With housing affordability stretched to record levels, the “Bank of Mum and Dad” has become one of the largest sources of home-buying finance in Australia. Parents routinely help their adult children into the property market — sometimes with a modest deposit top-up, sometimes with hundreds of thousands of dollars. What far fewer families think about is what happens to that money if their child later separates from a spouse or de facto partner.
In family law, the way a parental contribution is documented can be the difference between it being repaid in full and it disappearing into a property pool that is divided with an ex-partner. At Owen Hodge Lawyers, we regularly help families structure and protect these arrangements and, when relationships break down, we help clients argue over how they should be treated. This article explains the key issues: whether the money is a gift or a loan, how the Family Court treats each, and how properly drafted loan agreements, registered mortgages and considered ownership structures can protect the funds.
Gift or loan: why the distinction matters
The single most important question a court will ask about money from parents is whether it was a genuine loan or a gift. The answer drives how it is treated in a property settlement under the Family Law Act 1975 (Cth), which governs both married and de facto couples.
Broadly, there are three possible treatments:
A genuine, enforceable loan is treated as a liability of the parties. It is deducted from the net asset pool before the balance is divided between the separating couple. In effect, the parents are repaid off the top, and only what is left over is split.
A gift is treated very differently. It is usually characterised as a financial contribution made by, or on behalf of, the party whose parents provided it. Rather than coming off the top, it improves that party’s contribution position but the funds themselves remain in the pool to be divided.
An advance that is unlikely to be repaid may be treated as neither a hard liability nor a simple gift, but as a “financial resource” or a factor relevant to the parties’ future needs. This is the outcome parents most want to avoid, because it offers the weakest protection.
The practical consequences are significant. If parents advanced $300,000 that is accepted as a genuine loan, that sum is generally returned before division. If the same $300,000 is found to be a gift, it stays in the pool, meaning the departing partner may walk away with a share of money the family always intended to keep within the bloodline.
How courts scrutinise “loans” from parents
Families often assume that calling money a “loan” is enough. It is not. The Family Court looks past labels to the substance of the arrangement, and it is well aware that a “loan” is sometimes recharacterised after separation to shield money from an ex-partner. Courts have, in a number of cases, treated undocumented family “loans” as gifts or mere financial resources precisely because they did not behave like real loans.
When assessing whether a loan is genuine and enforceable, a court will typically consider factors such as whether there is a written loan agreement, whether interest was charged, whether there were defined repayment terms, whether any repayments were actually made or demanded, and whether the debt was secured. An advance with no paperwork, no interest, no repayments and no demand for repayment over many years looks far more like a gift than a loan.
There is a further trap that catches many families: limitation periods. In New South Wales, an action to recover a simple contract debt must generally be commenced within six years (Limitation Act 1969 (NSW)). An informal loan advanced a decade ago, with no repayments and no written acknowledgment of the debt, may be statute-barred and therefore unenforceable, which undermines any argument that it is a genuine present liability.
Loan agreements: getting the documentation right
The most effective first step to protecting a parental advance is a properly drafted loan agreement, prepared at the time the money changes hands rather than reconstructed afterwards. A robust agreement should identify the parties, the principal amount, whether interest is payable, the repayment terms (or the events that trigger repayment, such as sale of the property or separation), and whether the loan is secured.
Contemporaneous documentation carries real evidentiary weight. A loan agreement signed before the couple buys the home, supported by bank records showing the transfer, is far more persuasive than a document that surfaces only once proceedings have begun. Ideally, the borrowing couple should both be parties to the agreement, and each family member should understand that the obligation is intended to be genuine and enforceable.
Taking security: a registered mortgage on title
A loan agreement establishes the debt; a registered mortgage protects it. Under the Torrens title system in New South Wales (Real Property Act 1900 (NSW)), parents can register a mortgage over the property to secure the money they have advanced. This gives them the status of a secured creditor with priority over unsecured claims, and it provides compelling evidence that the advance was always intended as a genuine, enforceable loan rather than a gift.
A registered mortgage does not automatically guarantee a particular outcome in the Family Court, but it substantially strengthens the parents’ position. It is difficult to argue that money is a gift when it is secured by a formal mortgage registered on the title. Where separation proceedings are on foot, parents who hold such security can, in appropriate cases, be joined as a party to the proceedings so their interest is recognised and protected, and so that any orders about the property account for the debt owed to them.
Ownership structures: tenants in common versus joint tenants
How the property title is held is a separate but closely related decision. There are two main forms of co-ownership in New South Wales, and the difference matters both during a relationship and on death.
| Feature | Joint tenants | Tenants in common |
| Size of interest | Equal, undivided interest | Separate, distinct shares that can be unequal (e.g. 70/30) |
| Right of survivorship | Yes — on death, the interest passes automatically to the surviving joint tenant(s) | No — each owner’s share passes under their will or estate |
| Reflecting contributions | Cannot reflect unequal contributions | Can precisely reflect who contributed what |
| Typical use | Couples who want the survivor to inherit automatically | Parties documenting distinct financial stakes |
For families using the Bank of Mum and Dad, holding as tenants in common can be a powerful tool. The couple might hold the property in shares that reflect their respective contributions, and where parents want an equity stake rather than simply to lend, they can hold a defined share as tenants in common. This creates a clear, registered record of ownership. The trade-off is that taking a share on title carries transfer (stamp) duty, potential land tax and capital gains tax consequences, and estate planning implications that should be weighed carefully before proceeding.
Additional layers of protection
Documentation, security and ownership structure work best in combination, and there are further steps worth considering. A Binding Financial Agreement between the couple — made under the Family Law Act 1975 (Cth) — can set out in advance how a parental contribution is to be treated if the relationship ends, effectively quarantining those funds. To be binding, each party must receive independent legal advice, so these agreements need to be prepared carefully.
Parents should also keep their own affairs in order. The loan should be recorded in their wills and estate plan, so that if a parent dies the debt does not quietly disappear or become a source of dispute among siblings. Where a mortgage is registered, its treatment on the parent’s death should be considered as part of broader succession planning.
A recent word of caution on the law
Australia’s family law property provisions were significantly reformed by amendments to the Family Law Act 1975 (Cth) that commenced in 2025, changing aspects of how contributions, liabilities and future needs are assessed. The core principles described in this article — the distinction between gifts and loans, the importance of documentation and security, and the value of clear ownership structures — remain sound, but the precise statutory framework continues to evolve. Anyone relying on these arrangements should obtain current, tailored advice.
How Owen Hodge Lawyers can help
The Bank of Mum and Dad can be a generous and sensible way to help the next generation into a home — but only if the arrangement is structured to survive a separation. The families who fare best are those who plan at the outset: a genuine loan agreement, a registered mortgage where appropriate, a considered ownership structure, and, where warranted, a Binding Financial Agreement.
Our family law and property teams work together to protect parental contributions before problems arise, and to advocate for the right treatment of those contributions when relationships break down. If you are lending money to a child buying a home, or if you are involved in a separation where a parental advance is in dispute, contact Owen Hodge Lawyers to arrange a confidential consultation.
This article contains general information only and is not legal advice. The law changes and its application depends on your particular circumstances. You should obtain advice specific to your situation before acting. Family law is governed by Commonwealth legislation; property and duty matters referred to above are governed by New South Wales law.