Family Loans in Property Settlements: Why a Debt May Still Not Reduce the Asset Pool

Giselle Roman

Special CounselAitken PartnersView Profile

Case Study on Han & Han [2025] FedCFamC2F 1285, where Aitken Partners acted for the Applicant Wife

A common misconception in family law property proceedings is that the existence of a loan agreement automatically means the alleged debt must be deducted from the matrimonial asset pool.

This assumption is not correct, and the important precedent created by this case provides clarity to parties navigating a separation, particularly where substantial family debts are asserted against the asset pool. We are proud to continue fighting for our clients to ensure that the outcomes of Family Law cases are fair and equitable.

The decision in Han & Han [2025] FedCFamC2F 1285 (Han & Han), where Aitken Partner’s Special Counsel, Giselle Roman acted for the Wife illustrates that the Court will look beyond the existence of a loan agreement and examine the practical reality of the arrangement, including whether the debt is likely to be enforced.

In these proceedings, the Husband asserted that he owed substantial sums to his parents and their related entities. The Wife disputed those claims. At first instance, the trial judge found that although funds had been advanced, loan agreements entered into and a caveat registered over a property to secure the loans, it would nonetheless be "unjust and inequitable" for the Wife to be required to contribute towards those liabilities.

The matter was subsequently appealed. In Han & Han [2026] FedCFamC1A 54, the appeal was dismissed and costs were awarded against the Husband, further reinforcing the principles applied at first instance.

For the purposes of this discussion, we focus on the treatment of monies advanced by the Husband's parents and the principles governing family loans in property settlement proceedings.

The Facts

The parties were married in 2018 and separated in December 2021. They have one child together who was six years old as at the date of the trial.

One of the primary issues in the matter was the Husband's assertion that he owed approximately $4.67 million to his parents and their related entities, and that those liabilities should be recognised in the balance sheet for the purposes of the property settlement.

If accepted, the net asset pool available for division between the parties would have been reduced by that amount, which would have made a material difference to the Wife’s entitlements and claim.

In relation to the loan, the Husband asserted that:

• In 2003 he purchased a property for approximately $1.15 million;

• To purchase the property the Husband borrowed the sum of $1,179,300 from his parents and their entities. Further loans were subsequently advanced to him of $634,072;

• The Husband, his mother and various entities controlled by his parents, entered into a loan agreement on 20 February 2004, which was updated on 1 November 2007.

• On 8 November 2007, the Husband's mother and the related entities lodged a caveat over the property asserting an "interest as chargee" (a security interest to ensure debts are paid).

Importantly, the funds were advanced, and the loan arrangements entered into many years before the commencement of the parties' relationship.

The Wife disputed both the amount of the alleged debt and whether it should be taken into account in determining the parties' property interests.

The Findings

In relation to the alleged loan, the trial judge accepted that funds had been advanced to the Husband by his parents and their related entities, and that those advances were ultimately reflected in the November 2007 loan agreement.

The Court then considered a number of important issues.

Loans Payable on Demand

The trial judge found that the 2007 loan agreement was not statute barred because repayment was contingent upon a written demand being made.

His Honour referred to authorities including Damiani & Damiani, Gray v O'Donnell and Masoud & Masoud, noting that where a loan is repayable following a formal demand, the limitation period commences from the date of that demand rather than the date on which the funds were originally advanced.

Loan Balance

A written loan agreement alone does not establish the amount of a debt.

Where a party seeks to have a liability included in the balance sheet, that party bears the evidentiary burden of proving:

• The terms of the loan;
• The applicable interest rate;
• How interest is calculated;
• What repayments were required; and
• The amount presently outstanding.

In these proceedings, the Husband failed to sufficient evidence regarding the debt amount.

The Husband relied primarily upon his own evidence and a letter of demand issued by the accountant for his parents and their entities dated 27 May 2025. He did not call the accountant, his parents or any other party to the loan agreements to give evidence.

The trial judge observed that:

The mere fact that Mr Han’s mother’s accountant asserts that Mr Han owes her and associated entities $4,667,142 does not establish the fact. Absent any evidence that the calculation underlying the figure is accurate, it is a mere conclusion devoid of particulars that would enable the Court to be satisfied of the conclusion.

Ultimately, the Court found that the Husband had failed to establish, to the requisite standard, that he owed the sum of $4,667,142 to his parents and their related entities.

Dividing the Responsibility for the Debt

Even where a debt is established, a separate question arises as to whether, and to what extent, it should affect the property division between the parties.

The Husband argued that any discretion to disregard liabilities was confined to unsecured debts, which was not accepted by the trial judge.

The trial judge instead emphasised that the critical consideration is not whether a debt is secured or unsecured, but whether it is likely to be enforced.

In Han & Han, the Court found that it would be unjust and inequitable to require the Wife to contribute towards the Husband's liability to his parents in circumstances where the debt was vague, uncertain and unlikely to be enforced.

His Honour noted several considerations regarding the Husband’s case, including that:

• The Husband had made little, if any, meaningful repayment of the alleged debt over many years;
• He admitted that between 2007 and 2014 he was unable to make substantial repayments despite receiving rental income from the property;
• There was no evidence of any significant enforcement action being taken; and
• No demand for repayment was made until September 2019, approximately 15 years after the original advances.

The circumstances closely resembled those in Af Petersens, where a legally enforceable obligation existed but was not treated as a genuinely pressing liability requiring repayment at that time.

The Appeal: Han & Han [2026] FedCFamC1A 54

The Husband appealed the decision but was ultimately unsuccessful. The appeal was dismissed, and he was ordered to pay the Wife's party-party costs of and incidental to the appeal.

In relation to the loan, the Husband argued that the primary judge erred by excluding the liability from the balance sheet. He submitted that once the debt had been accepted as genuine, it was required to be taken into account by reducing the net value of the parties' property pool.

Justice Austin rejected that argument.

His Honour identified several difficulties with the Husband's position, including that:

• The argument was not properly reflected in the grounds of appeal;
• It was not clearly advanced in the Husband's written submissions;
• No factual error was identified in the findings underpinning the conclusion that enforcement was unlikely; and
• The existence of a genuine debt does not necessarily mean that it will be enforced, particularly where the creditor is a family member.

Importantly, Austin J noted that Full Court authorities have consistently emphasised the likelihood of enforcement, rather than merely the existence of a debt or security.

Importantly, Austin J noted that Full Court authorities have consistently focused on the likelihood of enforcement rather than merely the existence of a debt or the presence of security.

The key takeaway from the appeal is that the existence of a genuine debt does not automatically require it to be treated as a joint liability for the purposes of a property settlement.

Rather, the discretion to determine whether a liability should be taken into account, and how responsibility for that liability should be apportioned, falls within the broad discretion conferred by s 79(5)(e) of the Family Law Act.

As Austin J observed, the Court has a wide discretion not only when adjusting parties' interests in property, but also when determining how liabilities should be borne.

In explaining why the appeal failed, His Honour observed:

"Stripped bare, the husband's point was essentially this: it was unfair for the wife to take a proportional share in their property having a net value of $4.66 million more than it truly had. But the converse argument was equally compelling: it would be just as unfair for the wife to be confined to a proportional share in their property having a net value of $4.66 million less than it truly had. Once the primary judge found the $4.66 million debt would not likely be enforced against the husband, the latter argument inevitably prevailed."

The decision highlights the Court's broad discretion when dealing with liabilities in property settlement proceedings. Ultimately, the Court will consider not only the legal existence of a debt, but also whether it is just and equitable for that liability to reduce the property available for division between the parties.

Key takeaways

In summary, Han & Han reinforces several important principles relevant to family law property settlements:

1. A loan agreement alone does not prove the amount of a debt. The party asserting the liability must establish the outstanding balance with proper evidence.

1. The existence of security is not determinative. A secured debt will not necessarily be recognised merely because security exists.

1. The likelihood of enforcement is a critical consideration. The Court will look beyond the legal form of a transaction and consider the practical reality of whether the debt is likely to be enforced.

1. Family loans are subject to close scrutiny. Where funds have been advanced by a parent or relative, the Court will carefully examine the true nature of the arrangement and whether repayment is genuinely expected.

1. Justice and equity remain paramount. The treatment of any liability depends upon the particular circumstances of the case and whether it is just and equitable for the debt to reduce the property available for division.

Aitken Partners acted for the Wife in this matter. Had the Husband’s position succeeded at first instance or on appeal, the Wife could potentially have been left more than $2 million worse off following the property settlement – a potentially devastating outcome.

We work hard to achieve the best possible outcomes for our clients in every matter. It is particularly rewarding when a result not only delivers for our client, but also contributes to the development of the law that may benefit others in the future.

“This was a matter we really wanted to get right for our client. She had a lot at stake, so reaching this outcome after such a long process was incredibly rewarding. I was particularly pleased to see her achieve finality and be able to move forward with a result that recognised her position.” - Giselle Roman, Special Counsel, Family Law, Aitken Partners.

“It’s great when a case does more than deliver a good result for the client. This decision, and the precedent it creates, gives lawyers and their clients clearer guidance on how these kinds of family loans should be treated, and that will make a real difference in future matters.” - Dylan Burch, Principal Family Law, Aitken Partners.

The decision has since attracted considerable attention within the family law profession and has been discussed by practitioners and professional bodies, including the Legal Practitioners' Liability Committee: Enforcing loans matters when parents lend to children

Links:

Federal Circuit and Family Court of Australia – Judgments, Division 2 - Family law

AustLII - Australasian Legal Information Institute Database: Han & Han [2025] FedCFamC2F 1285

Lexology: The treatment of family loans in a relationship breakdown: Han & Han confirms the Court’s wide discretion

If you are involved in a property settlement involving family loans, advances of money or disputed liabilities, obtaining timely legal advice is essential. Our team has significant experience advising on complex asset pools, family loans and disputed liabilities, and would be pleased to assist.

Get in touch with our Family Law team and BOOK A CONSULT.