The Guides to Social Policy Law is a collection of publications designed to assist decision makers administering social policy law. The information contained in this publication is intended only as a guide to relevant legislation/policy. The information is accurate as at the date listed at the bottom of the page, but may be subject to change. To discuss individual circumstances please contact Services Australia.

4.3.9.10 Income from maintenance, property settlements & life interest

Summary

This topic provides information on the following matters:

  • child maintenance
  • spousal maintenance
  • assessment of spousal maintenance in the hands of the receiver
  • assessment of spousal maintenance in the hands of the payer
  • legally enforceable agreements
  • non-legally enforceable agreements
  • property settlement - capital component
  • property settlement - interest component
  • property settlement - outstanding balance
  • life interest (1.1.I.185) in property
  • life interest in an estate
  • life interest in income - non-discretionary trust management, and
  • life interest in income - self-management.

Child maintenance

Maintenance received from a former partner to support a child of the former relationship and paid to a custodial parent or grandparents or other person to whom the court has appointed custody of the child is not assessed as ordinary income under the income test for income support purposes. It is, however, taken into account under the maintenance income test for 'more than the base rate' of FTB Part A.

Act reference: SSAct section 8(1)-'ordinary income', section 10 Maintenance income definitions

Spousal maintenance

Spousal maintenance is money (or in kind payment) made to a former partner following a divorce or separation. It does not include payments for dependent children.

Payments are usually made periodically but can be received as lump sums.

Spousal maintenance is distinct from a property settlement, which is the return of a person's own property.

Assessment of spousal maintenance in the hands of the receiver

For the person who receives spousal maintenance, the maintenance is not assessed as ordinary income under the income test for income support purposes. It is, however, taken into account under the maintenance income test for family payment purposes.

Act reference: SSAct section 8(1)-'ordinary income', section 10 Maintenance income definitions

Policy reference: FA Guide 3.1.7 Maintenance income test

Assessment of spousal maintenance in the hands of the payer

Where a person is claiming or receiving income support and part of their income is used to pay spousal maintenance, it is necessary to look at the facts in each case to determine whether the income used to pay the maintenance should be assessed as income.

Legally enforceable agreements

Where the person's former partner has a legally enforceable right to the maintenance, the amount paid should not be treated as income of the person paying the maintenance.

Explanation: A former partner may have a legally enforceable right to payment following a Family Court consent order or a formal legal agreement drawn up by a solicitor.

Example: Joe receives $200 a week income from a private pension scheme. As a result of a Family Court order, Joe must pay $100 per week of this amount to his ex-wife Lucy. For income support purposes, the amount of $100 ($200 less $100) is held as ordinary income of Joe.

Any legal agreement must be such that the other party has a legally enforceable right to the income and the first party is prevented from disposing, withdrawing, encumbering or in any way diminishing the monies owed to the other party.

In cases where the agreement has been reached out of court, care should be taken to ensure that the property settlement is fair and reasonable in that adequate consideration has been received and that the main purpose of the agreement is not to maximise social security entitlement.

Example: A couple have been married for many years and the wife has never been in the paid workforce. When the couple separate the husband agrees, by a legally binding agreement, to direct 50% of a private pension to his former wife. This would be considered to be a 'fair and reasonable' agreement.

Where a settlement agreement is not fair and reasonable there may be inadequate consideration and part of the settlement may be considered a deprivation of income and/or assets.

Policy reference: SS Guide 4.1 Deprivation of income & assets

Non-legally enforceable agreements

In cases where the arrangement to pay spousal maintenance is not documented in a legally enforceable manner, the gross amount of income should be used in assessing the payer's rate of income support.

Example: Where the only evidence of any arrangement is a verbal agreement or statutory declaration.

Property settlement - capital component

Property settlements are not assessed as income, if they are received as:

  • a one-time only payment, or
  • regular repayments of the capital component of the property settlement.

Explanation: These payments are repayments of the person's own property.

Property settlement - interest component

A property settlement may be received in regular instalments and the order or agreement may provide for interest to be paid on the outstanding balance of the settlement. The interest is assessed as income throughout the period that it accrues.

Property settlement - outstanding balance

The outstanding balance of a property settlement is reviewed at the same time as an income review is made. Any interest payable on the outstanding balance is assessed as income throughout the period that it accrues.

Explanation: The outstanding balance of a property settlement is an asset.

Life interest in property

A person may have a life interest in property that may involve real estate, investments or even a business. The income received by or credited to the person for their own use is included as income in the pension assessment.

If a person only has the right to occupy a property in which they have a life interest, they are not automatically entitled to income from rent.

Explanation: This depends on the terms of the bequest.

Life interest in an estate

A person may have a life interest created by a will, where they retain the right to the income of an estate during their lifetime. The income received by or credited to the person for their use is included as income.

The income from a life interest in an estate cannot be assessed until probate has been granted, unless the income is actually received by the person. A remainder interest is not assessed, on the basis that no income or benefit is currently being received.

Explanation: Remainder interests refer to the interest of the titleholder to property, when another party holds an interest in that property, either for life or for a specified term. The titleholder does not gain the benefit of their interest until the cessation of the other party's interest.

Example: On death or after a fixed term.

Policy reference: SS Guide 4.6.5.80 Assessing interests in a deceased estate

Life interest in income - non-discretionary trust management

If a person has a life interest in income from real estate, investments or a business managed by a non-discretionary trust, the actual allocations or distributions are the person's income for pension and benefit rate purposes.

Explanation: The rules applying to managed investments, businesses etc., do not apply.

Policy reference: SS Guide 4.7.3.40 Assessable Income from Non-discretionary Trusts pre-01/01/2002

Life interest in income - self-management

If a person has a life interest in income from real estate, investments or a business, and has effective control over how they are managed, the person's income from these sources is assessed in accordance with the guidelines on:

  • direct investments
  • managed investments, and
  • businesses.

Example: Self-management could involve a discretionary trust of which the person is trustee and sole beneficiary.

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