ASSET PROTECTION GONE WRONG — WHEN THE LEGAL STRUCTURING DOESN’T HOLD UP

In the decision in Han & Han [2026] FedCFamC1A 54 a central issue was whether the trial judge erred in declining to treat an alleged debt owed by the parties to the husband's parents as a liability reducing the net property pool.

𝗕𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱

The husband asserted that the parties owed $4.66 million to his parents, secured by a registered charge over the former matrimonial home. He argued that, because the debt was legally enforceable and secured, it should have been deducted from the property pool before any division of assets.

The trial judge declined to do so. Although accepting that the loan documentation and security interest existed, the judge was not satisfied that the liability was one that was likely to be enforced in practice. The evidence indicated that the husband's parents had not required repayment over many years, had continued to provide financial assistance, and there was no convincing evidence that they intended to enforce the debt against either party.

The judge therefore treated the alleged liability as having little or no practical effect on the parties' financial circumstances.

𝗧𝗵𝗲 𝗔𝗽𝗽𝗲𝗮𝗹

On appeal, Austin J upheld that approach. His Honour emphasised that, in property settlement proceedings, the existence of a legally valid debt does not automatically require the Court to deduct it from the asset pool. The Court is entitled to consider the commercial reality of the obligation, including whether repayment is genuinely expected or whether the liability is unlikely ever to be enforced.

Austin J rejected the husband's submission that a secured debt must necessarily be recognised unless it is shown to be a sham. His Honour explained that the Court is to determine the parties' true financial circumstances, which may involve looking beyond the formal legal status of a liability. This is particularly important where the alleged creditor is a close family member, as such arrangements may differ significantly from arm's length commercial lending.

𝗞𝗲𝘆 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆

The decision reinforces the principle that related-party loans will be scrutinised for their practical substance rather than their legal form alone. Even where a loan is documented and secured, the Court may decline to treat it as reducing the asset pool if the evidence demonstrates that enforcement is improbable and the liability does not realistically affect the parties' financial position.

See Link: Han & Han [2026] FedCFamC1A 54 (26 March 2026)

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