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10.6.3 Documentary Requirements - Spousal Maintenance Agreements
Last amended: 18 June 2010
Agreements providing for payment of spousal maintenance
Separated partners may enter into agreements providing for payments of spousal maintenance from one party to the other. These agreements may take several different forms, including Family Court Consent Orders, formal deeds or agreements drawn up with the assistance of solicitors, or documents drawn up by the former couple.
Where an agreement provides a binding obligation on one former partner to make spousal maintenance payments to the other former partner, these payments may be excluded from the income assessment of both the payer and the payee. For the payer, this is because spousal maintenance payments are not available for their own use or benefit, and therefore do not fit the definition of income. Maintenance income received by a person is specifically excluded from the definition of ordinary income under the VEA and is therefore not assessable for pension purposes.More ?
Ideally, a spousal maintenance agreement should be in the form of a deed, that is, a legal document effecting a transfer of payments from one person to another. However, other forms of documentation are acceptable.
Each case must be examined on its own merits. In each case, a delegate must be reasonably satisfied that a valid spousal maintenance agreement has been made, before the maintenance payment may be excluded from the income assessment of the payer.
Requirements for a valid spousal maintenance agreement
In order to be regarded as a valid spousal maintenance agreement, the agreement must:
- be in writing,
- provide for or vary the maintenance of a person,
- be a genuine and acknowledged agreement between the parties, and
- not be able to be varied by the payer without the agreement of the payee.
An agreement which is signed by each party provides evidence of an acknowledged, binding obligation for the maintenance of one party, by the other. Such an agreement would enable the payee to seek legal recourse if the payer failed to meet his or her obligations.
In order for the full amount of spousal maintenance payments to be excluded from the income assessment of the payer, the maintenance agreement must also:
- be fair and reasonable, and
- not contravene the deprivation provisions.
A delegate should request a certified copy of the agreement for placement on file. A statutory declaration stating that an agreement exists is not sufficient.
Example - valid spousal maintenance agreement
Peter receives $200 a week income from a private pension scheme. Peter and his former partner Lesley draft and sign a written agreement which commits Peter to paying $100 per week of this amount to Lesley. For income support purposes, the amount of $100 ($200 less $100) is held as ordinary income of Peter. The maintenance payment is excluded from Peter's assessment.
Assessment where agreement is not a valid agreement
In cases where the arrangement to pay spousal maintenance is not regarded as a valid agreement, the gross amount of income should be used in assessing the payer's rate of income support. This may occur where, for example, the only evidence of any arrangement is a verbal agreement or a statutory declaration.
Spousal maintenance agreement must be fair and reasonable
In cases where the spousal maintenance agreement has been reached out of court, care should be taken to ensure that the property settlement is fair and reasonable. Any valid agreement must be such that one party has an agreed and acknowledged right to the income and the other party is prevented from disposing, withdrawing, encumbering or in any way diminishing the monies owed to the first party. To be fair and reasonable, adequate financial consideration must have been agreed. The main purpose of the agreement must not have been to minimise income for the payer, in order to maximise pension entitlement. Where a spousal maintenance agreement is not fair and reasonable, part of the maintenance payment may be considered a deprivation of income and/or assets.More ?
Example – fair and reasonable agreement reached out of court
A couple have been married for many years and the former partner has never been in the paid workforce. When the couple separate the person agrees, by a valid spousal maintenance agreement, to direct 50% of a private pension to their former partner. This would be considered to be a 'fair and reasonable' agreement.
Example – agreement which is not fair and reasonable
A couple both worked full time and had done so for many years before retirement. When the couple separate, the person agrees, by a valid spousal maintenance agreement, to direct 80% of a private pension to their former partner. This may be regarded as unreasonable as the former partner is receiving payments in excess of adequate financial consideration. In this case, a delegate may decide that deprivation of income has occurred.
Section 5K(1) VEA – definition of maintenance income
Section 5H(1) VEA – definition of ordinary income
According to subsection 5K(1) of the VEA, maintenance income in relation to a person, means:
- child maintenance — that is, the amount of a payment or the value of a benefit that is received by the person for the maintenance of a maintained child of the person and is received from:
- a parent of the child, or
- the partner or former partner of a parent of the child, or
- partner maintenance — that is, the amount of a payment or the value of a benefit that is received by the person for the person's own maintenance and is received from the person's partner or former partner, or
- direct child maintenance — that is, the amount of a payment or the value of a benefit that is received by a maintained child of the person for the child's own maintenance and is received from:
- a parent of the child, or
- the partner or former partner of a parent of the child,
but does not include disability expenses maintenance.
The ordinary income of a person for a period means, as described in section 46 of VEA, the gross ordinary income from all sources for that period without any reduction, other than a reduction of business income.
For adequate financial consideration to be received when disposing of an asset, a person must receive value in the form of money or assets. Adequate financial consideration can be accepted when the amounts received reasonably equate to the market value of the asset. It may be necessary to obtain a valuation from a property valuation service provider.
When disposing of income, in order for adequate financial consideration to be received, the person must receive money, goods or services which approximate in value to the rate of disposed income. If a person disposes of an income producing asset and receives adequate financial consideration in money or money's worth for the asset, then it can be accepted that they have received adequate financial consideration for the disposal of both the income and the asset.