188.8.131.52 Child support agreements (pre July 2008)
Note: This topic only covers details about child support agreements made and registered before 1 July 2008. For details on child support agreements made on or after 1 July 2008, see 184.108.40.206.
Changes to child support agreements
Previously, the Child Support (Assessment) Act 1989 required Child Support to accept any formal agreement lodged with them. This was regardless of the amount and irrespective of whether the agreement met reasonable maintenance action.
Explanation: Formal agreements were also known as a consent agreement or consent arrangement.
From 29 May 1995 until 30 June 2008, the Child Support (Assessment) Act 1989 required that when an FTB Individual lodged a child support agreement, Child Support could not accept the agreement until the terms had been approved by Centrelink. Centrelink had to determine whether the agreement satisfied the requirements to take reasonable maintenance action. Agreements made on or after 1 July 2008 can only be approved by Child Support.
Act reference: Child Support (Assessment) Act 1989
Policy reference: FA Guide 220.127.116.11 Taking reasonable maintenance action
Changing a child support agreement
Once accepted by the Child Support Registrar, a child support agreement is legally binding. It may be beneficial for the parties involved in the agreement to seek legal advice when making and formalising a child support agreement. An agreement can only be varied or revoked by:
- both parties lodging another agreement or ending the current agreement
- 1 party applying to the court to have the agreement varied or ended, or
- the period specified in the agreement being reached.
Example: Child support agreements may be lodged for a specified period such as:
- 1 financial year, or
- to cover the child/ren until they reach 18 years of age.
Terms of an agreement
Individuals entering into an agreement should be aware that Child Support does not issue a new formula assessment for any period that is covered by an agreement unless a new formula assessment amount is required by the terms of the agreement. Individuals are encouraged to include provision for annual reassessment in their agreement. The terms of different agreements may appear the same at the time of lodgement, but in the long term the annual agreement amounts may change.
Examples: For both of the following examples assume:
- there is 1 child aged 12 years
- the annual assessment amount at time of lodgement is $5,000, and
- the period of the agreement is from the date of lodgement until the child reaches 18 years.
Example 1: An agreement is for an assessed annual liability rate of $5,000 per annum at the start of the agreement less a non-cash component of school fees of $1,000 at the time of the agreement. An annual assessment is calculated each financial year to assess the payer's (1.1.P.72) annual liability amount. The non-cash component of school fees is then deducted to assess the cash component of the agreement.
Example 2: An agreement amount is fixed for $5,000 per annum. This amount is made up of:
- $4,000 in cash, and
- $1,000 is a non-cash component for school fees.
As this agreement is for a fixed amount of $5,000 per annum, Child Support is not required to reassess the payer's liability amount annually. Therefore, the agreement will remain at $5,000 and the Individual will only be required to collect $5,000 per annum until the child reaches the age of 18 years.
Maintenance action test
To meet the MAT, the amount of the agreement must be equal to or greater than the annual assessed rate as calculated by Child Support. However, an agreement may be considered 'reasonable' providing it is within $60 per annum of the assessed rate.
Agreements & assessments
Individuals receiving or claiming FTB at more than the base rate may lodge a child support agreement. They cannot have this agreement registered with Child Support unless they:
- have an assessment, or
- are replacing an existing agreement.
If an assessment is not already in place the Individual should apply for an assessment at the same time as lodging the agreement. The new agreement must meet the maintenance action test.
Future changes in an agreement
Future changes in a child support agreement need to be considered when deciding on whether to accept the agreement. At any time during the life of an agreement, the agreement must meet the maintenance action test.
Example: Kellie and Nathan have 2 children aged 16 and 14 years. The annual assessed amount of child support is $27,070. Kellie and Nathan enter into an agreement where for the period 1 August 2004 to 31 December 2004 Nathan will pay Kellie the current assessed rate of child support and half of the children's educational expenses which are $7,000 per annum. For the period 1 January 2005 to 30 June 2005 Nathan will pay for all the school expenses for both children and 50% of all their medical and dental costs, consisting in total of $20,500 per annum. Although the total value of the agreement for the first period is above the assessed rate of child support, the agreement does not meet the maintenance action test because the value of the agreement is less than the assessed rate for the second period.
Agreements that specify a period of backdating
An agreement does not meet the maintenance action test where the agreement:
- specifies a period of backdating which involves a decrease to the formula assessment that applied in that earlier period, and
- the agreement were to replace the formula assessment that applied, and
- the payee is entitled to receive more than the base rate of FTB at the time the agreement is made.
Discharging arrears in an agreement
An agreement does not meet the maintenance action test where an agreement specifies that arrears are to be discharged. These agreements should be treated the same way as agreements that specify a period of backdating. However, where the amount of the agreement is higher than the annual assessed rate and has the effect of collecting the arrears in a reasonable period of time, then the agreement can be accepted.
Example: Kym and Tom lodge an agreement for $3,900 per annum. Their current assessed rate of child support is $2,400. A clause to their agreement states: 'Upon implementation of this agreement we agree to discharge the outstanding maintenance of $3,500 by a cash payment of $2,000 and to discharge the remaining amount of $1,500'. This agreement can be accepted because Kym is effectively collecting the amount of $1,500 to be discharged in a reasonable period of time.
Differences between a child support agreement & other arrangements
A child support agreement differs significantly from arrangements made between a payee (1.1.P.71) and a payer to collect child support payments privately. The latter arrangement is informal and not binding on either party. The payee may change this arrangement at any time by requesting Child Support to commence collection of child support payments. However, a registered child support agreement has the same effect as a consent order made by a Court, including the periodic and non-periodic provisions of an agreement.
Registered child support agreement
After a child support agreement is accepted and registered by Child Support, it is binding on both parties. It can only be replaced or varied by another agreement or by one party applying to the Court to have the agreement discharged, suspended, revived or varied. However, Child Support can only collect and enforce periodic payments. If the payer fails to comply with other terms of the agreement (such as paying school fees), the payee may register the agreement with a Court and have the Court enforce compliance.
Child support agreements can be complex in nature. Most parties to an agreement want to formalise agreed arrangements that set out payment of child support in a combination of ways. This may include payments made to a school for education expenses as well as cash payment or loan repayments. In other cases a payer may wish to make child support payments to a value greater than assessed by Child Support. In these circumstances, an agreement could be lodged to formally register a specified liability with Child Support. Agreed terms of payment considered to be child support payments under the maintenance income test are covered in another topic.
Disability expenses maintenance
If an agreement contains a component specified as being for a child's disability, this amount must be in addition to the value of the agreement. As disability maintenance is disregarded for maintenance income test purposes this cannot be included when determining whether the agreement satisfies reasonable maintenance action guidelines. Only assessable child support can be considered when making this determination.
Policy reference: FA Guide 3.1.7 Maintenance income test