What does child support cover?
04 November 2024
When separating or divorcing, an important thing to consider is the issue of child support. It can be a sticky area, as both parents typically want what is best for their children, and yet may not both be in an equal financial position.
Parents also may not agree on what are fair expenses when it comes to bringing up their child. That’s why, in Australia, there is some structure around determining the amount of financial support a parent needs to contribute, and what happens when there are disputes or failure by a parent to pay.
Child support exists in Australia to ensure that both parents make a fair contribution to their child or children’s financial needs. Child support may be required to be paid to a biological parent, or to a non-parent caregiver, such as a grandparent, other family member or legal guardian, if they’re taking on caregiving roles to support the child.
Many separating couples ask the question, ‘what does child support cover?’ In this article, we’ll look at how child support works, what is typically included and excluded as ‘support’, and what mechanisms exist for handling child support disputes and enforcing arrangements.
What Is Child Support and Why Is It Needed?
Everyone understands the value of financial stability in the home. When essential expenses are covered, caregivers are able to better focus on supporting and raising a child. Therefore, the government mandates that both parents cover child rearing costs after a divorce or separation, with the aim that a child’s basic needs are met, and that they experience a balanced living standard in both households. The principle that underlies this is, regardless of the change to a relationship between parents, both parents still have a financial responsibility to their children.
Typically, child support is made by one parent to another, however this can change over time, according to the individual financial position of each parent, and on the number of hours they spend as primary caregiver. In some cases, the primary caregiver will not be a biological parent, but will be a non-parent caregiver like a legal guardian, or a family member like a grandparent who assumes full-time responsibilities for the child. This is important, as in some cases, one or both parents may struggle to care for a child due to personal, legal or health reasons.
What does child support cover?
Child support typically covers financial support for the child for the following items:
Housing, including rent or mortgage payments, utilities and maintenance
Food
Clothing and footwear
Education, including school fees, supplies like uniform and stationery
Routine medical costs (includes basic dental care, prescription medications, vaccinations, and necessary medical treatments).
What child support doesn’t typically cover
Costs that aren’t typically covered under a child support agreement are:
Private health insurance premiums
Private school/tuition fees
Fees for extracurricular activities, such as music, sports lessons
Travel expenses, including fuel and flights.
However, if both parents want to include these expenses in a child support arrangement, they can organise a Binding Child Support Agreement. This would include clauses that stipulate terms in the agreement, such as:
How much each parent should pay towards the items covered
How and when each parent will make payments
How the arrangements will terminate (for example, when the child turns 18).
For a Binding Child Support Agreement, each parent will need to seek independent legal advice before they sign the agreement.
Types of Child Support Agreements
In Australia, child support arrangements can be structured in several ways. The first is the most commonly used, where Services Australia will conduct a Child Support Assessment, and decide on an arrangement that way.
Parents can alternatively self manage their child support arrangements. As part of self managed child support, parents may enter into a Limited or a Binding Child Support Agreement. Let’s look in more detail at these avenues.
The Child Support Assessment
The Child Support Assessment through Services Australia is a formula that calculates the amount a parent (usually the non-custodial parent) has to pay to support the child. Both parents are assessed as part of the calculation, and the following are considered:
How much each parent earns
The number of children being supported
The percentage of time spent with each parent.
This external assessment through Services Australia provides parents with an objective appraisal of each parent’s circumstances and ability to financially contribute. This is not necessarily the last word on the matter, and each parent may object to the determination. In addition, circumstances change in people’s lives, and an existing determination may need to be modified, and hence there are avenues for parents to have a reassessment. If the matter continues to be unresolved, there is an Administrative Appeals Tribunal available for parents to further request a review.
Self-Managed child support
This is where both parents are working privately to decide on how to manage child support. In this situation, parents can independently agree on how much each pays in child support, how often, and the payment method.
If they wish to make the agreement more formal, parents can enter into one of the following agreements:
A Limited Child Support Agreement, where no independent legal advice is required and the agreement can be adjusted over time; or
A Binding Child Support Agreement, which requires independent legal advice for both individuals. This type of agreement cannot be easily changed, and certain conditions must be met in order for it to be adjusted.
With a self-managed child support agreement, disputes are generally dealt with by making modifications to the agreement. If one parent does not meet their obligations, enforcement measures can be taken. Even with this type of agreement, Services Australia has the authority to collect overdue payments directly from tax refunds, wages and other sources of income.
Note that, there may be tax implications for self-managed child custody arrangements. Parents with this plan may qualify only for a basic rate of the government’s supplement for families, Family Tax Benefit Part A. If this is a concern, it’s well worth seeking tax advice before entering into such an arrangement.
Duration of Child Support Payments
Child support payments usually are required up until a child turns 18. Payments may extend for longer in circumstances where a child has a disability or chronic health condition, or if they are undertaking full-time education. In these circumstances, parents may apply for adult child maintenance, which can ensure continued support.
Understanding Child Maintenance Trusts
A Child Maintenance Trust (CMT) is a unique financial arrangement that allows parents to provide for their children’s needs in a tax-efficient way. Unlike standard child support payments, which are taxed as part of the paying parent’s income, funds in a CMT can be derived from sources like business income, often leading to tax advantages. By using a CMT, parents can set aside assets or income specifically for child support, with the added benefit of protecting those funds from being used for purposes outside of child support obligations.
Choosing the Right Arrangement for Your Family
Selecting the right type of child support arrangement depends on several factors, including both parents’ income levels, willingness to cooperate, and specific financial needs of the child. Some families may find self-managed arrangements sufficient, especially if they maintain an amicable relationship, while others may prefer formal assessments or binding agreements to ensure clarity and reliability.
Key Points to Consider:
Legal Advice: Seeking legal advice ensures that both parties understand their obligations and can help in drafting agreements that are fair and effective.
Flexibility and Review: Periodic reviews are essential as financial or personal circumstances change, impacting each parent’s ability to contribute.
Enforcement and Compliance: Services Australia offers enforcement options to assist in cases of non-compliance, ensuring that payments are made according to the agreed terms.
Help for families navigating child support
Aitken Partners provide specialised child support services for those entering into child support arrangements. Our lawyers can provide advice on your liability to pay child support, or your entitlement to receive it. We also can help you to reach an agreement on child support related issues, and draft associated private agreements on child support matters.
In addition, we can provide tax and legal advice on issues surrounding child support, Child Maintenance Trusts and adult child maintenance.