For separated parents the child support system can be a mine-field to navigate but there are options available to those who wish to move away from the inflexible assessment scheme and enter into a private agreement.
From 1 July 2008, separated parents have had the option of entering into two types of child support agreements – binding child support agreements and limited child support agreements. By doing so, they can, in part, move away from the assessment scheme based on the child support formula and avoid navigating the system, in some cases for many years.
An increasing number of separated parents are choosing to enter into child support agreements to opt for certainty over uncertainty in this complex and ever-changing area of the law. Parents should, however, be aware that a properly drafted agreement can have serious and long term financial implications for them and their children and it is important to obtain specialist advice to ensure that the document being entered into will achieve the outcome intended. The terms of a child support agreement can also impact on family tax benefits payable to parents.
Binding child support agreements require a number of formal requirements to be met (in their drafting) and due to the seriousness of their binding nature, require both parents to obtain independent legal advice prior to entering into them. A binding child support agreement can remain in place until a child reaches the age of 18 years (or longer) and can only be set aside in exceptional circumstances if drafted properly.
For those parents who do not wish to commit to a long term “binding” agreement, a limited child support agreement provides certainty (with more flexibility) and can apply for a shorter period of time (three years before either party can apply to have it terminated, or in other limited circumstances). It also does not carry with it the independent legal advice requirement.
One of the main differences between the two types of agreements is that there must be an administrative assessment in place to enter into a limited child support agreement.
Separation and divorce can impact significantly on a parent’s financial circumstances and the issue of child support should be considered at the time of negotiating an overall property settlement with a former spouse. It may be that both parties agree to be creative and consider options such as one parent “trading-off” ongoing child support obligations (or part of them) in lieu of agreeing to a more generous up-front property settlement in favour of the other parent. In this context, a child support agreement can be drafted as part of a “suite” of documents formalising a property settlement.
If you would like further information or advice about your options please contact us.