COVID-19 found to be an exceptional circumstance - Binding Child Support Agreement set aside
Judgment was delivered on 1 July 2020 in Martyn & Martyn [2020] FamCA 526, setting aside a Binding Child Support Agreement entered into by the parties in August 2012, as a result of the COVID-19 pandemic.
By way of brief background , the parties separated in 2012 and on 16 August 2012 entered into a Binding Child Support Agreement for the child born in 2008 which provided for the Father to pay $1,350 per month to the Mother with such amount to be increased by 2% each calendar year commencing 1 January 2014. At the time the parties entered into the Agreement, the Father was earning in excess of $140,000 per year after tax in addition to bonuses and employment benefits. In November 2013 the Father was dismissed from his employment and received a payout.
In June 2015 the Father and his now wife purchased F Pty Ltd, a company which manufactures and supplies products to International businesses. By 2016 F Pty Ltd was in financial distress and had accrued substantial business debts resulting in the Father being unable to meet his expenses including child support pursuant to the Agreement. On 1 September 2016 the Father made the last payment of child support pursuant to the Agreement and on 7 October 2016 filed an Initiating Application seeking that the Binding Child Support Agreement be set aside.
On 1 August 2017 Judge Henderson (as she then was) Ordered that the Binding Child Support Agreement be stayed on the basis that the Father pay the Mother $580 per month pending further Order.
Until 2019, F Pty Ltd’s performance continued to decline before marginally improving in 2019 largely as a result of tax incentives offered by the ATO.
The outbreak of COVID-19 in 2020 had a detrimental effect on F Pty Ltd, resulting in business profitability reducing by approximately 90%. Given the Father’s 2019 taxable income was $41,460 and will be substantially less in the 2020 financial year, the Father asserted he had no capacity to meet child support in accordance with the Agreement.
On 13 January 2020 the Father filed a further Initiating Application, seeking that the Binding Child Support Agreement be set aside and the “outstanding liability in respect of the Binding Child Support Agreement be extinguished.” By the time of the hearing, arrears in outstanding child support had accrued in the sum of $31,928.22. The Mother opposed both contentions and sought that as an alternative to dismissing the Father’s Application, the Binding Child Support Agreement be stayed until the COVID-19 circumstances pass.
The Family Court’s power to set aside a Binding Child Support Agreement under the Child Support (Assessment) Act 1989 requires the Court to be satisfied that:
there are exceptional circumstances relating to a child or party to the Agreement;
those exceptional circumstances arose after the Agreement was made; and
the Applicant or child will suffer hardship if the Agreement is not set aside.
Counsel for the Mother rightly conceded that the COVID-19 pandemic has significantly impacted international and domestic activity. However, the Mother contended that the Father’s 2019 taxable income is not an accurate representation of the Father’s true earnings and while COVID-19 will have a likely impact on the business for the foreseeable future, the Mother should not be “cut out” of the Agreement due to the temporary hardship caused to the Father during the pandemic.
McClelland DCJ declined to make an Order staying the Binding Child Support Agreement as there is simply no way to determine the likely duration and impact of COVID-19 on international commerce. McClelland DCJ was ultimately satisfied that all three limbs under the Child Support (Assessment) Act were satisfied and the Agreement was set aside.
As the event resulting in hardship was caused by the COVID-19 pandemic, McClelland DCJ declined to order that the outstanding child support arrears be extinguished, as this would, in effect, retrospectively backdate the hardship event to October 2016.