It is common for parents or other family members to provide financial assistance during a relationship, including money for a house deposit, renovations, living expenses or other significant purchases. If a couple later separates, an important question may arise: was that money a gift or a loan?
The answer can have a significant impact on the property pool available for division. The Court will generally look beyond what the parties call the payment and consider the substance of the arrangement, including any loan documents, repayment history, security, the conduct of the parties and whether repayment is genuinely expected.
If a dispute arises about whether money advanced by a parent was a loan or a gift, the parent may also become involved in the family law proceedings and, in some circumstances, may need to obtain their own legal advice or seek to establish their entitlement to repayment.
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Is Money From Parents a Gift or a Loan in Family Law?
When determining a property settlement, the Court considers the parties’ assets, liabilities and superannuation interests. Money advanced by parents or other family members may therefore become an important issue when identifying the property available for division.
However, simply describing money provided by a parent as a “loan” does not necessarily mean it will be treated as a liability that reduces the property pool. The Court will consider the circumstances surrounding the advance and the substance of the arrangement.
Relevant considerations may include whether there is a written loan agreement, whether repayments have been made, whether interest is payable, whether security was provided, the conduct of the parties and the lender, and whether there is a genuine expectation that the money will be repaid or the debt enforced.
In some circumstances, a debt may not be deducted from the property pool even where a legally enforceable obligation exists, particularly where repayment is unlikely to be required in practice.
The Court has long recognised that the existence of a legally enforceable family loan does not necessarily mean the liability will be taken into account in a property settlement. In Biltoft & Biltoft Judge Nygh stated:
“In taking account of the ‘obligations’ of the parties, I must consider how pressing such an obligation is. It is fairly common in this Court to meet a situation where a parent has made a to a child which is in all respects legally enforceable, but which is not in fact enforced and would not really be expected to be enforced. It is no doubt an ‘obligation’ but if the obligation is not likely to have to be met, it should not be taken into account.”
Example of a Family Loan in Property Settlement: Damiani & Damiani [2012] FamCA 535
In Damiani & Damiani [2012] FamCA 535, the Wife’s parents had advanced $50,000 to assist her in acquiring an interest in a property. A written loan agreement was subsequently entered into, which provided for repayment on demand and included a provision for interest. However, no repayments had been made, and the Wife’s father gave evidence that repayment had not been demanded because the Wife was not in a position to repay the money.
Although the debt was legally enforceable, the Court considered that the Wife’s parents were unlikely to require repayment in the foreseeable future, if at all. The case demonstrates that the existence of a written and legally enforceable family loan does not, by itself, determine how the debt will be treated in a family law property settlement.
Family Loans and Han & Han [2026]: A Recent Full Court Decision
The recent Full Court decision of Han & Han [2026] FedCFamC1A 54 provides an important contemporary example of how the Court may approach substantial loans involving family members and related parties in a property settlement.
In that case, the Husband contended that significant related-party liabilities should be deducted from the parties’ property, including approximately $4.66 million said to be owing to his mother. The Court accepted that a loan existed. However, the existence of the loan did not automatically mean that the amount claimed should be deducted from the property pool.
The Court considered issues including the amount actually owing and the likelihood that the liability would be enforced. Significantly, there was documentation concerning the loan and security had been provided, but those matters were not determinative of how the liability should ultimately be treated.
Should a Related-Party Debt Reduce the Property Pool?
When considering how a loan from a parent, family member or related entity should be treated, the following issues may be relevant:
✓ Is there evidence of a genuine loan?
A written loan agreement, bank records and other contemporaneous documents may help establish that the advance was intended to be repaid.
✓ What amount is actually owing?
The existence of a loan does not necessarily establish the amount that remains outstanding.
✓ Have repayments been made?
A history of repayments may support the contention that the parties treated the advance as a genuine liability.
✓ Is the loan secured?
Security, such as a mortgage or caveat, may be relevant evidence, although it will not necessarily determine the outcome.
✓ Is repayment genuinely expected?
The Court may consider whether the parent or related party is realistically likely to require repayment or enforce the debt.
Key Takeaways from Han & Han
A family loan is not automatically deducted from the property pool simply because documents exist recording the debt.
The Court may look at the substance and practical reality of the arrangement, including the amount actually owing and whether the debt is genuinely likely to be enforced.
How Can you Show that Money From Your Parents is a Genuine Loan?
When determining whether money advanced by parents or other family members should be treated as a genuine loan in a property settlement, the Court may consider a range of factors, including:
✓ Was the loan documented at the time?
A written loan agreement and contemporaneous records can provide important evidence that the money was intended to be repaid rather than gifted.
✓ Were clear repayment terms agreed?
The Court may consider whether the agreement specifies when repayment is required, whether interest is payable and other terms usually associated with a genuine loan.
✓ Have repayments actually been made?
A history of regular repayments can support the position that both the borrower and lender have treated the advance as a genuine debt.
✓ Has the lender ever requested repayment?
The conduct of the parent or family member after advancing the money may be relevant to whether repayment is genuinely expected.
✓ Is the loan secured?
A mortgage, caveat or other security may provide further evidence of the arrangement, although security alone will not necessarily determine how the Court treats the debt.
✓ Is the debt genuinely likely to be enforced?
As cases including Han & Han demonstrate, the practical likelihood that the lender will seek repayment can be an important consideration.
If parents intend financial assistance to be a loan rather than a gift, it is important that the arrangement reflects that intention from the outset. This may include documenting the loan in writing, clearly recording the repayment terms and any interest payable, and considering whether appropriate security should be provided.
The conduct of the parties after the money is advanced can also be important. Making repayments consistently with the agreed terms may provide evidence that the arrangement has genuinely been treated as a loan. By contrast, attempting to characterise an advance as a loan only after separation or property settlement proceedings have commenced may attract greater scrutiny.
If you have separated and money advanced by your parents or another family member is in dispute, obtaining advice early can help you understand how the arrangement may be treated in your property settlement.
Barton Family Lawyers can advise you about family loans, related-party debts and other liabilities arising in a property settlement. Contact us to arrange a confidential consultation with one of our experienced family lawyers.
