Q: After a split between my partner and I, things have turned sour. I have now been away from my partner for five years. I paid child support for 12 months through a private agreement but, recently, I've just been paying small sums to my ex-partner while setting up my new business. We have two children aged 12 and 9 and I live in Australia. My partner and children still live in New Zealand.
I haven't been able to see my children for 2 years due to Covid but now I'm being chased for Child Support by the IRD, including interest and penalties. What is the best way to resolve the child support debt with IRD? Do I have to pay the interest and penalties?
I'm hopeful my start-up business will get a cash injection soon so I'll be able to pay a lump sum. Is payment of a lump sum to the IRD a good option?
A: This does sound like a stressful situation. For any parent, not seeing their children for two years would be very hard.
However, you still have to pay child support regardless of whether or not you are seeing them. Child support is a system by which the more financially secure parent can assist the other parent. The parent paying child support is normally caring less for the child on a day-to-day basis.
Since 2018 the total amount of outstanding child support payments totalled $2.3 billion. This figure is made up of half a million in overdue child support payments, and $1.8 billion in penalties and fees. This fact alone illustrates the danger of not paying child support. The penalties and fees add up quickly.
The law governing child support can be found in the Child Support Act 1991 and there are different ways you can pay child support.
Ways to pay child support in New Zealand
1. Formula assessment (The IRD calculates how much child support you should be paying)
2. Voluntary agreement (you and your ex-partner decide on the amount, and your agreement is registered through the IRD)
3. Private agreement (you and your partner decide how much child support should be paid, and how often).
Your situation will decide which method is best for you.
1. Formula assessment
The IRD decides the amount and manages payments through your tax. Your obligation is dependent on the incomes of each party and the number of nights the children spend with each parent. You can use the child support liability or entitlement calculator on the IRD website to see how much you will need to pay.
If you are employed, the child support payments are automatically deducted from your income, similar to your PAYE tax, and paid to your ex-partner.
2. Voluntary Agreement
You can also enter into a private child support agreement and have it registered through the IRD. This amount can be flexible, and the agreement can be on your own terms. This is more common where the parties are looking for certainty on payment. Similar to a formula assessment, the payments are managed through the IRD and deducted automatically from your pay.
3. Private agreement
When both parties are earning significant private incomes or have significant assets, they will generally enter into a private agreement. This will normally be done at the same time as the relationship property or settlement agreement. Where there is a disparity of income, the advantaged party may pay more to the disadvantaged party than calculated under the Child Support formula. The success of this option long term depends on the trust of the parties.
Other options that I have seen clients consider include opening a joint bank account for the benefit of the children. Both parents then put an agreed sum into the account perhaps each week or month. This is helpful as it sets aside money for all the children's expenses, particularly the one-off larger ones such as school camps or extracurricular activities.
Some parents decide to set aside funds for the children as part of their relationship property settlement. For example, if the family home is to be sold, the parties might agree to set aside a portion of that to meet the children's expenses before the remainder is divided between the parties.
Late fees and penalties
Child support can be expensive, not paying on time with the IRD could put you in danger of paying late fees and penalties if you can't pay all at once. Section 134 of the Child Support Act says if your payments are late you pay an extra 2 per cent to 8 per cent of the original sum.
My experience with IRD is that you can often negotiate with the full sum. The interest and penalties can be very high. You'll need to describe your particular circumstances and your ability to pay. Having professional advice can make a big difference.
Payment by a lump sum
1. IRD - This is an option if you have the necessary money. You may want to pay a lump sum amount to the IRD if you can negotiate a significant reduction on the sum owing. I have had clients who have done this to save arrears adding up.
2. Paying the other party - You make one larger payment, and you don't have to worry about continuing support for your ex-partner. Child support is payable until the child is 18 years old. Your child support obligation may be, for example, $15,000 per year for one child. If that child is only five, a lump sum amount of $195,000 would need to be paid but this is often too much for most people to pay a lump sum.
Can I get back in the country to see my children if I don't pay?
There have been instances where people have been arrested on return to New Zealand where they are in arrears. This rare but can happen. Around 12 people a year are arrested for failure to pay child support. Before Covid-19, 350 parents a year in New Zealand were prevented from travelling overseas due to owing child support.
The IRD does have significant legal powers, so you are always going to be better off paying the child support you owe.
Falling behind on tax payments including Child Support can be a very costly experience because the penalty and interest payments are considerable. Please sort out the IRD debt urgently and get professional advice as the debt will grow at a significant rate until it is tackled. Paying a settlement sum to IRD may be needed, and you can seek advice from an accountant, lawyer or other professional for further guidance.
• Jeremy Sutton is a senior family lawyer. Specialising in divorce cases where there are significant assets, including family trust and complex business structures.