This article was written by Nancy Wang Principal Solicitor at W & G Lawyers.
It is one of the most common scenarios in Australian family wealth: parents lend money to an adult child to help buy a home, build a business, or get a foothold in the property market. Sometimes the loan is documented carefully. Sometimes a caveat is even lodged on the title. The family is satisfied that the money is “protected.”
Then the child’s marriage breaks down. The parents expect that their loan will be deducted from the property pool before the assets are divided, leaving more for their child (and, in their minds, less for the departing spouse). They are often shocked to discover that the Family Court treats the loan as if it does not exist.
The recent decision of Austin J in Han & Han [2026] FedCFamC1A 54 (26 March 2026) is a sharp reminder of just how fragile family loan arrangements can be. In that case, the husband claimed he owed his mother and a group of family-controlled companies $4.66 million. The loan was documented under a 2007 written agreement. A caveat had been lodged on the title of the property in 2007 to protect the lenders’ position. On any conventional view, the family had done the right things.
The Court still disregarded the loan entirely. The husband’s appeal was dismissed, and he was ordered to pay costs.
The case is essential reading for any family that lends or borrows significant sums between generations. Two practical lessons stand out: a loan agreement is not enough, and a caveat is not enough.
Why a loan agreement is not enough
The trial judge in Han accepted that the loan was genuine and that it was not statute-barred. That sounds like a good outcome for the husband, but it took him nowhere. The Court went on to find that he had failed to prove two critical things: how much was actually owed, and whether the lenders would ever enforce the debt against him.
On quantum, much of the alleged $4.66 million debt was accrued interest rather than capital advanced. The husband could not satisfactorily demonstrate how the figure had been calculated, recorded, or maintained over the years. Loan agreements that are not actively administered, with proper interest schedules, statements of account, and contemporaneous records, tend to disintegrate when scrutinised in the witness box.
On likelihood of enforcement, the timeline was devastating for the husband. The caveat had been lodged in 2007. Interest repayments were not requested until 2019, more than a decade later. The loan was not formally called in until November 2022, after the parties had already separated and proceedings had commenced. Even then, the lenders did nothing. They commenced no recovery proceedings. They did not intervene in the family law litigation to enforce their security. As Austin J observed, the parents “did nothing to recover the loan.”
That kind of inaction is fatal. The Court is alert to the reality that family members often will not enforce debts against each other, and that loans which crystallise only at the point of marital breakdown frequently look like attempts to quarantine assets from the other spouse. The longer a loan sits dormant, the more difficult it becomes to persuade a court that it represents a genuine financial obligation that will actually be repaid.
There is a further trap. Many borrowers and their advisers assume that if a loan is “secured,” it must be taken into account at full value. That assumption is wrong. Austin J explicitly rejected the proposition that a trial judge has no discretion to disregard a secured debt unless it is a sham. The character of the security, the closeness of the relationship between borrower and lender, and the actual conduct of the parties over time all feed into the discretion. Section 79(5)(e) of the Family Law Act 1975 (Cth) gives the Court broad power to allocate responsibility for liabilities between the spouses, including by attributing the entire debt to one party.
Why a caveat is not enough
The second, and perhaps more surprising, lesson from Han concerns the security itself. The lenders had lodged a caveat over the property to protect their interest under the loan agreement. They believed this gave them genuine security. It did not.
The loan agreement had granted the lenders a charge over the property, together with an undertaking by the borrower to sign a mortgage if requested. No mortgage was ever requested or signed. The Court held that this arrangement did not create an equitable proprietary interest in the property at all. A charge of this kind is what equity calls a “mere equity,” not a beneficial interest in the land. It gives the lender a personal right to seek a court order appropriating the property to satisfy the debt, but no direct recourse to the property itself.
Critically, a caveat cannot protect a mere equity. Caveats are designed to preserve genuine asserted proprietary interests pending their proof. They are not a freestanding form of security. A caveat sitting on a title for fifteen years to protect a mere charge is, on close analysis, protecting nothing.
The husband attempted to argue on appeal that the loan agreement created an equitable mortgage, which would have given the lenders a true proprietary interest. The Court rejected this. A bare agreement to grant a mortgage on request, never acted upon, generally does not create a proprietary interest in the property.
What this means for families and their advisers
If a parent lends money to a child and wants that loan to be respected in any future property settlement, more is required than a loan agreement and a caveat. The arrangement needs to look and behave like a real commercial debt: The loan should be properly documented, with a clear principal, an articulated interest rate, and a defined repayment schedule. Statements of account should be issued and retained. If interest is to be capitalised, the mechanism should be set out and applied consistently. Interest should actually be paid, or formally demanded if it is not. A loan that runs for over a decade without a single interest payment or written demand will struggle in court.
Security should be properly granted. A registered mortgage offers materially stronger protection than a charge supported by a caveat. If a registered mortgage is not feasible, the parties should at least execute a formal equitable mortgage that grants a genuine proprietary interest, rather than relying on a contractual charge.
If repayment is sought, recovery action should be pursued promptly and consistently with how an arm’s-length lender would behave. Lenders who only ever activate their loan when their child’s marriage falls apart invite scepticism.
Independent legal advice should be obtained on both sides of the transaction at the time the loan is made, not reconstructed afterwards.
The bigger picture
Han is not a radical decision. It applies long-established principles, drawing a line back through Biltoft, Af Petersens, Prince and Rodgers. But it is a useful reminder that the Family Court will look past the form of an arrangement to its substance, and that intergenerational lending is an area where form and substance frequently diverge.
For families with significant assets, the time to address these issues is not when a marriage starts to falter. It is at the moment the loan is made, or in the years before any dispute arises, while the documentation can still be put on a sound footing and the conduct of the parties can be aligned with the legal architecture.
How W & G Lawyers Can Help
It is also worth remembering that the parents in Han were not without options — they simply did not exercise them. A lender holding even a “mere equity” by way of charge retains a personal right to seek a court order appropriating the property in satisfaction of the debt, whether by an order for sale or the appointment of a receiver. The difficulty in Han was that the parents had taken no steps of that kind, and their inaction over many years was held against the husband when the loan came under scrutiny. Where parents genuinely wish to recover monies advanced to a child, prompt and properly constituted recovery proceedings are essential — both to vindicate the debt itself and, if the child is involved in family law litigation, to ensure the loan is treated as a real liability rather than a dormant one.
Our civil litigation team works closely with family law practitioners in precisely these situations, advising lender parents on debt recovery strategy, the enforcement of charges and equitable interests, intervention in family law proceedings where appropriate, and the broader question of how to protect intergenerational loans once a relationship breakdown is on the horizon.
If you are considering lending to a family member, or if you are concerned about the status of an existing family loan, our teams can review the arrangements and advise on practical steps to strengthen them.
Resources
Han & Han [2026] FedCFamC1A 54 (26 March 2026)
Rodgers & Rodgers (2016) FLC 93-703; [2016] FamCAFC 68
Biltoft & Biltoft (1995) FLC 92-614; [1995] FamCA 45
Af Petersens & Af Petersens (1981) FLC 91-095; [1981] FamCA 50
Prince & Prince (1984) FLC 91-501; [1984] FamCA 7
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This article is general information only and does not constitute legal advice under Australian law. For advice specific to your situation, please contact W & G Lawyers. For further details, please click here to view our disclaimer.