When Family Debts Don’t Count: Han & Han Explained

The recent Full Court of the Federal Court of Australia decision Han & Han [2026] FedCFamC1A 54¹, affirms an important principle in property settlements –  not every asserted liability will automatically reduce the net asset pool.

The decision highlights the court’s approach to “existing liabilities” under subsections 79(3)(b) and 79(5) of the Family Law Act 1975 (Cth) (the Act), particularly where debts arise in intra-family or related party contexts. Such debts may not be treated as liabilities in a property settlement in cases where it is highly unlikely that the creditors will enforce repayments.

Treatment of liabilities in section 79 property settlements

‘Liabilities’ is given its ordinary meaning which includes loans, credit cards, debts and informal loans made by family and friends.²

Prior to 10 June 2025 and the recent amendments to the Act, the court adopted a global approach identifying and valuing all assets and liabilities.

The four-step process is now codified into legislation. The four-step approach was set out in Hickey & Hickey and Attorney General for the Commonwealth of Australia (2003) FLC 93-143 to determine a property settlement application:

1. Identify and value the property pool;
2. Consider financial and non-financial contributions made throughout the relationship;
3. Consider the 22 prospective factors in section 79(5) of the Act of each party (commonly known as “current and future needs or circumstances”); and,
4. Consider whether the order proposed is just and equitable.³   

The Act recognises and legislates how the court will consider the existing liabilities incurred by either party when assessing the current and future circumstances of the parties.⁴

The significance of Han & Han 

Mr Han argued the primary judge was obliged to consider the loan monies as an existing liability.

However, the appeal was dismissed. The appellate judge disregarded the large debt of $4.66 million to which Mr Han owed his parents and related corporations and the debt of $100,000 to which Mr Han owed to his father due to Mr Han’s failure to provide adequate documentation of the quantum of debt and the unlikelihood of the debt ever being enforced against him.⁵

Background of Han & Han

The parties married in early 2018 and separated in December 2021. There is one child to the marriage.⁶

The husband had a close relationship with his parents. The husband’s parents and their corporations helped to finance his purchase and construction of a Melbourne property years before Mr and Mrs Han’s relationship commenced.⁷

In 2003, the husband bought a parcel of real property in Melbourne for $1.15 million which was borrowed and funded from his parents and five corporations of approximately $1.179 million.⁸

The husband borrowed an additional $634,072 from his parents to assist with construction of a home on that property.⁹

The husband’s borrowings were documented in a 2004 loan agreement, then subsequently replaced by a 2007 loan agreement. The total borrowings amounted to $1.8 million plus interest of approximately $2.8 million.¹⁰

The creditors who include several private corporations controlled by the husband’s parents, had been inactive in enforcing their rights: a caveat was lodged in 2007 and lay dormant, interest was not sought until 2019 and the loan was not called in until 2022. Even after default, the creditors neither commenced separate proceedings nor intervened in the family law proceedings.¹¹

Court Findings

The primary judge accepted Mr Han had borrowed funds on the terms of a 2007 loan agreement with his mother and several corporations and that the loan was an existing liability and not statute-barred.¹²

On appeal, the husband failed to document further loans beyond the 2004 and 2007 loan agreements and did not adequately document the further amounts he said were owing. At trial, he failed to:

• Establish the amount of money owed.
• Establish the likelihood that the debt would be enforced against him.¹³

Debt or Just a Family Favour?

The Court has a wide discretion under section 79(5) in determining whether a debt is an existing liability. One of the factors the Court is required to consider is the nature and circumstances of the liability.¹⁴

The debt will not be treated as a liability if the debt cannot be quantified or there is an unlikelihood of enforcement.¹⁵ When balancing fairness in this case, it would be unfair to confine Mrs Han to a share of a pool reduced by a debt that is unlikely to be enforced against Mr Han.¹⁶

Mr Han’s submission that the debt must be entered on the balance sheet and then removed under s 79(5)(e) was characterised as a “pointless contrivance” by the appellate judge.¹⁷

Lavan Comment

Ultimately, Han & Han demonstrates the failure to take adequate steps to assess a debt can result in millions of dollars of liabilities being excluded from the matrimonial pool. Importantly, family debts will be closely scrutinised and must be approached in a holistic way.

Thanks to Lavan law graduate Lexina Diep for her research and contribution to this article.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.

Footnotes

[1] Han & Han [2026] FedCFamC1A 54 (‘Han’).

[2] Proposed changes to family law property settlements | Wolters Kluwer

[3] Hickey & Hickey and Attorney General for the Commonwealth of Australia (2003) FLC 93-143.