Issued
2013
Decision
12 Apr 2013
Appeal Status
Appealed

Child support primary obligation is children

2013 case note – identifying a liable parent's true financial ability and resources – primary obligation of child support to support children.

Case
D v B & Commissioner of Inland Revenue
Legal terms
Retrospective departure order, true financial resources and ability of liable parent

Summary

The mother successfully applied for a retrospective child support departure order in the Family Court. The High Court overturned the quantum of the departure order and the mother appealed to the Court of Appeal. The Court of Appeal found that the liable parent's primary obligation was to support his children and, after ascertaining the father's true financial ability and resources overturned the High Court's finding on quantum. The Court of Appeal left open whether a departure order could be made retrospectively, although it did substitute a retrospective departure order here.

Impact of Decision

The Court of Appeal did not express a view whether a departure order may be made retrospectively and left it open that the Court may be called upon to address the issue in a future case.

The Court set out helpful guidance on identifying a liable parent's true financial ability and resources and affirmed that the liable parent's primary obligation is to support their children.

Facts

Ms D (the mother and custodial parent) and Mr B (the father and liable parent) were married, had three children and subsequently separated in 1996.

Following the separation, Mr B established a trust, transferred his business to the trust along with the majority of his other assets, including his house. Mr B paid himself a reduced salary whilst the profits of the business were paid to the trust as dividends. Mr B had access to the funds in the trust as the trust was indebted to him. Also, Mr B effectively used the business as his bank account, obtaining advances from the business and then repaying them, recorded in the "Director's loan account".

Ms D applied to the Family Court for a departure order and the Family Court held that the primary purpose of the company and trust structures was to avoid a higher child support liability. The Family Court ordered retrospectively an increase in the child support payable by Mr B to Ms D and awarded Ms D $297,300.94 ($146,676 plus $150,624.94 interest).

Mr B appealed to the High Court which found that there was jurisdiction to award retrospective child support but set aside the Family Court order and awarded Ms D $29,538 ($15,442 plus $14,096 interest).

The Commissioner had intervened in the High Court on the issue of retrospectivity.

Ms D appealed to the Court of Appeal. The Commissioner remained a party to the appeal but only took an interest in whether a departure order could be made retrospectively. The Commissioner did not make any submissions on the substantive issue of the amount of child support payable under the departure order.

Decision

On the issue of retrospectivity, both Ms D and Mr B agreed in the Court of Appeal that a departure order under the Child Support Act 1991 ("the CSA") could be made retrospectively.

As it was no longer an issue in the appeal, the Court of Appeal declined to express any views on it:

  • [25] Fogarty J's finding that there is jurisdiction to award retrospective child support is not challenged on this appeal. It is therefore both unnecessary and inappropriate for this Court to express a view.

    [27] We have set out this summary because, as Ms Deligiannis noted, there is an equally balanced difference of opinion in the High Court on the retrospectivity issue. This Court may therefore be called upon in some future case to resolve that difference and decide the issue.

The Court did, however, in allowing the appeal, order that a retrospective departure order be substituted at [108].

On the substantive issue whether to grant a departure order, the Court confirmed sections 105(4)(d) and (5)(a) of the CSA empower a court to ascertain the "true financial ability and resources of the parent of a child" and this includes the "ability to go behind or … to 'look through' company, trust and other structures" at [55].

A court's task is to "identify what financial resources, additional to the salary the father received from [the business], which he had available to pay child support". Repayment of the father's loan account (to the business) was an improvement in his asset position and was relevant to the Court's task. Further, something which is unable to be taken into account in a formula assessment, "such as the use of a car or interest free loans", can be taken into account on a departure order.

The Court of Appeal held the following were to be added to Mr B's income for the first period 1997 to 2003 (inclusive):

    1. The difference between the open and closing balance of the "Director's loan account" with the business, $71,855
    2. The agreed vehicle expenses and interest charged, $57,398
    3. Further advances to/drawings by Mr B, $89,750.

These were to be spread equally over the seven years, increasing Mr B's income available for the assessment of child support by $31,286 for each year.

For the second period, 2004 to 2010 (inclusive), the position is different because the drop in Mr B's income was due to his embarking on a large software development. The issue was whether and to what extent Mr B was entitled to decide to embark on this development to the detriment of his ability to make child support payments.

The Court of Appeal was attracted to the submission that Mr B took an "involuntary grant" from Ms D when Mr B embarked on the development because by paying less child support he could undertake it whilst not expecting to share any of the gains with Ms D. The Court's four main reasons for such analysis are:

    1. "It factors in what the father rather overlooked when he embarked on the software development project: that his primary obligation was to support his children" [88].
    2. It is consistent with section 105 of the CSA and what is just and equitable between the parties and the children.
    3. The evidence that the work Mr Bevis undertook for the software development would have commanded a salary of $100,000 per annum, whilst not the single basis for fixing the child support, was relevant to his "earning capacity" in terms of section 105(4)(d) of the CSA.
    4. It appropriately reflects that it is a retrospective departure order being made. As an "involuntary investor" in the project, Ms D should enjoy the returns from the project in the form of, retrospectively, proper child support.

The Court of Appeal reinstated the Family Court order that Mr B pay the maximum child support for the years 2004 to 2010 (inclusive).

The Court of Appeal ordered interest and reserved leave to apply to the Family Court for supplementary orders dealing with enforcement should there be difficulty enforcing the retrospective departure order.

The Court of Appeal subsequently declined an application to redact the names of the parties from published reports of the judgment, finding that it is neither necessary nor appropriate and the children, now all adults, are not identified in the judgment.

Child Support Act 1991