Key takeaways
The Court will not automatically deduct a liability from the asset pool and key considerations include whether the debt is genuine, clearly quantified and likely to be enforced.
Loans from family members or close associates are examined more closely than commercial debts, particularly where the arrangement is informal and enforcement is uncertain.
To improve the likelihood a loan is recognised, it should be properly documented, secured where possible, complied with in practice and supported by clear evidence of repayment obligations and enforcement rights.
Invariably, in the event of a relationship breakdown, disputes arise where a debt which one party might consider as repayable, is not accepted by the other party as a genuine liability. The disputes arise in the context of the determination of a financial dispute between a separated couple, when the Court must determine the existing property and liabilities of the parties.
It goes without saying that it would be unjust and inequitable for one spouse if a Court was to include and deduct from the gross value of the assets of the parties, a liability that is never to be recovered. To do so would result in one spouse effectively sharing in a liability that the other spouse will never be caused to repay.
Secured loans remain open to scrutiny: What Han & Han clarifies
While the law is not new, the recent appeal decision of a single Judge in Han & Han1 [2026] FedCFamC1A 54 sets out succinctly important considerations when determining whether a liability ought to be accounted for in a division of assets, particularly in the context of loans from family members or close associates.
The husband’s appeal in Han & Han related (in respect of his first ground of appeal)2 to the primary Judge’s decision to exclude two debts which the husband asserted to have owed firstly, to his ‘parents’ (in actual fact, the husband’s mother and several private corporations) in the amount of $4.66 million and, secondly, to his father, in the amount of $100,000. The exclusion of the liabilities resulted in a calculation of the overall asset pool to amount to $7,401,418.
The husband, by way of his first ground of appeal, contended that the large loan of $4.66 million owing to his parents should not have been excluded at first instance.
The husband's argument for the appeal premised upon the primary Judge accepting that the husband did in fact borrow the asserted amount on terms reflected in a loan agreement and that the loan was not statute barred. The husband’s mother and relevant corporations had registered a caveat over the title to the property for which the funds had been applied towards by the husband, in reliance upon a charge granted by the husband. The husband’s argument was that, once the loan had been accepted as an existing liability, it should follow that the loan must be taken into account and deducted from the gross value of parties’ assets.
The primary Judge, however, when considering the nature of the liabilities and the circumstances relating to them, as it is required to do pursuant to section 79(5)(e), found that the husband failed to ‘establish … the quantum of debt’ or the ‘likelihood it would be enforced’ against him and, as such, the Court disregarded the liability.3 In particular, the charge was found to be incapable of supporting the caveat.
The husband’s appeal ultimately failed (in all respects) and a costs order was made against him.
In delivering the appeal Judgment, the Court made reference to the distinction between secured and unsecured debt. In particular, Austin J stated the following:
"It ought not … be presumed that secured debts must always be accorded priority over spouses’ property adjustment claims, such that the granular detail of those debts may be safely disregarded as being unimportant. Usually, a secured debt will be enforced, but not always. The significant factual issue is always the likelihood of debt’s enforcement, regardless of whether it is secured."4
This is important because it is not uncommon for parties in a family law dispute to proceed upon the misconception that any secured debt, regardless as to whom it is owing, will be deducted from the available asset pool and, in that sense, shared between the parties.
Loans from family members to be thoroughly analysed
The Court in Han & Han makes reference to the obvious distinction between a liability owed by a spouse to an ‘unrelated commercial creditor’, secured by registered mortgage over real property, as opposed to a liability owed by a spouse to a ‘close associate’, equitably charged over a property. However, the decision goes further to highlight that simply because a debt is secured, it does not automatically follow that the debt will be treated as a liability to be deducted from the determination of the parties’ asset pool.
The Court is to exercise its discretion when considering any liabilities of the parties to a marriage, including the nature of the liabilities and the circumstances relating to them. It follows that, given the nature of the relationship between say, a spouse and their family member, or a friend lending funds, such loans arising (whether secured or not), will be looked at more closely than a secured debt to an unrelated commercial creditor.
"Both the closeness of the connection between the debtor spouse and the creditor and the type of security held by the creditor bear upon the likelihood of the debt being enforced and, hence, the way in which the debt is treated in an exercise of discretion."5
Security for the debt alone is not determinative as to whether or not the liability is accounted for in the determination of a family law dispute.
The ultimate inclusion, or exclusion, of a debt falls within the wide discretion of the Court.6 There is no precise compilation of steps that can guarantee that a liability which one spouse might consider to be owing and repayable, is ultimately accounted for in the manner that spouse considers appropriate. Further, it is often the case that, when the liability arises, the spouse receiving the benefit of the loan, or the family member or close associate providing it, may not anticipate a future separation and may therefore fail to take adequate steps to preserve the loan.
Where possible, proactive steps should be taken at the time a loan is advanced to reduce the risk of it being excluded from a family law property settlement, including properly documenting and securing the liability, ensuring the terms of any loan agreement are followed, ensuring that the debt can be readily quantified, and that there are clear avenues for enforcement. While not exhaustive or determinative, these considerations are particularly important where a party receives a genuine, repayable advance from family members or close associates.
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1 [2026] FedCFamC1A 54.
2 The other two grounds were not related to the issue of the husband’s loans.
3 [2026] FedCFamC1A 54, at [19].
4 Ibid, at [35].
5 Ibid, at [36].
6Han & Han [2026] FedCFamC1A 54; Family Law Act 1975 (Cth), ss 79(3)(b) and 79(5)(e).