Child Support and Trusts: Is planning long-term for your children detrimental to you in a property settlement?

One of the considerations when applying for a divorce is that the Court will want to know that appropriate arrangements are in place for any children of the marriage after separation. This includes whether there are appropriate financial arrangements in place. One consideration will often be the payment of child support.

Child support can take many forms and through agreements between parties, can go beyond the child support formula. It is not unusual to make arrangements for the ongoing financial care of children in the form of ‘periodic’ or ‘lump sum’ payments. These payments can be directed to the primary carer of the children for their current needs, or into a trust style account for future or specific needs. Specific needs could be such things as private schooling, sporting or extracurricular activities or known medical conditions that may need to be addressed with surgery or other long-term care. While many think of these needs and put money aside as appropriate for them, what happens to that money if the need does not arise? If the money is not going to be needed later down the track, does it return to the parent who provided it?

When parents are separated, these issues can be further complicated by changes in circumstances, including for example, new spouses and the needs of children of those relationships.

In the case of Bass & Bass and Anor [2016], the parties established a trust as part of their marriage settlement to pay for the future needs of their youngest child. The father on appeal asserted that the trust had failed in its primary purpose, and as a result of this failure, the monies the father placed in the trust should be returned to him. At the time of trial the balance in the trust was $300,000. This express purpose of the trust the father said, was to pay for the private schooling of the youngest child. As the youngest child suffered from intellectual disabilities and could not attend private school, the purpose of the trust had failed. As a result of this failure, the father asserted that the money in trust was held on a resulting trust for him.

The Court rejected this “purpose” argument of the father and, instead, noted that the monies in the trust were held absolutely for the child. When reviewing the orders made by the parties, it was created for “education” and “expenses” in general rather than exclusively to attend private school. When looking at it from that purpose, the trust had complied with those general expenses, with monies being expended on medical and educational needs of the child.  The father had removed his obligations to contribute to the ongoing financial welfare of the child through the creation of the trust, and was not entitled to any of the money in the trust. If the father were to have the money returned, the father would be avoiding his obligations under custody law or settlement orders.

It is crucial to consider ‘the what if’s’ when thinking of the future needs of children in child custody law. It is beneficial to obtain specialist legal advice, to ensure that you are making the right choice for both your short and long term requirements and those of your children.