August 31, 2020

What if you and your former spouse have entered into a Binding Child Support Agreement and now, as a result of COVID-19, you can no longer afford the repayments you agreed to in that Binding Agreement? 

These Agreements are, as their title would suggest, binding. However, they are not entirely immune from being overturned. 

Binding Child Support Agreements can be set aside if an ‘exceptional circumstance’ has arisen since the making of the agreement, which would cause hardship to the applicant or the child.

So what is exceptional? The Court has previously defined it as ‘unusual, out of the ordinary or extraordinary’, but more importantly, the Court was recently asked to consider whether the impacts of COVID-19 would amount to an ‘exceptional circumstance’. 

Background:

  • The parties were in a 7-year relationship and had one child together.
  • Following separation in March of 2012, the parties entered into a Binding Child Support Agreement which provided for the Father to pay the Mother, $1,350 per month in child support, to be increased by 2% each year.
  • In 2015 the Father purchased a company, F Pty Ltd that manufactured and supplied products to international businesses. 

The First Application

  • Not too long after its purchase, F Pty Ltd experienced economic hardship and in September 2016, the Father stopped paying child support.
  • In October 2016 the Father applied to the Court to set aside the Binding Child Support Agreement which required him to pay the Mother $1,350 per month. 
  • In his application, the Father stated that F Pty Ltd was failing and accruing significant debt. 
  • On 1 August 2017, the Court made an Order which stayed (paused) the Agreement and Ordered the Father to pay a reduced sum of $580 per month to the Mother until the Court could finally determine this matter at a trial. 

The Second Application

  • In 2019, F Pty Ltd’s financial position was beginning to improve. However, the success of the business was short-lived. The business’ main source of operation was supplying products to international companies. As a result of the COVID-19 pandemic, the day to day operation of F Pty Ltd’s was significantly impacted.
  • The total sales of the business had reduced by approximately 90 per cent. In addition to this, over 100 casual employees had been stood down and the remaining employees, including the Father were in receipt of JobKeeper payments. 
  • In April 2020, the Father stated he could no longer pay the $580 per month (as ordered in 2017) and sought an Order that the Court set aside the agreement and extinguish his existing arrears (which had accrued over time).
  • The Father claimed that his current financial position could only support a payment of $120 per month to the Mother.
  • The Mother did not dispute that the business had been significantly impacted by the pandemic, however, stated that the pandemic would eventually pass and that the business had remained solvent through prior challenging periods.  
  • The Court was forced to consider whether the impacts of the COVID-19 pandemic would be considered an ‘exceptional circumstance’ and would warrant setting aside the child support agreement. 

The outcome:

The Court found that the impact of COVID-19 on the Father’s business did amount to ‘exceptional circumstances’ and that the Father would suffer from hardship if the Agreement was not set aside. 

Importantly, the Court did not consider that the events of the Father’s first application (which only caused the Court to stay the Agreement pending final hearing and not set it aside) were sufficient to meet the ‘exceptional circumstance’ threshold. 

In summary, the Father’s first application failed, however, his second application succeeded. The Court found the COVID-19 pandemic was enough to meet the threshold, but that the earlier financial difficulty of the business was not. 

The Court ordered that the Binding Child Support Agreement be retrospectively set aside. The Court also ordered that:

  • the Father’s arrears incurred after the COVID-19 pandemic be set aside; but
  • the Father’s arrears incurred before the COVID-19 pandemic not be set aside.

The Court also acknowledged the significant impact that the COVID-19 pandemic had on all economic activity but specifically recognised the impact the on international commerce (being the main source of operations for F Pty Ltd in). 

If you are a party to a Binding Child Support Agreement and have any concerns about the potential impact of COVID-19 on your Agreement then you should contact Montana Morais of McInnes Wilson Lawyers and organise a consultation today.