Signed loan agreement, caveat on title, equity stripped on paper. The court split the property as if the debt were not there.
Your client borrows millions from family to buy a property. There is a signed loan agreement. There is a caveat sitting on the title. On paper the equity is stripped out and protected.
Then the marriage ends. The court looks at the $4.66 million debt and decides it will not reduce the pool. The property is split as if the debt were not there, even though the husband may still owe it.
Han & Han [2026] FedCFamC1A 54 (Austin J).
What happened
The husband said he owed about $4.66 million to his mother and a group of family companies, tracing back to a property he bought in 2003 [15, 17]. There was a loan agreement from 2004, replaced in 2007, and a caveat lodged over the title that same year [17-18]. Of that $4.66 million, only about $1.8 million was money actually advanced. The rest was said to be accrued interest [17].
The court accepted the loan was genuine and not statute barred. This was no sham. Yet the husband could not prove the quantum of the debt, nor any likelihood it would be enforced against him, so the debt was disregarded and the wife carried no share of it [19]. On appeal, Austin J upheld the trial judge and fixed costs at $27,962.
Security was not decisive
The husband’s strongest argument was the security. Surely a secured debt must be counted at full value?
No. On these terms, the charge was only a “mere equity” that could not support the caveat [44]. An agreement to sign a mortgage if asked was not a mortgage, and none was ever signed [45]. More tellingly, the caveat “just lay dormant on the title ever after” [47]. Nobody sought interest until 2019. Nobody called in the loan until November 2022, after the couple had separated and the case had started. Even then the creditors did nothing to recover it [47]. As Austin J put it, the real issue is “the likelihood of debt’s enforcement, regardless of whether it is secured” [35].
The practical takeaway
First, security is not certainty. A secured debt will usually be enforced, but not always. A caveat, a charge, even a signed family loan may not carry a debt onto the balance sheet if the lender never behaves like one.
Second, prove the number. A debt you cannot quantify is a debt the court can ignore, and interest that only ever accrues on paper invites the obvious question.
Third, related party loans get the hardest look. The closeness between borrower and lender and the absence of any real collection both point the same way. Tax advisers know the instinct. A related party loan that is never serviced and never called invites hard questions from the ATO too. Is this a debt anyone means to enforce, or a number on a page?
If your client is leaning on a family loan to protect an asset, ask whether it would survive this test.
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.