This article was written by Melinda Gao Pricipal Solicitor at W & G Lawyers.
In my years of family law practice, there is one sentence I have heard more times than I can count. “My parents paid the deposit on the house. It was a loan, so it has to come off the top before we divide anything.”
In Chinese families, parents helping their children buy a home is extremely common. I understand that completely, and the Court does not ignore it either. The problem is that many people believe a loan agreement, signed after the fact, is enough to take that money out of the matrimonial property pool. A decision of the Full Court of the Family Court this year has made that path even narrower.
A $4.66 million “loan from the parents”
The case is Han & Han [2026] FedCFamC1A 54. In 2003 the husband borrowed about $1.18 million from his mother and from companies controlled by his parents to buy land, and later borrowed a further $634,000 to build a house. A loan agreement was signed in 2004 and replaced with a new one in 2007, and the parents lodged a caveat over the property. When it came time to divide the property, the husband said that with interest he owed his parents $4.66 million, and that this amount should be deducted from the assets first.
On paper it looked complete. There was an agreement, there was security, there was a figure. The trial judge did not allow a single dollar of it, the appeal was dismissed, and the husband was ordered to pay the wife’s costs of nearly $28,000.
The Court does not ask “is there an agreement”. It asks “will this money really be called in”
That is the heart of the case. The Court said plainly that it cannot be assumed a secured debt always takes priority over a spouse’s claim to a property adjustment. A mortgage owed to a bank and a loan owed to a relative are different in nature. There is only ever one real question, which is how likely it is that the debt will actually be enforced.
Measured against this case, a loan from parents tends to fall over for the following reasons.
One, the relationship is too close.
The creditors were the parents, and the debtor was their son. The Court’s common-sense view is that parents are unlikely to sue their own son or sell his house from under him. The closer the relationship, the less the Court will assume the debt will ever be enforced.
Two, nothing was ever repaid before separation.
From the loan in 2003 until separation, not a dollar of principal was repaid and no interest was ever paid. The first time the parents asked for anything was in 2019, after the marriage, and even then they asked for interest only. Money that never has to be repaid looks, in the Court’s eyes, far more like support than a loan.
Three, the demand came only after separation and litigation, and nothing followed it.
The loan was formally called in only after the parties had separated and proceedings had begun. Even then, the parents did not sue and did not apply to intervene in the family law proceedings. The timing was too convenient and the action too little. The Court will naturally wonder whether this money would ever have been asked for if there were no property settlement.
Four, the amount could not be proven.
About $1.8 million was actually received, yet $4.66 million was claimed. The difference of roughly $2.8 million was said to be accumulated interest, with no convincing calculation or evidence behind it. If the amount cannot be proven, the whole debt loses weight.
Five, the security itself was flawed.
The loan agreement gave the parents only a charge. The Court found it was a mere equitable interest, which a caveat cannot protect. Unlike a mortgage, it gave no direct right to deal with the property, and a caveat is only ever a temporary measure. In other words, it looked secured, and in reality it was much softer than that.
The husband had one more argument. Because the debt was secured, he said, the Court had no discretion unless the loan could be shown to be a sham. The judge’s response was direct. A submission in such absolute terms was rejected. Secured or not, the Court may discount a debt or disregard it altogether.
So was the parents’ money wasted?
No. The Court declining to treat it as a debt does not mean it declines to treat it as a contribution. A deposit paid by one party’s parents will usually be considered a financial contribution on that party’s behalf, and in a shorter marriage that contribution can carry real weight. It affects the final percentage. It simply is not carved out of the pool in one cut.
A few honest words I say to clients
Some people ask whether a binding financial agreement would work instead. In all honesty, financial agreements carry real risk too, and there are quite a few situations in which they can be set aside. I will not go into that here. That is a piece for another day.
Today is only about loans. To parents who hope to protect their assets by signing a loan agreement with their children, my advice is very firmly against it, unless it is a genuine loan. That means a written agreement, a registered mortgage rather than a caveat alone, the children actually paying interest and actually repaying principal as agreed, a record of every payment, and parents who are willing to give evidence or apply to intervene if it ever comes to that. Without those things, however well the agreement is drafted, it may be no more than a piece of paper in court.
Agreements and letters of demand created after separation help very little, and they may lead the judge to doubt the credibility of everything else you say.
Family law is relying more and more on evidence. Judges can tell at a glance what is a real loan and what is a last-minute label. An honest set of books is the strongest evidence you can have.
This article is general information only and is not legal advice. Every family is different, and you are welcome to book a consultation.
I’m Melinda, a family lawyer with warmth.
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