Han & Han – Will loans between parents and children form part of the asset pool in family law proceedings?

Han & Han [2026] FedCFamC1A 54 (Han & Han) provides important commentary around how loans between parents and adult children may be treated and categorised in family law matters.

The 2026 decision was an appeal from Lim & Lim [2025] FedCFamC2F 1285 (Lim & Lim). Lim & Lim determined the following principles, which were challenged in Han & Han, that the:

1. finding to disregard the debt owed by the husband to his parents in the asset pool (Ground 1);

2. validity of the finding made about the wife’s proportional entitlement to the assets; and

3. finding made about the wife’s proportional entitlement to the superannuation.

Ground 1 is discussed in this article, particularly, the considerations the court took into account, and the practical implications on loan arrangements for other family structures entering into similar arrangements.

Background

In 2003, the husband purchased a house in Melbourne for $1.15 million (Property). The husband borrowed an initial amount of approximately $1.179 million and an additional amount of $634,072 (Advances) from his parents and their related corporations (Parents).

In February 2004, the husband and Parents entered into a loan agreement for the Advances, which was subsequently replaced by a new loan agreement in November 2007.

At the date of the initial hearing, the husband alleged that he owed the Parents $4.66 million. This included the Advances (totalling $1.8 million) and an additional $2.8 million owed in accrued interest.

In attempt to better secure their loans, the Parents registered a caveat over the Property in 2007.

Arguments

The Primary Judge in Lim & Lim found that the husband had failed to establish the:

• quantum of the debt; or

• likelihood that it would be enforced against him.

On this basis, the loan amount was not deducted from the amount of assets available for division between the parties.

In Han & Han, the husband challenged this principle, arguing that if the loan was recognised as an existing liability, the judge could not disregard it.

As the court is entitled to consider the nature and circumstances of any liabilities incurred, the court considered the:

• uncertainty of the amount owed; and

• unlikeliness of it being enforced by the Parents.

While the husband submitted that it was not open to the court to determine the likelihood of the repayment of the loan being enforced, the court disagreed on a number of grounds, most notably, that where the relationship is familial, loan agreements aren’t always enforced by creditors against the defaulting borrower, despite the legitimacy of the loan agreement.

The court concluded that it should “not therefore be presumed that secured debts must always be accorded priority of spouses’ property adjustment claims, such that the granular detail of those debts may be safely disregarded as being unimportant.” On this basis, whilst securing a debt has often been seen as a core protective measure in the event that family law proceedings are commenced, the court has clarified that the factual issue is the likelihood of the debt’s enforcement, regardless of its status as being secured or unsecured.

Outcome

In determining the likelihood of a debt being enforced, the court noted that the following considerations are relevant:

• closeness of the connection between the spouse who is ‘responsible’ for the debt and the creditor; and

• type of security held by the creditor.

When assessing the likelihood of enforcement in this case, the court took into account that the:

• charge granted by the husband could not support a caveat, and thus, the caveat was insufficient as security;

• creditors did not seek repayment of the loan until September 2019, when the spouses were living together;

• loan was not called in until November 2022, at which time the spouses had separated and the litigation had commenced;

• creditors did nothing to recover the loan despite the default;

• creditors were familiarly connected to the borrower; and

• creditors did not look to intervene as parties in the litigation to assert their rights in relation to the loan.

Taking these matters into account, the court concluded that the $4.66 million debt would likely not be enforced.

Ultimately, the court looked at two contrary perspectives, being that it would be unfair for the wife to:

1. take a proportional share in the Property having a net value of $4.66 million more than it truly had; versus

2. be confined to a proportional share of the Property having a net value of $4.66 million less than it truly had.

Concluding that the debt likely wouldn’t be enforced, the latter prevailed.

Takeaways and Practical Implications

This case confirmed that loans between parents and their children, even when supported by the relevant documentation, will not always be deducted from the asset pool in family law matters.

Whilst this case emphasised that findings are dependent on the unique factual circumstances of each case, the likelihood of enforcement of the loan is determinative.

Following the commentary and decisions in this case, we note the following:

• a loan agreement won’t necessarily be considered ‘likely to be enforced’ where the lender is a private corporation/private corporations that are tied to family members of the borrower;

• formal documentation of a loan agreement won’t, of itself, ensure it is ‘safe’ in a family law matter;

• the security granted (such as a mortgage) will assist a finding that the loan will be enforced, but is not determinative; and

• all circumstances will be considered and the court will undertake an assessment of the specific facts to determine the likelihood of enforcement.

Applying the principles of this decision in the future, the following will assist with the enforceability of related party loans, in a family law context:

• enforcing repayment terms and interest repayments from the commencement of the loan;

• having the interest repayments recorded on the lender’s tax return;

• only granting loans that you are prepared to call in; and

• taking proper security for the loan, such as a registered mortgage.

If you would like advice on loan arrangements within your family structure, please reach out to our team:

Alasdair Woodford
Principal
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Senior Associate
T: 03 5226 8504 | M: 0491 307 550
E: jflanagan@ha.legal

Tayla Berger
Senior Associate
T: 03 5226 8559 | M: 0407 825 365
E: tberger@ha.legal

This article was prepared with the assistance of Phoebe Tol, Paralegal.