When families separate, child support becomes an essential mechanism to ensure a child’s financial wellbeing. But when one parent receives a sudden windfall, such as a large inheritance, it can create uncertainty, especially if the other parent believes the current support arrangement is no longer fair.
So, how does inheritance affect child support in Australia? It’s a question many separated parents face at some point, and the answer depends on several key legal and financial considerations. This blog unpacks the complexities of inheritance and child support to help you understand what it means for your current or future obligations.
How child support works in Australia
In Australia, child support is administered by Services Australia under the Child Support Scheme. This system is designed to ensure that both parents contribute proportionally to the costs of raising their children after separation. The amount of child support payable is based on several core factors, including each parent’s taxable income, how much time the child spends in each parent’s care, and the estimated cost of raising a child at their specific age.
However, child support calculations are based on taxable income reported to the Australian Taxation Office. That’s a key distinction, because inheritance, regardless of whether it’s cash, property, or shares, is not considered taxable income in Australia. As a result, inheritance generally isn’t factored into standard child support assessments.
So, is inheritance counted as income?
The short answer is no, inheritances are generally not treated as income by the ATO. This means they do not appear on your tax return unless the inheritance itself generates income, such as dividends from shares or rental income received in your name. Consequently, Services Australia does not automatically factor inheritances into the calculation of your child support obligations.
This can be a relief to some parents and a source of frustration to others. If one parent receives a substantial inheritance, it may feel unfair to the other, especially if it significantly boosts their financial position. But unless a formal application is made to reassess child support, the system won’t account for that windfall. In other words, an inheritance won’t impact your child support payments or entitlements unless someone takes steps to have the current arrangement reviewed.
When can inheritance change your child support
Although inheritance isn’t considered income, it can still affect child support if a parent requests what’s called a Change of Assessment (COA). This is a formal process that allows one party to ask Services Australia to reassess child support obligations based on significant changes in financial capacity.
In this context, the most relevant reason for reassessment is what’s known as Reason 8—when a parent’s capacity to financially support a child has changed, even if their taxable income hasn’t. A substantial inheritance may fall into this category, particularly if it’s used to eliminate debt, fund investments, or generate income that enhances financial resources.
For example, if a parent uses inheritance funds to pay off a mortgage, their day-to-day living expenses may be significantly reduced, increasing their capacity to pay child support. Similarly, if the inheritance includes investment properties or shares that generate ongoing income, this may be considered by Services Australia during the COA process.
It’s important to understand that the focus isn’t just on the existence of an inheritance. It’s also on how that inheritance changes a parent’s financial reality.
How inheritance affects the paying parent vs receiving parent
If the parent who is paying child support receives the inheritance, it’s more likely that a COA could result in an increase to the amount they’re required to pay. This is because their financial position may be seen as more capable of contributing to the child’s needs.
On the other hand, if the receiving parent inherits money or assets, it’s much less likely that the amount of child support they receive will be reduced. That’s because the focus of child support is on the paying parent’s obligation, not on whether the receiving parent has acquired additional financial resources. In practice, reductions in support due to the receiving parent’s inheritance are uncommon and typically only succeed if there is compelling evidence that the child’s needs are already being met without the additional support.
If you’ve received or expect to receive an inheritance
If you’re wondering how does inheritance affect child support in Australia in your own situation, here’s what you need to know:
You don’t need to automatically report an inheritance to Services Australia. It won’t be included in a standard assessment unless the other parent applies for a COA.
However, if a reassessment is triggered, you may be required to provide documentation such as bank statements, probate records, or evidence showing how the inheritance was used. Transparency and preparation are essential, especially if the inheritance has significantly improved your financial circumstances.
How the COA process works
Either parent can initiate a Change of Assessment by submitting an application to Services Australia. The application must include a detailed explanation of why the current arrangement no longer reflects reality and how the financial situation, specifically the inheritance, has changed either party’s ability to pay or require support.
Once submitted, Services Australia will review the application, examine any supporting documents, and often contact both parents for clarification. If one party disagrees with the outcome, the decision can be appealed to the Administrative Appeals Tribunal (AAT), usually within 28 days.
This process can feel daunting, especially if emotions are high or financial circumstances are complex. But it’s designed to ensure that child support remains fair and responsive to each parent’s ability to contribute.
Common misconceptions about inheritance and child support
A number of myths persist about how inheritance affects child support, including:
“Inheritance automatically affects child support.”
It doesn’t. An inheritance will only be considered if someone formally applies for a COA and the change is found to materially impact financial capacity.
“I can keep an inheritance secret.”
While inheritance isn’t reported on your tax return, once a COA is triggered, both parents must disclose relevant financial resources. Hiding or withholding information can lead to penalties or legal consequences.
“Only cash matters.”
Not true. Property, shares, and other assets can also be taken into account—especially if they generate income or significantly reduce your living expenses.
Understanding what does and doesn’t impact child support can help you respond appropriately and avoid unnecessary stress or disputes.
Take control of your financial future with Loukas Law
Navigating child support is challenging enough. Add a sudden inheritance into the mix, and it can quickly become overwhelming. If you’re already paying or receiving child support and are now dealing with an inheritance, either your own or your co-parent’s, it’s essential to understand your rights, obligations, and options.
At Loukas Law, we offer strategic legal guidance tailored to your unique financial and family situation. Whether you’re applying for a COA, responding to one, or simply want clarity before making a move, our experienced family lawyers can help you understand what’s fair, what’s legal, and what’s next.
Book a confidential consultation today and take proactive steps to ensure your child support arrangement reflects your true financial reality.