In property settlement matters, an issue which is seemingly on the rise is the existence and treatment of loans said to be owed to parents or family‑controlled companies. These “related‑party loans” often appear legitimate to the party relying on them. However, in family law property adjustment proceedings these arrangements attract a level of scrutiny beyond that applied to commercial debts.
A recent appellate decision, Han & Han [2026] FedCFamC1A 54, is a decision of real practical assistance and value on this issue. Austin J sitting in the Federal Circuit and Family Court of Australia (Division 1) Appellate Jurisdiction determined the husband’s appeal from final settlement orders made by a judge of the Federal Circuit and Family Court of Australia (Division 2).
This article primarily focuses on ground one of the husband’s appeal, which concerns the trial judge’s decision to disregard a loan the husband claimed to owe his parents in the sum of $4.66 Million.
Capital advanced by the husband’s parents equated to about $1.8 million and the balance (about $2.8 million) was said to be accrued interest. The loan was subject to a loan agreement and secured by caveat registered over a real property by five corporations and the husband’s mother. The trial judge accepted that the husband borrowed money on the terms set out in the second of two loan agreements and the loan was not statute barred. However, the primary judge found that the husband failed to establish the quantum of the debt owed or the likelihood it would be enforced against him, and, therefore, disregarded the loan as a liability for which the wife should share responsibility.
Relevantly, in Han & Han, the creditors lodged a caveat in 2007, first sought interest payments in September 2019, and issued a demand in November 2022 after the parties had separated. Even then, despite the husband’s subsequent default, the creditors took no action to recover the loan.
The Court’s discretion in the assessment and treatment of related party debts:
The Court’s duty under s 79 of the Family Law Act 1975 is to identify the parties’ existing assets and liabilities and then determine a just and equitable division. However, when a party claims a debt owed to a parent or family company, the Court asks several critical questions about the asserted liability, including:
- Is the debt or liability genuine;
- Is the debt or liability vague or uncertain;
- What are the terms of debt or liability;
- Is the debt or liability enforceable;
- Is the debt or liability likely to be enforced?
In Han & Han, Austin J highlighted that the Court’s discretion permits it to disregard a liability, even where a loan is secured, if it is unlikely to be enforced.
In his Honour’s reasons for judgment, his Honour noted, for example, that:
[35] The discussion in Biltoft of the dichotomy between secured and unsecured debts resulted only from the need to contrast a disputed unsecured debt with uncontentious secured debts, so no further consideration by the Full Court of secured debts was necessary. It ought not therefore be presumed that secured debts must always be accorded priority over spouses’ property adjustment claims, such that the granular detail of those debts may be safely disregarded as being unimportant. Usually, a secured debt will be enforced, but not always. The significant factual issue is always the likelihood of debt’s enforcement, regardless of whether it is secured.And
[41] …Liabilities that are vague, uncertain, unlikely to be enforced and the like might be treated differently because those circumstances might, in the circumstances of the particular case, render it unjust and inequitable for liabilities to be deducted in that manner…And
[26] … due to familial relationships, creditors do not always enforce their lawful rights under loan agreements against defaulting borrowers.Factors to consider
The following, non-exhaustive, list of factors considered by the Court can be of assistance when assessing claims made by a party in proceedings or prospectively by parents (or related parties) considering advancing funds to family members:
- 1. What is the relationship between borrower and lender. Is the relationship a commercial relationship? Is the relationship familial? Is the relationship of some other category?
- The documentation. Is there a written loan agreement? Was it signed contemporaneously? Are the terms clear?
- Repayments. Have repayments ever been made? Has interest been charged or pursued?
- Any enforcement action. Has the lender issued demands, commenced proceedings, or taken any steps to recover the debt? When did any enforcement action take place relative to the breakdown of the relationship of the parties?
- Commerciality. Would an unrelated or commercial lender have acted the same way?
Why This Matters
Whether you are seeking to rely on a loan from a related party or a parent considering advancing fund to your child, you must consider your ability to prove that the loan is real, the quantum is accurate, and that the loan is likely to be enforced.
Otherwise, the Court may treat funds advanced as a financial contribution from your family and not a liability to be shared with your former partner.
In some circumstances, this can substantially impact the final outcome. In Han & Han, excluding the alleged $4.66 million debt increased the net pool available for division and significantly impacted the husband’s contentions for property adjustment orders
If you or your family are considering financial arrangements that may later be scrutinised in a property settlement, obtaining advice early is essential. Proper structuring and documentation can make the difference between a loan being recognised or being treated as a gift.
Similarly, if you have received an advance from your family and are separating from your partner or spouse, it is important to get legal advice about how the principles apply in your circumstances.
Written by
Matthew Fieldus
Family Law Solicitor
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