220.127.116.11 Child support agreements (post July 2008)
This topic provides information about child support agreements made on or after 1 July 2008 and how they are assessed under the maintenance income test (MIT) for FTB Part A. It covers the following:
- child support agreements
- limited agreements
- binding agreements, and
- lump sum agreements.
Child support agreements
When parents separate, rather than collecting the amount of child support as assessed under child support legislation, the parents may choose to enter in to a child support agreement. Child support agreements are arrangements made between separated parents as to the amount of child support to be transferred to the payee by the payer. Child support agreements can also stipulate the way in which child support is paid.
Example: Lump sum payments (including property settlement), periodic cash payments or non-cash payments. Non-cash payments may include mortgage repayments, rental payments and school fees.
Agreements can either be limited or binding. Limited agreements must be equal to the child support assessment as determined by Child Support. Binding agreements are child support agreements where legal advice has been sought by both parents and can be for amounts less than the child support assessment. In either case, FTB will be calculated using the underlying child support assessment which is known as the notional assessment (1.1.N.45).
Limited agreements are formal agreements made in writing and signed by both parents and can be made by both parties without seeking legal advice. Limited agreements must be made after a child support formula assessment has been made and the agreement amount must be equal to or more than the formula amount.
Child Support will make a new notional assessment every 3 years, or if the amount of child support payable under the agreement changes by more than 15%, or on a request from either parent.
The notional assessment is updated by Child Support to ensure Centrelink uses the appropriate child support amounts to calculate the payee's FTB Part A payment and also allows parents to know how much child support would have been payable if the agreement was not in place.
Limited agreements can be ended if:
- both parents agree to end the agreement
- more than 3 years has passed with the existing agreement in place, and written notice is provided by the parent who wants to end it
- there is a court order that sets aside the agreement
- the notional assessment varies by more than 15% from the previous assessment, in circumstances not contemplated by the agreement, and 1 of the parents requests to end it, or
- a new agreement replaces the existing agreement.
Binding agreements are formal agreements made in writing and signed by both parents following independent legal advice. A binding agreement can be for any amount of child support that parents agree to, even if this amount is less than the child support formula amount.
For an agreement to be registered as a binding child support agreement, each parent must obtain independent legal advice about the effect of the agreement and the advantages and disadvantages of making one.
A binding child support agreement cannot be varied and can only be terminated if:
- both parents make a subsequent binding agreement that includes a provision that terminates the previous agreement, or
- both parents make a binding termination agreement, or
- a court order is made that sets aside the agreement.
Refusing to end or extend binding agreement
When care of the child/ren changes and 1 parent wishes to end the binding agreement, but the other parent does not agree, the implications for each parent under the MAT and the MIT may change, even though the agreement is still in place.
Explanation: Care of the child/ren changes so that the payer under the binding child support agreement now has primary care (more than 65% care) of at least 1 of the children. The payer wishes to end the agreement and stop paying child support for that child, although the payee under the agreement refuses. The payer needs to take reasonable action to satisfy the MAT (18.104.22.168). Any new notional assessments for the individual who is still the payer under the agreement will not be included in their MIT because they are not receiving child support under the registered agreement (22.214.171.124).
The payee under the agreement, if still eligible for FTB following a care change, would continue to satisfy the MAT as there remains a registered child support agreement in force. However, when a new notional assessment is made by Child Support, this will reflect the care and income arrangements of the parents and so the maintenance income to be counted for the payee under the agreement will change. It is possible that the payee under the agreement could be determined as the payer under the notional assessment, in this case the MIT will not apply to the payee under the agreement as child support is not payable to the individual under the notional assessment.
Binding child support agreements may be extended beyond a child's 18th birthday until the end of the secondary school year. Where the binding agreement initiated the child support case, both parties to the agreement must sign any application for extension.
If 1 party refuses to extend a binding agreement, the party that attempted to extend the case has taken reasonable maintenance action and their rate of FTB Part A for the affected children will not be reduced to the base rate (126.96.36.199).
However, in most cases if the payee does not take steps to extend the child support case (obtain maintenance) the payee is deemed to have not taken reasonable maintenance action and their rate of FTB Part A for that child will be reduced.
In the case that action could result in the payer swapping to be the payee, the payer does not have to take maintenance action for FTB purposes.
Where it would disadvantage 1 party to extend the child support agreement it may be appropriate that the refusing party not fail the MAT.
Explanation: If extending the agreement would result in an individual who now has more than 65% care of the children being maintained as a payer, they will not fail the MAT if they refuse to extend. Similarly, if extending the agreement would result in an individual who now has no care of the children being maintained as a payee, they will not fail the MAT if they refuse to extend.
Agreements or orders for lump sum payments
Agreements can be made which provide for the payment of child support by a lump sum. The agreement must be a binding agreement and the value of the lump sum must be equal to or more than the value of the annual child support payable under a Child Support determined child support assessment.
The lump sum is credited against the annual child support liability and is credited in this way until the lump sum is reduced to nil. After the value of the lump sum is reduced to nil ongoing child support payments will resume.
In calculating FTB, the MIT is based on the amount of the lump sum credited against the annual child support liability, plus any remaining cash child support received.
Example: An agreement provides for payment of a lump sum of $15,000 which is to cover 100% of the payer's child support liability. The payer's annual child support liability is $4,000. The payee's FTB is calculated on $4,000 of child support.
The lump sum is credited against 100% of the child support liability unless the agreement provides for a lesser percentage.
Example: A child support liability is $4,000 and the child support agreement provides that the lump sum is to be credited against 75% of the child support liability. Child Support collects $500 cash child support. The FTB MIT will use $3,500 in child support, which is the $3,000 lump sum credit plus the $500 cash child support.