Posted on May 08, 2026
Bianca Maazzarino
For many young Australians, entering the property market without help from their parents has become increasingly difficult. The growing cost of living has transformed “the Bank of Mum and Dad” into one of the most prolific unofficial lenders in this current day.
Despite the size and significance of these contributions, the obligations of these arrangements are often informal, undocumented and built on the trust of family. Initiating and enforcing a formal loan agreement is often overlooked because it may feel uncomfortable or even distrustful within the family setting.
The difficulty with these arrangements is that the trust operating within families does not always translate neatly into legal certainty. Problems may emerge years later when circumstances change, particularly where the child becomes entangled in a family law dispute. What was a shared understanding within the family then becomes characterised as a tailored version of events, whether it be a gift, a loan, or a financial contribution to the relationship.
This issue is compounded where parents do not actively pursue repayment of the loan. Without clear evidence of repayment, it may be difficult to later persuade a court that the arrangement was ever intended to operate as a genuine debt, and rather, it may constitute a gift made out of familial affection. At that point, the courts are left to determine the true nature of the arrangement.
The Court’s approach to enforceability
The recent decision of Han & Han [2026] FedCFamC1A 54 is a powerful reminder of the risks associated with loosely enforced family loans and how they can unravel during the breakdown of relationships.
In this matter, the Court refused to recognise a multimillion-dollar debt owed by the husband to his parents’ family corporation as a liability in his attempt to reduce the matrimonial pool. Despite his reliance on a loan agreement and registered caveat over land from 2007, he failed to satisfy the Court that the loan with his parents was likely to ever be enforced.
The Court emphasised that the treatment of liabilities in property divisions in family law is ultimately a matter of discretion under section 79(5)(e) of the Family Law Act 1975 (Cth) to ensure there is regard to what is just and equitable in the circumstances.
The creditors, being the husband’s parents and their family-controlled corporations, had taken no meaningful enforcement action for many years. The caveat had remained dormant since its lodgement, and no proceedings were ever commenced to recover the alleged debt, even after a default. This was a significant factor in leading the Court to conclude that the alleged liability should not be treated as genuinely diminishing the matrimonial pool. The husband’s credibility of his asserted obligation to repay the loan was undermined by the lack of enforcement, suggesting that the debt was not being pursued in a manner consistent with an enforceable commercial arrangement.
The appeal was dismissed with the Court confirming that family loans, even where documented and secured by caveats or charges, may still be disregarded if the evidence suggests they are unlikely to be enforced.
Considerations for parents
Where money is advanced to a child and ultimately their spouse, the arrangement may still be treated as ineffective where evidence suggests that the loan was never enforced in practice. A period of inaction, lack of repayment demands and failing to take steps to recover the debt can all point to the conclusion that the loan does not function as a genuine liability.
If parents do not pursue repayment in a way consistent with a true creditor-debtor relationship, a court may characterise the arrangement as informal family assistance. In family law proceedings, these types of arrangements may fall short of being a genuine liability and as a result be excluded from the matrimonial asset pool, regardless of documentation or security arrangements.
If you are contemplating lending funds to your children and want to strengthen the enforceability of your arrangement, please reach out to the team at Scanlan Carroll for tailored advice.
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