Structuring Parent–Child Loans for Real Recovery in Family Law Property Division

The recent appellate decision in Han & Han [2026] FedCFamC1A 54 reinforces a critical point for structuring:

For solicitors and accountants, this has direct implications for how these arrangements should be prepared, implemented and maintained.

The Core Issue: Would the lender realistically enforce the loan?

Courts have consistently distinguished between:

• Commercial debts, which are generally accepted; and
• Intra-family arrangements, which are scrutinised closely.

The key question is not simply whether a loan agreement exists, or even whether it is legally valid. Instead, the inquiry is:

If the answer is uncertain or unlikely, the arrangement is at real risk of:

• not being treated as a genuine liability; or
• being given limited weight in any property adjustment.

What Han & Han means for structuring family loans

Han & Han confirms that formal legal features are not determinative. Even where advisers have implemented:

• a written loan agreement,
• a registered mortgage or other security, and
• a structured repayment schedule,

the Court will look beyond these features to assess commercial reality.

In practical terms, the decision highlights that:

1. Security is relevant, but not conclusive if enforcement is unlikely.
2. A well- drafted agreement will carry little weight if the parties do not behave consistently with its terms.
3. The Court will assess what the parties actually intended, based on how the arrangement operates in practice.

Common Parent–Child Loan Structuring Weaknesses

Arrangements that are technically documented, but commercially vulnerable, include the following:

• Open-ended repayment terms (e.g. “repayable when able” or on demand without evidence that demand would ever be made);
• No interest or below-market interest, without explanation;
• Irregular or non-existent repayments, with no follow-up;
• No enforcement action on default;
• Retrospective documentation of the loan, particularly around the time of relationship breakdown;
• Selective enforcement, where the parent has not treated the child as a true debtor.

Each of these factors weakens the argument that the arrangement is a genuine, recoverable loan.

Consistent course of dealing

This is often the most critical factor. Advisers should encourage clients to:

• make and receive repayments in accordance with the agreement;
• record all transactions clearly;
• address missed payments promptly; and
• avoid informal variations that undermine the original terms.

Evidence of enforcement intention

Clients should understand that a loan that is never intended to be enforced is unlikely to be treated as a real debt in family law proceedings.

Evidence of enforcement may include:

• issuing formal demands in the event of default;
• taking proportionate enforcement steps; or
• at minimum, documenting a clear willingness to do so.

The tension advisers must manage

There is an inherent tension in these arrangements:

• Parents often wish to support their children flexibly, without adopting a hard-edged commercial stance;
• However, that flexibility can directly undermine the recoverability of the loan in a later dispute.

Practical Advisory Approach

In practice, the most effective approach is to:

1. Clarify whether the loan is intended to be:

• • strictly recoverable, or
  • a form of flexible family support?

2. Avoid hybrid arrangements that attempt to achieve both outcomes but satisfy neither.
3. Advise clients that the long-term effectiveness of the structure depends on ongoing conduct, not just initial documentation.

Conclusion

Han & Han is a clear reminder that, in this area, form alone is insufficient. For parent–child loans to be effective in protecting family wealth they must be structure and, importantly, operated as real loans.

Without that alignment, even a carefully documented loan may fail to deliver the intended protection when it is needed most.