Chapter 4 - Shared care

This chapter discusses how shared care is recognised under the current scheme and suggests alternatives to recognise other levels of regular care in line with levels of care adopted in Australia and the United Kingdom.

The options outlined in this chapter aim to address concerns that the financial burden of child support may not always fall fairly on parents who have regular care of their children, or substantial input into the care of their children.

The chapter specifically considers, and invites submissions on, the following sequence of issues:

  • whether the single threshold for shared care (the current 40 percent of nights test) should be retained, but lowered (for example, closer to the one-third test used for Working for Families Tax Credits);
  • whether a tiered system of shared care should be introduced and, if so, what tiers would achieve the fairest result in determining child support liability (tiers from 14 percent of nights are discussed); and
  • how the additional costs arising from regular care should be split between parents.

Submissions are also invited on whether Inland Revenue, in taking account of shared care, should be able to rely on a parenting order or a parenting agreement to establish the amount of time a child spends with each parent.

Background

Greater emphasis on contact and care

4.1 Societal changes to patterns of parenting have occurred since the Child Support Act was introduced so it is now more common for both parents to be actively involved in raising children.

4.2 In addition, there is now far greater emphasis placed under family law on both separated parents remaining actively involved in their children’s lives and sharing responsibility for their welfare. The Care of Children Act 2004 highlights the responsibilities that both parents have towards their children rather than the rights they have as parents, emphasising that parents’ responsibilities are ongoing, and that both parents should have a significant role in their children’s upbringing. As such, parents are encouraged to co-operate and agree on arrangements for the care of their children.

4.3 Evidence indeed suggests there is a substantial degree of regular parental sharing of care. Thirty-six percent of respondents to the Families Commission’s survey[24] said that paying parents look after their children overnight at least a few days a fortnight. Even when high levels of care did not occur, comments from parents suggested they would be willing to increase their levels of care if other hurdles, such as conflict between the parents, could be overcome or reduced.

4.4 This is a clear contrast with the current situation under the child support scheme where shared care provisions apply to only approximately four percent of children and five percent of parental relationships in the scheme.[25] As noted in the previous chapter, the sharing of basic costs occurs at a level of care significantly below the 40 percent of nights threshold.

Why we have the current shared care test

4.5 Before the introduction of the Child Support Act, the Advisory Committee on the Child Support Formula, in its 1990 report to the Ministers of Social Welfare and Revenue, recommended there be a modified child support formula for parents living apart who shared the care of their children.

4.6 The Committee considered the formula should take into account that in most cases both parents have to maintain, amongst other things, adequate accommodation to meet the needs of the children for the whole year when care is shared. While noting that the length of time chosen to denote a shared care arrangement was necessarily arbitrary, the Committee considered the (then) Australian definition of four nights out of 10 to be acceptable. The Committee further noted that this definition should be flexible but suggested that the length of time spent by children with each parent must be substantial, and that there must be a sharing of basic costs. These recommendations were incorporated into the current child support formula.

What is the current adjustment?

4.7 In addition to recognising the child as being a dependant when calculating the living allowance,[26] the child support percentage based on income is reduced, depending on the number of children involved, when the 40 percent of nights shared care threshold is met, as shown in Table 6.[27]

Table 6
No. of children Child support percentage
Sole care
Child support percentage
Shared care
1 18 12
2 24 18
3 27 21
4 30 24
5 30 25.5
6 30 27
7 30 28.5
8 or more 30 30

Summary of shared care concerns

4.8 Chapter 2 outlined the key concerns that parents have expressed about the current shared care provisions, namely:

  • that the 40 percent of nights threshold for automatic recognition of shared care is perceived as being too high and creates a “cliff” effect; and
  • that the alternative test is considered to be too onerous as it may require at least 50 percent of care other than overnight care.

4.9 The Government is concerned that the current scheme provides disincentives to parents sharing the care of their children for the following reasons:

  • It gives receiving parents an incentive to limit shared care to a level just below the threshold, which may not be in a child’s best interests. Receiving parents would in many cases receive materially less child support if a paying parent qualifies for a shared care adjustment.
  • It does not recognise the significant costs some parents incur while trying to retain a significant role in their children’s upbringing, because those costs are not recognised under the standard child support formula. This may affect the paying parent’s willingness or ability to meet their child support obligations or to maintain any significant level of care.

4.10 Two further possible criticisms of the current approach to shared care are:

  • Its administrative complexity. Establishing shared care in many cases involves asking each parent to complete questionnaires for consideration by Inland Revenue. Decisions, objections and appeals relating to shared care are time-consuming for parents, especially when attempting to reconcile conflicting information.
  • It differs from how shared care is defined in other areas of the law. To qualify for Working for Families Tax Credits, a parent must have a child in their care for at least one-third of the year.[28] For entitlements to certain benefits, a parent must show that they have primary responsibility for the care of a dependent child for at least 40 percent of the time. This difference in definitions can lead to confusion.

4.11 As observed in chapter 3, when both parents have regular care of their children, costs for the paying parent increase with an associated, but disproportionately lower, reduction in the receiving parent’s costs. This is because of a loss of the economies of scale that exist in two-parent families, and in many cases when care is shared, neither parent is able to maintain their former standard of living.

4.12 The key question to be addressed is whether the costs incurred by both parents can be borne in a more equitable way.

Suggested approach

4.13 Any new approach to shared care should be evaluated by reference to the following criteria:

  • that any change should be supportive and not act as a barrier towards parents sharing the care of their children;
  • any change should not exacerbate conflict between parents;
  • consideration must be given to the level of regular and shared care that starts to give rise to dual costs;
  • how the extra costs are borne by each parent;
  • the degree of complexity that the scheme should reasonably bear;
  • the financial impact of any change, as it affects children, paying parents, receiving parents and, when the child support offsets benefit payments, the Government;
  • the degree to which the approach encourages paying parents to comply; and
  • the costs involved in implementing the approach.

4.14 The Government is concerned that any reform to the child support rules which results in the paying parent’s child support payments being decreased will, in some cases, amount to a decrease for receiving parents – even though the costs in the receiving parent’s household may not have reduced by an equivalent amount.[29] Any change to the rules must, therefore, take account of this concern by providing the best possible reflection of the costs incurred by both parties when care is shared to a significant degree. Ultimately, this is not purely a mechanical exercise and a degree of judgement and compromise is required.

Options for changing the threshold

4.15 In considering how the threshold might be changed, two options have been considered.

Option one – reducing the shared care threshold

4.16 Retaining a single, but lower, shared care threshold would maintain the simplicity of the current shared care rules. A lower threshold would allow more paying parents to benefit from the shared care rules, and better recognise their contributions towards raising their children.

4.17 Possible options for a revised single threshold are:

  • a one-third test; and
  • an even lower shared care threshold (possibly as low as 14 percent of nights).

4.18 The advantages of a one-third test are:

  • more paying parents would be able to benefit from the shared care rules;
  • the paying parents that would benefit from the change would likely be those who are incurring the highest additional costs;
  • there would be no added complexity for parents; and
  • it would not involve significant administrative costs for the Government.

4.19 The disadvantages of a one-third test are:

  • the threshold would still be set at a relatively arbitrary level, and would not reflect overseas research that actual additional costs for paying parents arise at much lower levels of regular and shared care;
  • the cliff effect described in chapter 2 would remain; and
  • a relatively small number of paying parents would benefit from the changes.

4.20 A substantially lower threshold would retain the advantages of a one-third test and would have the key additional advantages of better reflecting additional costs, reducing the impact of the cliff effect and allowing a greater number of paying parents to benefit from the shared care rules.

4.21 On the other hand, a lower threshold may provide too great an adjustment. As already noted, although paying parents’ costs rise at relatively low levels of care, receiving parents’ costs do not tend to decrease noticeably at those levels. If all paying parents above the substantially lower threshold received the same proportionate adjustment in recognition of regular or shared care, it is likely that receiving parents who care for their children for at least 80 percent of the nights would bear too high a proportion of total costs. This would have a negative impact on their ability to care for their children. Accordingly, the threshold ideally needs to alter with the degree of shared care. This leads to option two.

Option two – introducing a tiered set of thresholds

4.22 The Australian reforms have resulted in a tiered cost recognition of regular and shared care, as shown in Table 7.

Table 7
Number of nights of
care annually
Percentage of annual care Proportion of net expenditure
for child considered incurred
0 to 51 0 to less than 14% Nil
52 to 126 14% to less than 35% 24%
127 to 175 35% to less than 48% 25% plus 0.5% for each night over 127 nights
176 to 182 48% to 50% 50%

4.23 Likewise, the United Kingdom’s shared care recognition is calculated as shown in Table 8.

Table 8
Number of nights of care annually Percentage of annual care Proportion of net expenditure for child considered incurred
0 to 51 0 to less than 14% Nil
52 to 103 14% to less than 28% 1/7 (14.3%)
104 to 155 28% to less than 42% 2/7 (28.6%)
156 to 174 42% to less than 48% 3/7 (42.9%)
175 or more 48% or more 50%

4.24 Under a tiered approach, paying parents would have the care they provide acknowledged at a given rate, with higher levels of care reflected in a corresponding increase in the child support liability adjustment, in recognition of the additional costs incurred.

4.25 The advantage of a tiered approach is that once regular or shared care is confirmed, subsequent small increases in levels of care would not give rise to major changes in child support for either parent – that is, there would be less of a cliff effect, and instead there would be a series of smaller incremental adjustments.

4.26 While this approach is more complex and would involve greater administrative changes (in particular, changes to Inland Revenue’s computer systems), it is likely to more accurately reflect parents’ relative costs. It would also provide consistent outcomes in similar situations while maintaining certainty for both parents about the financial implications of different care arrangements.

4.27 There is a question about whether it is appropriate to have a sizable reduction in child support liability for a relatively small amount of care. The Australian approach does this to reflect the apparent substantial set-up costs of providing care that can arise even for one night a week. The United Kingdom approach, on the other hand, assumes that care costs increase more gradually as the level of care increases.

4.28 If the tiered approach is adopted for New Zealand, it could be a compromise between these two approaches, for example, as set out in Table 9.

Table 9
Number of nights of care annually Proportion of net expenditure for child considered incurred
0 to 51 Nil
52 to 103 14%
104 to 174 14% plus 0.5% for each night over 103
175 or more 50%

4.29 Submissions are invited on this approach.

4.30 It would be possible to commence the tiers from 33% – for example, if a higher minimum threshold for recognising shared care was considered more appropriate.

Additional costs arising from shared care

4.31 The analysis of the expenditure for raising children has been based on the costs for a two-parent family. A question is whether those costs be adjusted when parents are living apart and each has regular care of their children.

4.32 There is little direct analysis of the costs of care and how the expenditure for raising children is shared between separated parents in New Zealand. The Families Commission’s survey results, however, indicated that parents are incurring increased costs because of regular care, with approximately 50 percent of the paying parents who responded saying that they incurred additional expenses in the past year (see appendix 4). It is also reasonable to assume that the increased costs of care and how they are distributed between the two parents would be broadly similar to the findings of the Henman study for Australia (see chapter 3).

4.33 There are two possible options for handling these costs.

No direct adjustment for additional costs

4.34 The first approach would be to establish the expenditure for a child for a two-parent family and apportion this cost in a way that reflects the relative costs already incurred by each parent in caring for the child. Although the expenditure for the child would be understated under this approach because it would not take into account the additional costs of shared care, both parents would bear this shortfall broadly in proportion to the level of care they provide. Given that parents’ contributions are also influenced by their relative incomes, Australia has adopted this approach, in conjunction with sharing costs in accordance with each parent’s share of total income (see chapter 5).

Adjustment for additional costs

4.35 Another option involves incorporating an inflated expenditure for raising children figure into the child support formula to reflect the additional costs generated by care being shared. This cost could then be distributed between the parents. This approach has the advantage that the additional costs would be specifically identified and recognised.

4.36 This approach would arguably generate more accurate results but would likely result in a more complex formula since it would have to incorporate different expenditures for raising children depending on parents’ income levels and the level of care being provided by the parents. If the formula calculations were to be automated, this may be less problematic.

4.37 Of more importance would be the need to ensure that the cost uplift did not create a cliff effect between a shared care situation and one involving no regular care. Such an effect could deter regular care of the child or children concerned. Avoiding this effect, however, could be problematic. An additional arbitrary percentage of, say, 50 percent, would clearly create a cliff effect which would arise even using the graduated percentages implied by the Henman study which shows in Australia that aggregate costs rise by between 37 percent and 75 percent depending on the scenario.

Other issues affecting shared care

Use of number of nights as a test

4.38 Shared care for child support purposes is determined by the number of nights of care a parent provides. For other purposes it is based on days or time in general. The “nights” test is used for child support to provide a clear-cut guideline which minimises confusion for parents and lessens administrative uncertainty. It is easily measured and understood and is, on balance, considered the best indicator of parental involvement and additional costs for the purposes of the child support scheme. This view is based on the likelihood that when a child spends a night with a parent, the parent will usually provide a bedroom, dinner, breakfast and transport.

4.39 Accordingly, it would seem appropriate to retain the nights test for child support purposes. The administrative review process would still be available to provide departures from the test on a case-by-case basis when justified.

Costs of day-time contact

4.40 Some parents may not have their children stay overnight but nevertheless may have extensive daytime contact. The costs involved with daytime care are likely to vary with the age of the child, with the costs being higher for older children. The Australian Taskforce acknowledged that parents in these circumstances should qualify for an adjustment if they can establish that they incur costs at least equivalent in aggregate to those taken into account in applying the nights-based test.

4.41 The Australian Child Support Registrar has the discretion, in the absence of agreement between the parents, to determine whether the level of daytime contact is sufficient to justify an adjustment. In the absence of additional housing costs, the expectation is that daytime contact would need to be substantially in excess of 14 percent of days to qualify.

4.42 Feedback is invited on whether the Commissioner of Inland Revenue should have a comparable discretion to adjust child support contributions if a parent can show that the costs he or she incurs through daytime contact are sufficiently substantial. This would be a simpler, more straightforward process than having the matter treated as grounds for an administrative review.

Reliance on parenting orders and agreements

4.43 A minor amendment is also suggested that would allow Inland Revenue to rely on the terms of parenting orders and agreements to determine a parent’s share of care for child support purposes.

4.44 Allowing Inland Revenue in the first instance to rely on the terms of parenting orders and agreements would result in more efficient processing of regular and shared care applications. It would also reinforce what the courts have determined to be in the best interests of the children.

4.45 Currently, decisions and objections relating to shared care are time-consuming for those affected and often involve reconciliations by Inland Revenue of conflicting information. Greater consistency in processing regular and shared care arrangements could be achieved if the terms set out in a parenting order could be relied on by Inland Revenue as an acceptable form of verification.

4.46 This initiative would extend to parenting agreements which, while not enforceable by the courts, nonetheless convey the intentions and expectations of both parents.

4.47 If Inland Revenue were able to rely more on the terms of parenting orders and agreements to determine a parent’s share of care for child support purposes, a new administrative review ground would be needed to enable a parent to challenge this presumption. The onus of proving that the order or agreement was not being adhered to would rest with the parent making the challenge.

 

24 For details, see Appendix 4.

25 As at 31 March 2009, 7,976 children and 6,950 parental relationships were covered by a qualifying shared cared arrangement, representing 3.9 percent of children and 4.6 percent of relationships in the child support scheme.

26 The higher living allowance for shared care is of less relative benefit for higher income parents because it is set at a fixed level which does not take account of income.

27 This simplified table does not reflect the fact that a parent may have some children with shared care and some without. An adjustment does occur in such circumstances.

28 Note that this is not a test based on care for a number of nights, but instead a test based on care for 122 days a year.

29 This is not an issue for parents who are receiving a sole-parent benefit as the child support payments are not passed on to them.