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Capacity To Earn in Retirement

My husband has teenage kids from 1st marriage living in Oz. He pays maximum CSA but he is due to retire later this year when his 30 years engagement ends (he will be 50 years old). He will then get a $48000 annual pension and a one off lump sum.

My husband has teenage kids from 1st marriage living in Oz. He pays maximum CSA but he is due to retire later this year when his 30 years engagement ends (he will be 50 years old). He will then get a $48000 annual pension and a one off lump sum. The pension and lump sum would have been considerably more but ex wife got 30% as part of the divorce settlement. When he was married to 1st wife, there was never any intention for him to work beyond this date (indeed we have some divorce paperwork in which she refers to the fact they were to emigrate after this date).

After retirement, husband wants to stop working completely for at least 3 years as we have a 1 year old and another due to be born this summer - neither of us are happy that our child currently is in 50 hours per week child care. Reality is that after 30 years in a fairly unusual work environment, it is unlikely that husband would be able to get a half decent job and if he got a new job, the child care situation would become worse as I've just been given a job which entails a lot of travel and possible overseas detachments. Child care hours would have to go up to about 70 hours per week to cover his job hours, travelling time and to cover the kids illnesses.

Even if we were happy with 2 such young kids having this level of care, we couldn't afford it as the costs for an 8-5 nursery (45 hours per week) in the area are $21000/year/child and a nanny, which would be more suitable for the situation would be >$70000/year. I'm in military so can't leave before 2010 and anyway don't want to give up a career that would give my family a guaranteed income for another 15 years. I have already compromised my promotion prospects by taking job locations from which husband could retain his old job as we are reliant on the cheap accommodation I get as part of my work package to make it viable for him to carry on working in an expensive location.

Ex-wife is well aware of his retirement date and that he does not intend to work beyond it (his kids have regularly asked him about this for the last few months). Our obvious concern is that the ex will raise a COA under CTE to try to get a higher assessment or part of his lump sum. His ex tore up the child support agreement they had on arrival in Oz so she could get more money, insists on collection through CSA and has tried on previous occasions to argue that he should pay her more but so far has not had legitimate reasons for doing so (she tried to get his income above the max cap taken into account).

Husband is happy for CSA to be based on his pension income, despite the fact the ex has in effect had a chunk of this (in addition to the family home) and that during the 5 years since divorce, the pension fund has been topped up considerably through compulsory deductions (12%) from husband's pay (this is not salary sacrificing and his annual tax return used by CSA shows gross pay before deductions are made). However we do not want her to get anymore than she is entitled to as even allowing for formula-based child support, we'll be pretty hard up.

We think that the Ex may employ one of the following arguments - that he could apply to carry on working beyond the 30 year point; he could take up new employment or that he could have foregone the lump sum to get a higher pension. On this final point, the lump sum is our only opportunity to get back into the housing market - the decision to take the lump sum must be taken on retirement and it's just not possible to defer taking it so that he could draw a higher pension income for a few years.

Sorry for the long winded background but grateful for any advice on this subject as we are really worried. In particular any advice on how best husband should formally notify CSA. Husband did mention it in a phone call a few weeks ago to CSA, but they glibly said that he should just tell them when he retires what his future income would be!
Unfortunately as husband is UK based, at best we see the kids for about 3 weeks per year or so and to be honest, it's so expensive getting out there during their holidays (this xmas's visit cost us about $15000) it's unlikely we'll beable toget out there again for a few years.

Thanks for your optimism regarding CSA accepting that it is reasonable for husband to become carer.

You should also read the legislation and consider if you can write off the cost of visiting, or having the kids visit you, against future CSA payments.

Junior Executive of SRL-Resources

Executive Member of SRL-Resources, the Family Law People on this site (Look for the Avatars). Be mindful what you post in public areas. 
Greebo.

This is the recommendation that the new legislation is based upon. The new legislation comes into effect on 1st July 2008.
Every Picture Tells a Story said
Recommendation 15

15.1 A parent's income for child support assessment purposes should only be able to be increased because he or she has a higher capacity to earn than he or she is currently exercising if the following conditions are satisfied:

a) the parent

i) is unwilling to work when ample opportunity to do so exists or

ii) has reduced his or her employment below the level of normal full-time work for the occupation or industry in which he or she is employed;

and

b) the parent's decisions in relation to employment are not justifi ed on the basis of

i) caring responsibilities or

ii) the parent's state of health;

and

c) on the balance of probabilities a major purpose for the parent's decisions in relation to employment was to affect the child support assessment.

15.2 Where the CSA declines to make an administrative determination in a capacity to earn case because the complexity of the issues makes it more appropriate for the matter to be dealt with by a court, the CSA should exercise its statutory right to intervene in the case in order to lead evidence to assist the court in reaching its decision.
LifeInsight, this is actually quite a change. The CSA will have to match all three criteria to implement capacity to earn, one not matched and they can't.

So as I understand it, I can see that Greebo's hubby can say, his contract has ceased to be, they have another child that needs caring for and he has little prospect of finding employment due to his specialised area of skill. The CSA would then have to discount all the reasons put forward and then also introduce something to balance the probability that it is to reduce CS.

Obviously mentioning retirement and lowering the CS is something that Greebo, should likely not mention again. Especially to the kids or their mother.
Thanks for the responses.

Regarding contact costs - we can get a reduction but it is peanuts compared to the true cost - contact costs = roughly 3 x reduction. Until now we've just about afforded contact visits at the expense of having any savings but with husband's retirement, err end of contract, the cost of contact isout of our reach and if we touch the lump sum, we are frankly stuffed. The lump sum is tax free although the pension is not. In our favour, is that although the COA form does ask about lump sums - it does state that details of sums that arepart of property settlements are not required - so I can't see how they could find out exactly how much it is.

The ex has finally gone back to work after sponging off state for 4 years (which was pretty galling as part of her case for going to Oz was the opportunity for her to earn a higher income). We don't know what she earns yet but as an part-trained accounts clerk is likely to be earning around $40k.

Regarding the CSA criteria - althoughour plans have been made on the basis of caring responsibilities rather than CSA reduction (husband worries alot about his kids' welfare and has always paid over and above for them - he extended his contract by 5 years so he couldget an immediate pension to ensure that they would still get maintenance), I guess from our experience with them, I just don't trust CSA. I'm worried that they will say that I should be the one stopping work to look after the kids rather than husband so he can either try to get his contract extended to carry on paying full whack, or get another job to try to top up his pension. In the past during COA case conferences, the SCOs have commented on the fact that I have a good job whilst poor ex has a meagre income!

Greebo

Greebo - It sounds like you are on a military pension scheme. If that is the case, depending on what you did, I think 30 years is about the limit you can sign on for. The CSA can get stuffed! They can not touch you. Are you an Australian citizen?

Executive Member of SRL-Resources, the Family Law People on the site (Look for the Avatars).   Be mindful what you post in the public areas. 
Maybe I am just confused but Greebo do you & your husband live in Australia or UK?

When you are swimming down a creek and an eel bites your cheek, that's a Moray.
No, we're not Oz citizens but under REMO, any CSA assessments can be enforced in UK through the courts (however this is a paperwork exercise, as you are not allowed to argue that the assessment is wrong - even though the payments husband makes are far higher than dictated under UK system). Husband is not military and changes to law have made it less black and white regarding whether he could remain in employment or not but this would have adverse affect on his pension and ability to get lump sum. However the driver for leaving is the child care bit - he would have applied to leave earlier but wanted to complete his contract so he would have ability to provide some financial support to both families.

Unfortunately under new system, nothing would really change for us- in fact if husband could stay in work, his payments would remain static, despite birth of 2nd child and ex's income, as the max cap figure disappears (his income is currently capped at 109k but with fringe benefits, he could be assessed with a far higher income post July). Likewise, if we are assessed using husband's pension, the benefits of the ex's income being looked at are negated by the removal of the set exempt income for dependent income. Either way, looking at the benefits the ex gets, her standard of living will remain at an acceptable level.

Mike T's blurb does appear to show that we have a strong case for husband to leave workforce but again, knowing what the CSA are like, I'm still concerned about how they will view the lump sum. I've just looked at COA form again and it appears to have subtly changed it since last year. Now it splits out lump sums, disposal of assets and superannuation funds into separate sections. If husband were to consider the sum under disposal of assets, he can ignore it (as it still has the caveat regarding property settlements) but I can't see him getting away with this espcially as the ex is aware that a payment is due. If he declares it, are they likely to take this into account?
Greebo said
I'm worried that they will say that I should be the one stopping work to look after the kids rather than husband so he can either try to get his contract extended to carry on paying full whack, or get another job to try to top up his pension. In the past during COA case conferences, the SCOs have commented on the fact that I have a good job whilst poor ex has a meagre income!
I'm not sure about this, but I don't think the legislation gives them any authority to make such comments, perhaps ask them if the legislation gives them such authority. Also describing the income as meager, I would personally consider insulting, especially if the former is true, if so then they are being discourteous and or disrespectful, which is contrary to the APS code of conduct as set out in the Public Service Act of 1999. Furthermore, such a comment which has no bearing at all on what they have to deal with which is the assessment and or collection.

Perhaps wait and see if anyone says this is not the thing to do, though.
Admittedly this comment (along with other equally obnoxious ones) were made by a SCO at a conference that took place 3 years ago.  The comment was completely out of order, especially as the COA was pretty cut and dried and it was for contact costs that were fully backed up by documentary evidence.  They were a bit more reasonable at our previous one.
Unfortunately while the appearances may seem more reasonable you can bet that the underlying thinking and vigor which they approach payers (males) is still very strong - they just coat it with sugar now. They are of course - just public servants - with all their built in biases and prejudices - completely unaccountable to anyone.

As far as the public service ACT goes - no CSA staff would be sacked for anything other than the grossest missuse of position - usually for personal gain - e.g. breaches of privacy by using personal database information. Being inappropriate to clients is why they exist.

Maybe I am not explaining myself well enough
Well it appears like this issue has come to a head sooner than anticipated.

Husband has a COA conference tomorrow - somewhat late as he submitted the COA in September, to cover thecontact costs he was incurring at Christmas- but we only received his ex's comments today. She has submitted counter COA based on CTE - mentioning his lump sum and that he is purposely giving up work in August.

To say husband is a stress puppy isn't the half of it!
Greebo,

Just read about your situation, good luck at COA conference tomorrow - should you not have been given more notice, my wife has had several COA conferences and is sure that

you have to be given notice to prepare etc….hang in there.

SCO spent more time talking about tiny deductions from hubby's net income shown on pay slips (which don't affect CSA at all!)rather than concentrating on the area in dispute.

However she was rather surprsied to be told that lump sum was his partof divorce settlement and that we have affidavit from 5 years ago where EX talks about husband's retirement this year!

Although we've since faxed throughproofwe havehad no confirmation that info has been received from CSA, despite asking for this in our covering note. Husband is really stressed out by it all especially as we're moving house this week and have got other things to worry about.
greebo said
SCO spent more time talking about tiny deductions from hubby's net income shown on pay slips (which don't affect CSA at all!)rather than concentrating on the area in dispute.

However she was rather surprised to be told that lump sum was his partof divorce settlement and that we have affidavit from 5 years ago where EX talks about husband's retirement this year!

Although we've since faxed throughproofwe havehad no confirmation that info has been received from CSA, despite asking for this in our covering note. Husband is really stressed out by it all especially as we're moving house this week and have got other things to worry about.
You need to call the CSAand have them put you through to the case officer. When you are involved in a COA they allocate an officer to work through the case until the matter is determined. You need to ensure that the documentation regarding the lump sum is in, and the affidavidt relating to agreed retirement. The issue around retirement is extremly unclear. We have been asking for some clarificationsince last year and as yet do not have an authoritive document.You have to be very carefull in dispersmentof Super fund and in fact any income regardless of source can be deemed income depending on the circumstance and or "taxability" of the revenue. If the income is part of a property settlement you need to provide clear evidence.

I was also somewhat confused as to your reference to where the relativeparties are residing. It sounds like your partner has children from his ex partner in Australia and you both reside in the UK.Is that correct? Costs of contact must be high. Reason 1 should be explored. If you are both in the UK how is the COA being conducted?

Executive Secretary - Shared Parenting Council of Australia
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Outcome of COA

To recap, payee in Oz, payer is UK citizen in UK.

Just received outcome. SCO has agreed that intention to retire is longstanding arrangement and again that husband cannot be pursued for CTE due to new child care responsibilities but instead has hit him for Capacity to pay!

Despite being sent all divorce property settlement paperwork (used by Court and from solicitors) showing that pension was part of settlement, SCO does not mention anywhere that pension/lump sum has already been abated by divorce ordersand states that husband has additional capacity to pay due to lump sum.Pension alone would provide husband with income almost at level of average male weekly income but SCO has directed that his income should be taken at over $80000.

CSA guidance (which SCO does not mention except for duty of parent to maintain children) suggests that lump sums can be taken into consideration when payer has low income but she does not argue that husband's pension is low. Also ignores a previous SCO report that states it would be unfair to payee if divorce setttlement taken into account when child support calculated(at the time husband had to pay max child support despite being saddled with $70k debts from marriage while ex had $200k available from settlement). Additionally SCO has directed that reduction for contact stop when husband retires as he wouldn't be able to maintain contact for several years!

Also furious as it mentions that I have a good income but saysit is reasonable for the payee to significantly reduce income in May (her contract finishes then but her current income is already below average she could expect in her occupation in her area - we provided evidence from job website for the employment in her field in her location). We also had proof that payee had lied in her financial statement to represnt her situation as being worse than it is (claims she has huge mortgage when divorce settlement paid for most of house) - no mention in SCO report.

We are devastated and obviously will be appealling. Grateful for advice on how to proceed so that our appeal reflects legislation rather than comes across as sour grapes.

Incidentally any one know how we apply to get tape of conference under freedom of information act? Process is easy here in UK but uncertain how it works in australia.

CSA helpline unable to advise!
Sorry about the outcome too. Its obviously very silly but also consistent with the way the CSA treats payers and payees (I'm sorry to say). That is to say - it does not reflect an individual officers bias (because legally that impossible to prove anyway for CSA staff, the SSAT or Magistrates) but the decisions may well be affirmed by the SSAT and the court - NO MATTER HOW DAMAGING AND NONSENSICAL.

Unfortunately the law allows a lot of power in CSA matters and that power is devoted to giving payees as much money as they can legally get.

In my case they were happy to let me lose my house (even though I had 50/50 custody)  even though she took a voluntary redundancy package to leave work and reduce her income so she could get CSA.

The CSA is designed to advantage payees.

Essentially the less money you can earn or have the more likely you are to get money given to you for nothing.

It's not a fair system - nor does it really encourage the payee ever to improve their situation by working, earning more money or declining CSA money.

Not trying to put a damper on things - BUT REALISTICALLY expect other CSA, SSAT and Legal Officers to potentially reach the same conclusion but allow some hope that at least you put your best legal case together.

As far as the CSA information goes. In my case they destroyed documents, rang me and threatened me with the government solicitor and costs and hid information - even though I had specifically subpoenaed it. There was no consequence for them breaking the law, hiding documents and protecting themselves from scrutiny - in fact to point it out DOES make you seem like you are the problem (how on earth could what you are suggesting be possible Mr Pearson - you must be making this up).

In a court process you can subpoena documents. With the changes to the SSAT you can NO LONGER SUBPOENA DOCUMENTS OR WITNESSES but the CSA does provide case notes to the hearing. You can dispute the case note.

The main sets of documents from CSA are:

1) Letters and correspondence with you; and

2) Computer recorded notes of telephone conversations

What's generally not available is their internal private conversations or emails about your case - although that could be an interesting path (I don't know anyone who has done that yet). I think that by now many of them have learned to not commit things to writing which might discriminate against them.

I suggest you ask them for a full copy of all correspondence, case notes and anythings else they might have (write to them formally). If they fail to supply these things then this serves as legal fodder for the next phases and show them to be uncooperative (for the ombudsman and court).

Then talk to the SSAT and ask them what information THEY get from the CSA and when can you get it and what information is NOT supplied.

Then if you suspect they are hiding, or with holding maybe the FOI process would be a good idea.

If you can go to court (after the SSAT) then you can try to get subpoenas for all the the CSA documents although you need to be specific about what you suspect they have.

Thats all for now.

Maybe I am not explaining myself well enough
Thanks for advice.

Does anyone know of any examples in the courts of capacity to pay decisions?

This may provide evidence that SCO hasn't dealt with matter iaw legal cases.

Capacity to Pay

The recent case involving Paul McCartney was a capacity to pay English judgement.
The Australian Family Law act as I understand it is more orientated towards sexual equality before the law and attempts by the court to share the assets without reasons are appealable.

The following might be more informative:

Capacity to pay
The respondent's capacity to pay is not assessed merely on income, but also on property, financial resources and earning capacity. Capacity to pay is assessed by determining the respondent's "surplus" after paying their necessary commitments.

The respondent's capacity to pay is more generously interpreted in the respondent's favour in a spousal maintenance application than in a child support application. For example, in DJM v JLM (1998) FLC 92-816 the husband had a higher earning capacity than his current income. The Full Court assessed his child support liability based on his earning capacity but found that he had no capacity to pay spousal maintenance based on his income. It quoted (at p 85,272), from Curnow (unreported, Sydney, 28 April 1997) where Ellis J (with whom the other two members of the court agreed) said:

"In my judgment, a party is only liable to maintain the other party to the extent that the first-mentioned party is reasonably able to do so. In determining whether a party is reasonably able to support or contribute to the support of another party, one should have regard to the income of the first-mentioned party and then the unavoidable, non-discretionary expenses of that party, including his or her reasonable living expenses. After that exercise, one can consider the amount, if any, from which the first party may be able to contribute to the maintenance of the other party."

The respondent appeared to have the capacity to pay maintenance but was not ordered to do so in Gerszt and Gerszt (1979) FLC 90-641. The husband said a lottery win of one million dollars related to a ticket purchased jointly for himself and Miss H. The wife alleged it was purchased as trustee for D Pty Ltd, of which the husband and wife each owned 25% of the shares. A majority of the Full Court dismissed the wife's appeal refusing her maintenance claim. The wife argued (at p 78,351) that at worst the husband had:

"a legal entitlement to $250,000 and therefore a fund from which he could pay maintenance to the wife; and since he is keeping from the wife her share of $250,000 he should pay maintenance until a determination of the competing claims; and if then he were found to have overpaid maintenance, adjustments could be made on an overall basis under s 81."

Asche SJ in the majority rejected this argument inter alia because the husband's entitlement to $250,000 (at p 78,351-78,352) depended on D Pty Ltd being sufficiently solvent to pay him. The financial situation of the company was not clear and the husband might be liable for damages, interest and costs to the company which could substantially decrease the payment he would receive as shareholder.

Need and ability to pay

Under s 72 a maintenance liability arises where:

- the applicant "is unable to support herself or himself adequately" for an adequate reason, and

- the other party has a capacity to support the applicant.

Section 72(1) requires that the factors in s 75(2) be considered in determining the maintenance liability. Most of the factors in s 75(2) relate to the need of the applicant, balanced with the ability of the respondent to pay.

Only if the applicant has a need and the respondent has a surplus, should a maintenance order be made. The order should only encroach upon the surplus to the extent necessary to meet the need.

The following broad framework is used in determining a spousal maintenance claim:

1. Calculate the applicant's necessary commitments on a weekly basis. These may also be considered as "reasonable needs", a more generous test, by taking into account the parties' standards of living and other factors under s 75(2).

2. Calculate the applicant's weekly income. The applicant's actual income can be accepted or the income he or she could reasonably earn on the basis of assets, financial resources and earning capacity could be assessed.

3. Deduct the figure in 1 from the figure in 2. This is the applicant's maintenance requirements.

4. Calculate the respondent's necessary commitments on a weekly basis in a similar manner to the calculation for the applicant.

5. Calculate the respondent's weekly income in a similar manner as for the applicant.

6. Deduct from the figure in 3 the figure in 4. This is the respondent's "surplus" from which a maintenance order can be paid.

See for example Kajewski and Kajewski (1978) FLC 90-472.

Calculating the respective needs of the parties can depend upon making difficult value judgments and collecting elusive facts. If the applicant has sufficient means he or she is not entitled to any maintenance at all.

In Canada this principle is known as "means and needs".

The necessary commitments of the parties is discussed in relation to s 75(2)(d) at 26-050 and following.

Income of the respondent

The respondent's income is relevant firstly under s 72 to establish that he or she has the capacity to pay maintenance. It is then relevant under s 75(2)(b) in assessing the quantum of maintenance. However, the respondent's income may not accurately reflect the respondent's financial resources or capacity for gainful employment. For example:

- A respondent may have two jobs and argue that this is temporary to alleviate a short-term financial problem.

- The respondent's actual income as the proprietor of a business or a self-employed tradesman may be much less than his or her earning capacity. He or she might be able to increase his or her taxable income by working as an employee. Cross-examination of the respondent may reveal undisclosed benefits which are "financial resources" within s 75(2)(b).

- The respondent may choose to work in a job which pays less than he or she could readily earn from some other source. For example, a lawyer may work in the public service, in Legal Aid or a community legal centre rather than in private practice.

- Where the income significantly varies between years it may be appropriate to average the respondent's income over the last, say, three to five years. This occurred in Taylor v Taylor & Johnson (1976) FLC 90-070 in relation to a respondent solicitor. Such an approach could also be used for a farmer.

There is a preference for spousal maintenance orders to be met from income rather than property and financial resources. It can be difficult to base spousal maintenance on earning capacity rather than actual income. The courts are more prepared to do this in relation to child support than in relation to spousal maintenance (DJM and JLM (1998) FLC 92-816). However the 2006/07 changes to the child support scheme have increased the ability of child support payers to reduce child support by not exercising their full earning capacity. See CCH's Australian Child Support Handbook. Earning capacity is discussed at 25-920 and following.

Despite the preference for spousal maintenance orders to be based on income, orders can be made which require a respondent to use property or financial resources to pay maintenance. In Plut and Plut (1987) FLC 91-834 the Full Court upheld an order for lump sum maintenance. It did so although it found (at p 76,276) that "the husband did not have the capacity to meet that sum, on a periodic basis, from his income, and that in order to meet it he would therefore have to dip into his financial resources to which the wife had made no contribution".



SECTION 72 RIGHT OF SPOUSE TO MAINTENANCE72(1) [Liability of spouse]

A party to a marriage is liable to maintain the other party, to the extent that the first-mentioned party is reasonably able to do so, if, and only if, that other party is unable to support herself or himself adequately whether:

(a) by reason of having the care and control of a child of the marriage who has not attained the age of 18 years;

(b) by reason of age or physical or mental incapacity for appropriate gainful employment; or

© for any other adequate reason,

having regard to any relevant matter referred to in subsection 75(2).

Property or lump sum maintenance in lieu of periodic maintenance

There can be two possible "maintenance elements" in orders for lump sum payments or transfers of property. The first is where s 75(2) factors (as well as contributions and other matters under s 79(4)) are a component of a s 79 order. The second is where a party has a maintenance claim under s 72 which is capitalised.

The full court in Anast and Anastopolous (1982) FLC 91-201 referred to Pastrikos and Pastrikos (1980) FLC 90-897 and Albany and Albany (1980) FLC 90-905 and then said (at p 77,061):

"These cases make it clear that there is a distinction to be drawn between a party's entitlement to a property settlement based on contribution and the general factors arising under sec 75(2) and a party's entitlement to be maintained within the meaning of sec 72. They also establish that an applicant's entitlement to an order under sec 79 (including sec 75(2) factors) should be assessed before the question of entitlement to maintenance within the meaning of sec 72 is considered."

In Olliver and Olliver (1978) FLC 90-499 the full court (at pp 77,600-77,601) explaining the distinction said:

"Where maintenance in the broad sense of the term is what is in issue, the powers of the Court under sec 74 and 79 are related and complementary to each other. Any order made under sec 79 is to be taken into consideration when making an order under sec 74 (sec 75(2)(n)) and any order made under the Act is to be taken into account in the making of an order under sec 79(4)(b). This difference [in the ability to vary sec 74 and 79 orders] in the Court's powers as regards orders under s 74 and 79 finds its explanation in the legislative intendment expressed by sec 81 of the Act which requires the Court to make so far as practicable such orders as will finally determine the financial relationship between the parties."

What is done for you, let it be done, what you must do, be sure you do it, as the wise person does today that what the fool will do in three days - Buddha
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