COVID-19 | What constitutes “exceptional circumstances” for the purpose of setting aside a Binding Child Support Agreement?

1 September 2020
Jason Walker, Partner, Melbourne

As discussed in our previous article, Binding Child Support Agreements are extremely difficult to set aside. There are only limited ways an Agreement can be terminated such as through the creation of a new Agreement, by entering into a “termination agreement” or by way of Court Order.

Background

The recent decision of Martyn & Martyn [2020] FamCA 526 has examined the effects of the COVID-19 pandemic and whether the circumstances met the legislative requirements to set aside a Binding Child Support Agreement by way of Court Order.

The Child Support (Assessment) Act 1989 (Cth) (the Act) establishes a three-limbed approach to setting aside a Binding Child Support Agreement by way of Court Order. As McClelland DCJ recognised in Martyn (supra), an Applicant seeking to set aside a Binding Child Support Agreement by way of Court Order must establish that:

    1. There are exceptional circumstances which relate to a party to the agreement or a child in respect of whom the agreement is made;
    2. Those exceptional circumstances arose after the agreement was made; and
    3. The applicant or the child will suffer hardship if the agreement is not set aside.

In Martyn (supra), the Applicant Father advanced the position that the coronavirus pandemic created “exceptional circumstances” which would result in hardship to him if the Agreement dated 16 August 2012, was not set aside.

Under the Agreement, the Father was required to pay the Mother the sum of $1,350 per month (increased by 2% per year).

At the time the parties entered into the Agreement, the Father was employed in a senior management role and earned, in that capacity, a salary of $140,000 per annum after deduction of taxation instalments and superannuation contributions.

The Father operates an Australian based company that manufactures products for international businesses. He alleged that the abrupt closure of international commerce as a result of the coronavirus pandemic caused a 90% loss to the business and further, unless interstate and international borders re-opened shortly, he anticipated that he would have to liquidate the company and declare bankruptcy.

McClelland DCJ was required to examine the three-limbed test in s.136 of the Act and consider, amongst other things, whether the effects of the coronavirus pandemic on the Father’s business amounted to exceptional circumstances that would result in hardship caused to the Father if the Agreement was not set aside.

The Father contended that he would face hardship as a result of the exceptional circumstances, caused by the coronavirus pandemic, was because of his inability to afford the child support payments payable pursuant to the Agreement.

The Decision

His Honour found that the economic hardship suffered by the Company amounted to “exceptional circumstances” to set aside the Agreement. The fact that the Company’s business activity had been reduced by approximately 90% as a result of the COVID-19 pandemic was not challenged by the Mother. From the downturn by the Father’s business, his Honour inferred that the income derived by the Father from the last financial year (in the sum of $41,460) would be further reduced by the effect of the COVID-19 pandemic.

His Honour was satisfied that the outbreak of COVID-19 “is an exceptional circumstance and, further, I am satisfied that the father would suffer hardship if the Agreement is not set aside.

Other Considerations

Exceptional circumstances need not be unique to an individual and may relate to a large-scale event such as the COVID-19 pandemic. The exceptional circumstances must result in the Applicant experiencing hardship if the Agreement were not set aside.

Whilst in Martyn the effects of the COVID-19 pandemic amounted to “exceptional circumstances”, the mere reduction in business activity or loss of income would not of themselves necessarily amount to an exceptional circumstance leading to hardship.

To further discuss whether to enter into a Binding Child Support Agreement or to obtain advice on setting aside a Binding Child Support Agreement, contact our Family & Relationship Law Team in Melbourne on (03) 9252 2555 and in Sydney on (02) 9231 4996.

 

For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.

 


Authored by:

Jason Walker, Partner
Georgia Miller, Lawyer

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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