By Claire Boardman, Graduate and Sophia Pippos, Special Counsel
With lender interest rates soaring near 7%[1] and the cost of living increasing, many young Australians are reaching out to the ‘bank of Mum and Dad’ to get ahead financially. But what happens when the funds advanced by family members through goodwill end up at the scrutiny of a Family Court Judge?
Take Riley and Jamie, a newlywed couple looking to purchase their first home. With student debts, average wages and increased house prices a looming obstacle, with a heart full of love and hope, Riley’s parents offer the couple a generous sum – no paperwork, no repayment schedule, just a verbal understanding that the funds will be repaid one day.
Years later, that same money becomes a point of contention in a family law dispute. A Judge is now tasked with deciding whether the financial support from Riley’s parents was a loan or a gift, based not on what was said, but on the law on this issue and what can be proved.
This is not a rare scenario. It is a common – and costly – mistake that plays out in courtrooms across Australia. In family law, being financially savvy goes beyond generosity – it requires adequate documentation, clarity and legal foresight. Informal arrangements, no matter how well-intentioned, can unravel under the scrutiny of the Court. And when relationships break down, so too can the assumptions around financial support.
So how does the Court consider the advancement of funds from family members and how do you protect family generosity from becoming a financial burden?
In family law property settlements, not all financial contributions are treated how they are intended. One of the most contested and often scrutinised distinctions is between loans and gifts. The way these are dealt with by the Family Court can significantly impact the outcome of a property division.
Loaned funds are treated as a liability, reducing the net property pool available for division between a separated couple. In some cases, if the loaned funds haven’t been intermingled with other assets – for example, if they are held in a distinct account – they may be excluded from the property pool. Where one party contests the validity of a loan to exclude it as a liability, the Court must look to the evidence of its existence as a genuine loan.
On the other hand, funds given as a gift are considered a contribution under the Family Law Act 1975 (Cth). Unlike loans, gifts do not reduce the property pool. Instead, they are assessed alongside a range of other factors – such as other financial contributions and non-financial contributions, parenting responsibilities and current and future circumstances – when determining a just and equitable division.
How a gift is treated also depends on whether it is made to one, or both parties. The Court looks to the evidence surrounding how the gift was made to determine who it was intended to benefit.
Once this is determined, the Court will turn its mind to how much weight must be given to the financial contribution. How much weight is given, may mean that a party receives a percentage adjustment in their favour. The Court will generally consider the following factors:
While gifts do not reduce the property pool, they can shape the outcome of a settlement, especially when combined with other contributions. Clarity of intention and documentation remains crucial, even for funds advanced by way of gift. A written acknowledgement can help clarify who the gift was intended for and under what circumstances, reducing ambiguity and potential conflict. Hint: Be careful when writing your birthday or Christmas cards…
The Court generally considers the below in making an assessment as to the validity of a loan arrangement:
Basically, does it have the hallmarks of a usual commercial loan?
Although not all elements must be satisfied, the more supporting evidence the stronger the case for a genuine loan. Ultimately, it’s a matter of judicial discretion, and each case turns on its own facts.
The importance of context is underscored in case law. In Strand[2] the Full Court held that even with no formal documentation, an advance may still be characterised as a loan if the objective circumstances suggest both parties understood the funds were to be repaid. In contrast, in Pelly[3] the father of the husband made several advances to assist the couple in obtaining properties. The Court found these were loans, based on the presence of clear terms regarding interest and repayment. In Pearce[4], an advance of a large sum provided for in a valid and enforceable loan agreement between the husband and his mother, where the wife was not a party, was held to be a loan and repayable from the parties’ joint accounts. Here, the Court looked to evidence of the wife’s knowledge of the loan and endorsement of the husband’s assurance to repay.
The cases highlight the Court’s discretion and willingness to look beyond the paperwork and assess the substance of the arrangement. In some circumstances, even the existence of a loan agreement between parties is not enough for a Court to determine the existence of a genuine loan. However, in these circumstances other strategies may be available to the borrower.
When providing financial support to a family member it’s essential to clearly define your intentions and your expectations from the outset. This clarity should be supported by appropriate safeguards and documentation to avoid future misunderstandings. Seek legal advice to formalise the loan arrangement and consider the long-term implications beyond the immediate context. For example, if you are a parent lending money to a child with no expectation of repayment for the next decade, think carefully about how your circumstances – and theirs – might evolve over time, plan accordingly and document, document, document…!
In many families, wealth is hard-earned and deeply valued, not just for its financial worth, but for its legacy. A Binding Financial Agreement (BFA) is one of the most, in fact, arguably the only, effective tool available under the Family Law Act 1975 (Cth) to safeguard family wealth. It is a legally enforceable document that provides targeted protection and clarity and allows couples to define how specific assets and liabilities will be treated in the event of separation.
BFA’s are often used specifically to protect funds received from family members including inheritances, ensuring that such funds are quarantined or appropriately recognised through property division. When properly drafted and executed, BFAs are binding and enforceable and provided they meet strict legal requirements, including full disclosure, independent legal advice and procedural fairness, Courts will uphold them.
Family financial support is often built on trust, goodwill and shared intentions, but trust alone is not a legal safeguard. When relationships break down, even the most generous gestures can become points of dispute. Whether funds are advanced by way of loan or gift, clarity is key. Proper documentation, clear terms and timely legal advice are essential to protect both the lender and borrower.
No doubt Riley’s parents would have appreciated some of this advice before they were called into the witness stand for cross-examination. Who knew?
If you’re facing similar uncertainty or would like advice in relation to financial arrangements within your family, Mills Oakley Family Law Brisbane will be happy to assist. Please contact the team on 07 3010 8021.
[1] ] ‘Lenders’ Interest Rates’, The Reserve Bank of Australia (Web page, 15 October 2025) < https://www.rba.gov.au/statistics/interest-rates/>.
[2] Strand & Strand (No 2) [2018] FamCAFC 247
[3] Pelly & Nolan (2011) FMCAam 530
[4] Pearce & Pearce (No 3) [2022] FedCFamC1F 418
If you would like further information or have any queries regarding other matters, please do not hesitate to contact:
