Covid and Child Support Agreements

In what probably was an inevitable step in 2020, the Federal Circuit Court has recently considered whether Covid-19 amounts to exceptional circumstances which justify the setting aside of a Binding Child Support Agreement.

Before anyone gets too excited about the impact of this decision, it is important to take into account that this was a decision of a single judge so the appeal court may take a different view and it was in relation to proceedings that had been in court since 2016, although the application was amended in early 2020 to set aside the Binding Child Support Agreement. Clearly the circumstances on which the Father relied strengthened between then and the final hearing in early June.

This matter of Martyn (2020 FamCA 526) was regarding a Binding Child Support Agreement. When it comes to Child Support, the relevant legislation provides that the amount of Child Support to be paid can be determined by a Child Support Assessment or by the parties entering into a Binding Child Support Agreement where the parties essentially contract out of the Child Support Assessment and instead agree on the amount of child support to be paid.

In this case, the parties had entered into the Agreement when the Husband was an employee earning $140,000 (net) each year as well as a car allowance, bonuses and shares. Since that time the Father had been dismissed from that employment, had another job and then purchased a business in 2015. Since not long after becoming a business owner, the Husband had been pursing that the amount of Child Support be reduced. While proceedings were on foot, the amount was reduced pending the final hearing. The business was “technically insolvent” at times during the application but in 2019 had begun to recover.

Then along came Covid-19. As the “target demographic” of the business was international businesses the market for the manufacturing business dramatically reduced including:

• 90% of the business sales were international
• All orders were cancelled by 27th March 2020
• He had stood down over 100 casual employees
• All remaining employees were paid via JobKeeper assistance
• The father and his now Wife were receiving JobKeeper
• The business was facing potentially an insolvency event

The Court is usually very reluctant to set aside a Binding Child Support Agreement, the legislation providing that a Binding Child Support Agreement can only be set aside because of “exceptional circumstances” and that the applicant will suffer hardship if the Agreement is not set aside.

In Martyn, the Mother agreed that the consequences of Covid-19 amount to “exceptional circumstances” but contended that ultimately these current circumstances will pass and therefore the agreement should not be set aside.

In determining the matter, the Judge considered that had it not been for the outbreak of Covid 19 the Court would not have been satisfied that there were exceptional circumstances justifying the setting aside of the Agreement and that the Father would suffer hardship if the Agreement was not set aside The court then considered whether in this situation of a pandemic, it would be better to suspend rather than set aside the agreement. The court rejected this because “there is an understandable absence of evidence as to the likely duration and impact of the Covid-19 pandemic on international commerce”. The court also said that it considered it was not possible to determine whether it is likely that the Father’s business would recover to the extent that he could then satisfy the Agreement if it was suspended.

So, is this decision going to lead to a rush of Child Support Agreements being set aside because of Covid-19? There is no doubt that there are a lot of people experiencing a significant change of income as a result of Covid-19 but it seems fairly extreme that a Child Support Agreement be set aside rather than suspended during these unusual times.

What this case does mean is that the current circumstances do make it worthwhile to consider what is happening with a Binding Child Support Agreement. However, it is yet to be seen how other judges and the appeal court will consider what is set out in this case.

If you are a party to a Binding Child Support Agreement and you are in circumstances that have been considerably affected by Covid-19, you should discuss your situation with the OFRM Family Law team to see whether an application to set aside the Agreement is practical in for you.

You can contact our family law team on 03 5445 1000.