The $4.66 Million Lesson from Han & Han: Discretion of the Court to disregard family loans in matrimonial property settlements  

The recent appeal decision in Han & Han [2026] FedCFamC1A 54 (26 March 2026) provides an important warning and reminder to families using private loans to assist children with property purchases.

In Han & Han the Court dismissed a husband’s attempt to include a $4.66 million debt allegedly owed to his parents and their family-controlled corporations in the matrimonial asset pool.

The husband claimed that over nearly two decades, he had received capital advances of $1.8 million, which, with accrued interest, had increased to $4.66 million. He argued that because the debt was documented in a 2007 loan agreement and protected by a registered caveat, the court was legally obliged to deduct it from the matrimonial asset pool.  

The Court of Appeal rejected this argument, clarifying that the standard practice of deducting liabilities is a discretionary exercise, not a binding rule of law.

This case is a reminder that even with a formal loan agreement and a registered caveat, the court may, at their discretion, disregard family liabilities if they fail specific legal tests. Some of the key points from this decision include:

• Likelihood of enforcement: The Court confirmed that a significant issue is whether a debt is actually likely to be enforced, regardless of whether it is secured or unsecured. In Han & Han, despite the creditors ‘calling in’ the loan after separation, they did nothing to recover the loan and their continued inactivity to recover the funds, such as failing to institute commercial proceedings, led the Court to conclude the debt was unlikely to be enforced.
• Formal loan documents do not guarantee repayment: As noted above, the husband argued that the existence of a second loan agreement from 2007 and a caveat meant the debt must be deducted from the asset pool.  A formal loan agreement is merely one piece of evidence and does not provide a guaranteed right to repayment during a property split.
• Uncertainty of Quantum: A significant factor in the husband’s loss was his failure to prove the specific quantum of the debt. When a liability is vague or uncertain, the court is entitled to disregard it to ensure a fair outcome for the other spouse.
• The inadequacy of caveats: The Court clarified that the charge granted by the husband was a mere equity rather than a full proprietary interest like a registered mortgage. Charges do not create an equitable proprietary interest in the charged property for creditors in the same way as do equitable mortgages. A caveat is only a temporary protection and does not grant a creditor direct recourse to the property, making it an insufficient shield for family loans that lack commercial reality.

Ultimately, for a related party/ family loan to be recognised in a property settlement, it must behave like a commercial debt. As Han & Han demonstrates, failing the ‘commerciality’ test can result in millions of dollars being excluded from the matrimonial asset pool, regardless of what the formal loan agreement provides.

Our firm can provide advice on existing arrangements and how to best protect your interests in these scenarios. Whether you are documenting a new family loan, such as a loan from a parent to a child to assist with the purchase of a property, or navigating a property settlement, we can assist by advising on the strict terms the court may take into account.