When a marriage or de facto relationship breaks down and there are children involved, you may find yourself having to pay child support. Child support payments are not tax deductible and if you’re paying child support, the actual cost is much higher than the set amount because it is paid with after-tax money, meaning you need to earn a greater gross income to have the expendable after tax money (see example below). However, in some cases, a properly structured Child Maintenance Trust can be set up to pay the child support.
Setting up a Child Maintenance Trust
Relationship breakdown and the payment of child support can take a long time to recover from financially. However, trust and tax lawyer Margaret Antunes says that with an effectively structured and utilised Child Maintenance Trust, the actual burden of child maintenance or child support can be halved. If the burden of child support is halved the ability to recover and get back into work, business and investing will be greatly increased.
A Child Maintenance Trust is a Trust that arises as a result of the “family breakdown” and is set up to make child maintenance payments with pre-tax income (section 102 AG (2)(c)(viii) Income Tax Assessment Act 1936).
A parent earns $200,000 per annum income and has to make child support payments of $700 per week i.e. $350 per week for each of the 2 children. The $700 per week is actually costing the parent approximately $1,400 per week i.e. $72,800 because:
- The parent has to earn $1,400 per week
- The parent has to then pay tax of 49%
- The parents nets approximately $700 per week to pay the child support
In some cases, a Child Maintenance Trust can be set up to pay the child support. The Child Maintenance Trust enables you to pay the $700 per week child support with $700 per gross income (instead of $1,400 per week if you have no Child Maintenance Trust), saving you $700 per week. This translates to annual savings of $36,400 and over an average child support term of, say, 10 years, to savings of $364,000 for 2 children.
Other Benefits of a Child Maintenance Trust
Another benefit of a Child Maintenance Trust is that property settled on the Trust can include business interests, shares, units in unit trusts etc.
However, when setting up the legal structures of a business, it’s important to set them up with the flexibility required to make them usable for child maintenance purposes should the need arise. Antunes Lawyers corporate and trust services cater for the flexibilities required for these purposes. “Shelf companies” and “shelf trusts” do not. Antunes Lawyers also provide a Child Maintenance Trust assessment service. For a nominal fee, your circumstances can be assessed and armed with legal advice that could save you a lot of time and money in the future.
Call Antunes Lawyers on 02 9964 0499 or contact us online to organise your assessment.