a number of previous periods. Any past rate changes the agreement makes, and the level of child support provided for into the future would also be relevant. Also relevant is the value to the parents of any substituted benefits. If the Child Support Registrar concludes on the basis of this comparison that the agreement does not provide an adequate amount of child support for the child’s needs or otherwise that the agreement is not proper, because it is prima facie unfair or unjust to the child given the parents’ financial circumstances, then he or she may advise the parents accordingly by letter or phone call. The parent who is likely to be disadvantaged by an agreement should be encouraged to seek legal advice and be given the addresses of Legal Aid or a community legal centre if appropriate.
If that parent declines to seek legal advice, or persists in seeking registration of the agreement after receiving legal advice, then he or she must indicate this in writing to the CSA.
Further safeguards proposed by the Taskforce relate to powers of the court to set aside agreements. The proposed safeguards will make the child support legislation consistent with the policy of the
Family Law Act 1975.
13.7 Other issues
Once accepted by the Registrar, an agreement has effect under the Act as though it is an order of a court.
255 An administrative assessment must be made, or the terms of any existing assessment varied in accordance with the terms of the agreement. Any administrative processes that might otherwise apply to vary an administrative assessment are excluded if their operation would conflict with the terms of the agreement.
For example, if the agreement sets an amount of child support per child, any variations to the parents’ incomes, care of children in a second family or change in care levels will not affect the payments of child support due. If the carer parent ceases to care for some of the child support children, the liability may be reduced if the agreement was specifi c as to the liability for each child. However, if the agreement was general, providing an aggregate amount only, no reduction in the payments will occur unless the carer parent no longer provides care for any of the children.
An agreement may be varied by further agreement, or by order of a court. After the agreement has been registered in a court, the provisions may be discharged, suspended, revived or varied by the court in the same manner as the court could discharge, suspend, revive or vary a court order of that kind.
256 The rules on child support agreements can lead to serious disadvantage either to payers or to payees depending on the circumstances. First, payers or payees may make significant concessions to the other parent without any legal advice.
Secondly, agreements may be unlimited in duration, lasting until the time when child support is no longer payable under the Act. An example of the problem was also provided by the Legal Aid Commission of NSW.
In this case, involving a high-income employed payer, the parties entered a child support agreement in 1998 when the payer was earning in excess of the cap. The agreement required the payer to make periodic payments over and above the capped amount for two children of the marriage. The agreement allowed for no changes in circumstances of either party. The payer was made redundant in 2003. The payer continued to make the child support payments out of his redundancy payout for one year, until the redundancy payout expired. The payee did not respond to the payer’s request then to end the agreement, resulting in the need for a court application.
This case example illustrates a third problem—that agreements, once entered into, are very difficult to get out of. Unless there is a subsequent agreement of the parties, a court order is required. The
Child Support (Assessment) Act 1989 does not specify the circumstances in which a court may terminate the operation of a child support agreement or the factors to which it should give consideration. Case law indicates that a court should apply the same three-stage process which is required under section 117 of the Child Support (Assessment) Act.
257 The lack of safeguards contained in the rules for child support agreements contrasts with the safeguards that operate under the
Family Law Act 1975 in relation to binding financial agreements. This requires both parties to have independent legal advice on:
- the effect of the agreement on the rights of that party; and
- the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement.
The terms of child support agreements may be no less significant, in fi nancial terms, than a binding financial agreement. The lack of protections for the parties under the Child Support Scheme compared to the Family Law Act is notable. It is surprising in particular that when agreements may have a significant adverse effect on the wellbeing of children, there are not adequate safeguards in place.
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13.8 Reforming the rules concerning child support agreements
The Taskforce proposes two strands to the reform of the law on child support agreements.
First, parents should be able to make binding financial agreements in relation to child support on the same basis as they can do for property, superannuation and spousal maintenance under the
Family Law Act 1975. Binding financial agreements are only valid if the parties to it have independent legal advice. This brings the rules on child support agreements into harmony with financial agreements concerning property division and spousal maintenance.
In order to ensure that binding financial agreements are available to any parents, and not only to those who were married to another, the relevant legislative provisions should be placed in the child support legislation. The legislative provisions would not need to be identical to the Family Law Act. Indeed, since financial agreements under the Family Law Act are limited to those who are or have been in marital relationships, or are preparing to enter marriage, the text could not be identical. What is important is that the substantive rules for the making of agreements, setting aside agreements and enforcement should be the same to the extent that they are applicable to agreements in relation to child support. Parents who have had a marital relationship ought also to be able to include provisions on child support in binding financial agreements made under the Family Law Act.
Secondly, there should be safeguards for parents who make agreements without both having independent legal advice. The child support agreement should be of limited duration, and the agreement should be able to be set aside or varied in defi ned circumstances.
Unless the parents have made an agreement by way of a binding fi nancial agreement, the Taskforce proposes that agreements should only be binding for a three-year period; that is, the agreement should be terminable by either party on one month’s notice at any time after the first three years of the agreement. If the parents choose to enter into a fresh agreement, then it would have a binding effect for a further three years. The reason for this three-year period is that it is very hard to anticipate more than three years in advance what the circumstances will be.
It may of course, be appropriate in some cases that agreements are established to be binding for longer than three years and even until the children reach 18. In families where there is very high conflict, or there may be difficulties in enforcing ongoing obligations against a payer, it may be in the best interests of the children that a long-term agreement is made. The safeguard is that they will need to do this by means of a binding financial agreement, with both parents having independent legal advice.
Having two forms of agreement, one that requires independent legal advice, and one that does not require this, is a way of ensuring parental choice while ensuring that there are appropriate safeguards in place.
The proposal that binding financial agreements concerning child support should not be subject to the same restrictions as agreements made without legal advice, does not mean that a change in circumstances would be entirely irrelevant to binding fi nancial agreements. However, the test would be stricter. One of the grounds for setting aside binding financial agreements under s.90K of the
Family Law Act 1975 is that:
Since the making of the agreement, a material change has occurred in the circumstances of either parent or the child and as a result of the change, either parent or the child will suffer hardship if the court does not vary the agreement or set it aside.
This, and other relevant grounds for setting aside binding financial agreements under the Family Law Act, would also apply to binding financial agreements made under the Child Support Scheme.
Recommendation 17
17.1 Agreements between the parents concerning child support should have effect on the condition that entitlement of the payee to FTB Part A will be assessed on the basis of the amount of child support that would be transferred if the agreement had not been made.
17.2 The Child Support Registrar should have a discretion to advise a parent to obtain legal advice about the agreement if the Registrar considers that the agreement provides for a level of child support that in all the circumstances, and taking account of the current financial circumstances of the payer and payee, is not proper or adequate. The Registrar may delay the registration of the agreement until the parent confirms in writing either that he or she has sought legal advice or that he or she wishes to have the agreement registered without seeking legal advice.
17.3 Parents should be able to make binding financial agreements under the Child Support (Assessment) Act 1989, registrable with the CSA, under the same conditions and with the same effect as binding financial agreements under the Family Law Act 1975.
17.4 Child support agreements made where one or both parents do not have independent legal advice should:
- Be terminable by either party on one month’s notice at any time after the first three years of the agreement.
- Be able to be set aside by the court on the following grounds
- fraud or non-disclosure
- undue influence, duress, unconscionable conduct or other behaviour in the making of the agreement that would make it unjust to maintain it
- that there has been a significant change of circumstances for the payee, the payer or the child that would make it unjust to maintain the agreement
- that the agreement provides for a level of child support that in all the circumstances, and taking account of the current financial circumstances of the payer and payee, is not proper or adequate.