Setting aside Binding Child Support Agreements – COVID-19, the unprecedented and ‘exceptional’ circumstance
The COVID-19 pandemic has had various and far reaching consequences. The global impact cannot be understated and the law has been no exception. A recent decision of the Family Court of Australia identifies one such impact to binding child support agreements.
In Martyn & Martyn1 the Court was asked to determine an application by a father to, among other things, set aside a binding child support agreement. He was required to satisfy the Court that ‘exceptional circumstances’ existed and that he would suffer hardship such that the agreement should be set aside.
With respect to the facts and decision in Martyn, and by way of summary:2
- The parties commenced living together in 2005, and were married in 2007.
- In 2008, the parties’ child was born. She was 11 years old at the time of the court hearing.
- In March 2012, the parties separated. They thereafter entered into binding child support agreement on 16 August 2012.
- The binding child support agreement provided for the father to pay periodic child support to the mother of $1,350 per month. It also provided for the periodic sum to increase by 2% at the commencement of each calendar year (starting on 1 January 2014).
- In October 2012, the father commenced a relationship with his current wife. They subsequently began living together in November 2012.
- In 2015, the father commenced employment with F Pty Ltd, where he was tasked with changing the structure of the business. F Pty Ltd manufactures and supplies products to international businesses.
- On 4 June 2015, the father and his current wife purchased F Pty Ltd.
- On 1 September 2016, the father made the last payment to the mother, pursuant to the binding child support agreement. The mother then requested the Child Support Agency (as it was then known) to collect the child support payments due to her from the father. It did so commencing November 2016.
- On 7 October 2016, the father filed a court application seeking, among other things, a court order that the binding child support agreement be set aside. As part of the proceeding, he contended that F Pty Ltd was “failing” and accruing “significant company debt.” To the contrary, the mother contended that, until then, F Pty Ltd had been “turning over approximately $6 million dollars per year” and that it allowed the father to afford expenditures such as the child’s private school fees, vehicles and holidays.
- On 1 August 2017, Judge Henderson, as she then was, made an interim court order such that:
Pending further order, the collection of Child Support pursuant to the Child Support Agreement entered into by the parties on 16 August 2012 is stayed on the basis the [father] pays to the [mother] $580.00 per month by way of Child Support.
- In 2018, F Pty Ltd was considered, by the company’s financial advisers, to be “technically insolvent”. However, in 2019, F Pty Ltd began to recover.
- In 2020, the outbreak of covid-19 significantly impacted on the functioning of F Pty Ltd due to the fact that the target demographic of the business was international businesses. By way of example, it had to stand down “over 100 casual employees.”
- In April 2020, the father informed the mother of his current circumstances. The father stated that he was incapable of affording the child support payments of $580 per month (being the payments made in accordance with the Orders of Judge Henderson in August 2017). He stated that he was only able to make payments of $120 per month. The mother did not accept the father’s representations such that the Court was required to determine the issue.
In determining the father’s application to set aside the binding child support agreement, the Court considered the application of section 136(2)(d) of the Child Support (Assessment) Act.3 That section empowers a court to exercise its discretion and set aside a binding child support agreement if it is satisfied on the balance of probabilities that:
…because of exceptional circumstances, relating to a party to the agreement or a child in respect of whom the agreement is made, that have arisen since the agreement was made, the applicant or the child will suffer hardship if the agreement is not set aside.4
The Court further had regard to the discussion of the expression ‘exceptional circumstances in Balzano & Balzano,5 together with the discussion of the explanatory memorandum to the Child Support (Assessment) Act identified in Masters v Cheyne.6 In so doing, McClelland DCJ held that:
The expression “exceptional circumstances” has frequently been interpreted in a number of different contexts. In ordinary usage the expression “exceptional” means “unusual or out of the ordinary” or “unusual or extraordinary”.7
The statutory Object permitting parties to make private arrangements and to “limit interference with their privacy” is given particular force by reason of the necessity to show “exceptional circumstances” before a court will intervene in them and the additional requirement to prove “hardship” if the parties are held to their agreement.8
Turning then to the facts in the case of Martyn before the Court, it was conceded and found that the COVID-19 impact to the father’s business amounted to exceptional circumstances and that the father would suffer hardship if the agreement were not set aside. The agreement was therefore set aside by the Court (despite submissions made by the mother that it ought to be set aside for a determined period which would, in effect, amount to a ‘suspension’ of the agreement).
Further, and of potential particular relevance to other cases, the Court acknowledged that:
The COVID-19 pandemic has impacted on international and domestic economic activity. It is not disputed that international commerce has been one of the most heavily impacted sectors of the economy.9
…had it not been for the outbreak of the COVID-19 pandemic, the Court would not have been satisfied, on the basis of the evidence presented, that the father’s business was in such dire financial circumstances that it established the existence of exceptional circumstances for the purpose of s 136(2)(d) of the CSA Act. However, the father was not challenged that, as a result of the impact of the COVID-19 pandemic, the business activity of F Pty Ltd has reduced by approximately 90%. It can reasonably be inferred that, consequently, the income derived by the father from the business will be significantly reduced below the amount which he received in the last financial year…I am, therefore, satisfied that the outbreak of the COVID-19 pandemic is an exceptional circumstance and, further, I am satisfied that the father would suffer hardship if the Agreement is not set aside.10
The case of Martyn suggests therefore that parties to binding child support agreements may have a cause of action to set aside or essentially suspend their obligations if there has been impact of an ‘exceptional’ nature to their financial position. In such circumstances, parties should seek timely advice before substantial arrears accrue which, in the case of Martyn, were not extinguished.