Loans from family members are a common way for parents to assist children with purchasing their first home, investing in property, or meeting financial commitments. While these arrangements are often made with the best of intentions, a recent decision on appeal in the Federal Circuit and Family Court of Australia (the Court) highlights the risks of relying on informal or non-commercial family lending arrangements when a relationship breaks down.
The decision in Han & Han [2026] FedCFamC1A 54 (Han & Han) serves as an important reminder that not every family loan will be recognised by the Court during a property settlement, even where there are a written loan agreement and security has been registered against property.
The facts of Han & Han
In Han & Han, the husband sought to have an alleged debt of approximately $4.66 million deducted from the matrimonial asset pool. He claimed that over a period of nearly 20 years, he had received capital advances totalling approximately $1.8 million from his parents and entities controlled by his family. With accrued interest, the debt was said to have increased significantly.
The husband argued that the debt should be recognised because it was documented in a formal loan agreement and secured by a registered caveat.
However, the Court ultimately refused to treat the alleged debt as a liability that should reduce the assets available for division between the parties.
The Court’s approach to family loans
The Full Court confirmed that the deduction of liabilities from the matrimonial asset pool is not an automatic exercise. Rather, it is a matter of discretion based on the evidence and the circumstances of each case.
Importantly, the Court will look beyond the existence of legal documents and consider whether the alleged debt has the characteristics of a genuine commercial obligation.
Is the debt likely to be enforced?
One of the most significant considerations is whether the lender is genuinely likely to enforce repayment.
In Han & Han, the husband’s parents purportedly called in the loan after the parties separated. Despite this demand, there was little evidence of any genuine attempt to recover the funds. No commercial recovery action was commenced, and the creditors remained largely inactive.
As a result, the Court concluded that the debt was unlikely to be enforced. This weighed heavily against including it as a liability in the property settlement.
Loan agreements are not determinative
Many families assume that a written loan agreement will be sufficient to establish the existence of a debt.
The decision in Han & Han demonstrates that this is not necessarily the case.
While loan agreements are important evidence, they are only one factor considered by the Court. The Court will examine the surrounding circumstances, including the conduct of the parties, the history of repayments, and whether the arrangement genuinely operates like a commercial loan.
A written agreement alone does not guarantee that a debt will be recognised during family law proceedings.
The amount owed must be clearly proven
Another difficulty for the husband was establishing the precise amount allegedly owed.
The Court found that there was uncertainty regarding the quantum of the debt. Where the value of an alleged liability is vague, unclear, or unsupported by reliable evidence, the Court may be reluctant to take it into account.
Parties relying on family loans should therefore ensure there is clear documentation recording advances, repayments, interest calculations, and current balances.
Caveats may not provide adequate protection
The case also highlights the limitations of relying solely on a caveat.
The Court distinguished the charge relied upon by the creditors from a registered mortgage. A caveat does not give a creditor the same proprietary rights as a mortgage and generally operates only as a protective mechanism to preserve an asserted interest in property.
The Court observed that the arrangement did not provide the creditors with the type of enforceable proprietary interest that would ordinarily exist in a commercial lending relationship.
Consequently, a caveat alone may not be sufficient to protect a family loan if the underlying arrangement lacks commercial reality.
The importance of commerciality
The key lesson from Han & Han is that family loans must be capable of withstanding scrutiny as genuine commercial obligations.
The Court will commonly consider factors such as:
- Whether there is a written loan agreement;
- Whether repayment terms are clearly defined;
- Whether interest is charged and calculated consistently;
- Whether repayments have been made;
- Whether security has been properly documented;
- Whether the lender has previously enforced the loan or would genuinely seek repayment if required; and
- Whether the arrangement reflects how unrelated parties would ordinarily conduct a lending transaction.
If a loan does not demonstrate sufficient commercial characteristics, the Court may choose to disregard it when determining the asset pool available for division.
Practical guidance for families
Parents frequently provide financial assistance to children to help them enter the property market. While these arrangements are often intended to be loans rather than gifts, it is essential that they are properly structured and documented from the outset.
Failing to do so may lead to significant consequences if the child later becomes involved in family law proceedings. As Han & Han demonstrates, even substantial family loans can be excluded from consideration or from the marital asset pool if the Court is not satisfied that they represent genuine and enforceable liabilities.
How Agar Singh Legal can help
At Agar Singh Legal, we understand that family loans can become a significant issue during property settlement proceedings. Whether you are seeking to rely on a loan from a parent or other family member, or you are concerned about a former partner asserting that a family debt should reduce the asset pool, obtaining early legal advice is essential.
Our family law team can advise you on how the Court is likely to assess a family loan, including whether it is likely to be recognised as a genuine liability for the purposes of a property settlement. We can assist in identifying the evidence required to establish the existence, enforceability, and quantum of a loan, and provide strategic advice on how family lending arrangements may affect the overall division of property.
Our experienced family lawyers can provide tailored advice to help you understand your rights, protect your interests, and navigate the complexities of property settlement proceedings with confidence.
Jessica Anderson
e: janderson@aslegal.au
p: 03 5292 0639
