It is not uncommon for family members, particularly parents, to advance money to their children. Such advances may be made to assist with financial hardship, provide a deposit for a first home, or to support other personal or business ventures of their child.
In family law property proceedings, disputes often arise as to whether those advances should be characterised as a debt or a gift. A party may seek to treat the advance as a liability, thereby reducing the net asset pool available for division between the separated couple. Conversely, the other party may contend that the advance was a gift and should instead be regarded as a financial contribution made on behalf of the recipient spouse.
How should money advanced by family members be treated in family law proceedings?
The Federal Circuit and Family Court of Australia considered this issue in Han & Han [2025] FedCFamC2F 1285, with the decision later upheld on appeal in Han & Han [2026] FedCFamC1A 54.
Han & Han [2025] FedCFamC2F 1285 (15 September 2025)
Han & Han [2026] FedCFamC1A 54 (26 March 2026)
Facts of the Case:
In 2004, the Husband borrowed approximately $1.18 million from his parents and entities they controlled to purchase a property in Melbourne. He subsequently borrowed a further $634,000 for construction works.
The Husband entered into a loan agreement with his mother in 2004 to document those advances.
In 2007, the Husband and his mother executed an updated loan agreement, replacing the 2004 agreement. The 2007 agreement recorded a loan balance of approximately $1.88 million.
The Husband's mother registered a caveat over the Melbourne property to secure the loan.
The Husband did not make regular repayments under the loan agreement. There was no evidence that any demand for payment was made until September 2019, approximately 15 years after the monies were first advanced.
In 2019, the Husband received an email requesting payment of interest. He did not respond to, or comply with, that request.
In 2022, the Husband received a letter of demand seeking repayment of the loan. No repayment was made.
The Husband deposed that he had received a further letter of demand from the entities' accountant seeking repayment in 2024. Again, no repayment was made.
At trial in 2025, the Husband alleged that he owed approximately $4.67 million to his parents and their related entities. That figure was based upon a letter of demand issued by the entities' accountant in May 2025.
No evidence was provided by the accountant to verify the accuracy of the calculation underlying the asserted figure. Likewise, the Husband did not provide any evidence explaining how his purported current indebtedness was calculated.
Despite the May 2025 letter of demand asserting an indebtedness of approximately $4.67 million, the Husband gave evidence that he intended to repay $4.77 million to his parents.
Notwithstanding the Husband's longstanding failure to repay the loan, no enforcement action had ever been commenced against him.
Decision:
The Court found that:
It is accepted that the debt owed by the Husband to be an existing liability, on terms that ultimately found reflection in the 2007 loan agreement.
law
The Husband failed to discharge his onus of establishing that he owed a debt of $4.77 million to his parents and their associated entities.
It unlikely that the debt would be enforced.
It is not satisfied that the Wife should be proportionally liable for the alleged liability. If the debt is featured on the joint balance sheet to diminish the collective net equity in the parties' property, the Wife would otherwise effectively share responsibility for the liability.
The Court declined to include the debt on the balance sheet.
The Husband appealed. The appeal was dismissed, with the appellate court upholding the primary judge's decision to exclude the alleged liability from the parties' balance sheet.
Key Takeaways
This case demonstrates that the existence of a loan agreement alone may not be sufficient to establish that an alleged family debt should be included in the property pool if the recipients later separate. As confirmed in this case, even where a loan is found to exist, the Court retains a discretion as to how that liability should be treated in the overall property settlement.
A debt that is uncertain in amount or unlikely to be enforced may properly be excluded from the balance sheet rather than reducing the property available for division between the parties.
Relevant considerations include:
Whether the quantum of the debt can be established with reliable evidence;
Whether the debt is likely to be enforced; and
Whether including the debt would unfairly reduce the net asset pool and require the other party to effectively share responsibility for a liability that may never be enforced.
If you are experiencing similar disputes in your property settlement, R + M Law can provide you with assistance. To arrange an appointment with one of our family lawyers, please complete the enquiry form below or call us on (02) 6225 7040 or email at info@rmfamilylaw.com.au, or get started now online.