The “Bank of Mum and Dad” has become a recognised part of family wealth transfers in Australia; they refer to the monetary gifts or loans that parents provide to their adult children. As the cost of living continues to rise, this practice has grown increasingly common, often taking the form of parents helping their children acquire property, meet mortgage repayments, or manage everyday expenses.

When an adult child’s relationship breaks down, the treatment of money received from parents often becomes a central point in family law disputes. The issue is that these arrangements are rarely put in writing, formally drafted or signed by the relevant parties and often remain informal verbal understandings or handshake deals between family members. Without formal, written documentation, money intended to stay within the family is often classified as a gift and included in the property pool for division.

Gifts vs loans

Whether money from parents is classified as a gift or a loan determines who ends up with it, and whether it stays in the family. A gift becomes a contribution to the receiving party’s asset pool and is shared on separation. A loan is treated as a liability, deducted from the pool before division, so it is repaid rather than shared, but only where the loan is genuine.

The starting point comes from Gosper & Gosper (1987) FLC 91-818 and Kessey & Kessey (1994) FLC 92-495 which established that parental gifts are credited to the child of that parent unless clear evidence shows a different intention. This reflects the equitable presumption of advancement, recently affirmed by the High Court in Bosanac v Commissioner of Taxation [2022] HCA 34, where a wife successfully relied on it to defeat a claim over the family home despite her husband’s financial contributions. Without records showing otherwise, the presumption prevails and the money transferred to family members is treated as a gift.

This is why documentation matters. This presumption can only be displaced by evidence of the parties’ actual intention at the time the funds were advanced, regardless of what the parties may have understood at the time. A loan only gets the favourable treatment if it is real, properly recorded, and drafted by a lawyer from the outset.

How Bank of Mum and Dad arrangements fall apart

The distinction between gifts and loans only holds up if a loan is actually treated as one. Courts look past the paperwork to how the arrangement actually played out, including whether repayments were made, whether the debt was ever disclosed, and whether the parties truly intended it to be enforceable. The cases below show how this test applies in practice, and where each family’s arrangement fell short.

Han v Han [2026] FedCFamC1A 54

A $4.7 million advancement was documented as a loan, but no repayments were made for 16 years and the son retained the income from the asset it funded. Despite the label of loan, the court turned to the substance of the arrangement and found that no genuine debt had been established, so the sum was included in the asset pool for division.

The court held that the absence of any repayment over an extended period demonstrated that the parties did not, in substance, intend to create an enforceable debt. The transfer was therefore treated as a contribution to the asset pool rather than a liability.

Fowles & Fowles [2023] FedCFamC1F 819

In this case, the husband asserted that a $1,155,000 advance from his father to purchase the parties’ home was a loan. Despite there being real paperwork behind this claim, including a loan agreement and a promissory note, the court found the arrangement to be a sham. The loan agreement was never signed by the husband, the promissory note was never signed by the father, no interest or principal was ever paid, and the alleged loan was never disclosed to Westpac when the husband took out a mortgage over the same property.

The court held that the absence of execution, the absence of any repayment, and the failure to disclose the arrangement to the mortgagee were together inconsistent with a genuine intention to create a repayable debt. The advance was found to be a sham and was not treated as repayable.

How to protect your assets and keep wealth in the family

Loan Agreements

The loan agreement should be properly drafted to identify the lender and borrower, the amount advanced, the interest position, the repayment schedule, and the consequences of default. Both parties, including the borrower’s spouse or partner, should sign it, so that the existence of the loan cannot later be denied by someone who was never asked to acknowledge it.

Stubbs & Stubbs (No 3) [2025] FedCFamC1F 534 shows why this matters. A mother claimed her father was owed roughly $400,000 in family advances. The court upheld the amounts backed by formal loan agreements, but rejected the undocumented advances outright, with no evidence either side intended to create a real debt. As in Bosanac, the presumption only gives way where the paperwork exists to prove it.

Binding Financial Agreements (BFA)

Binding Financial Agreements, commonly known as prenups, are agreements that can be entered into by parties before marriage, during marriage, or after separation. In situations where a party’s family has and will continue to offer significant financial assistance to them, a BFA can provide clear terms as to how the property and liabilities are to be divided in the event of separation so that there is no dispute as to the treatment of that financial assistance.

We commonly see Binding Financial Agreements used to preserve assets for the following purposes:

If you are considering advancing money to an adult child, whether to assist with a property purchase, mortgage repayments, or general living expenses, the cases above demonstrate that intention alone is not enough to keep that money in the family. The courts look to substance over labels, testing whether repayments were made, documents properly executed, and arrangements disclosed. Absent that evidence, the presumption of advancement will treat even a genuinely intended loan as a gift.

At Nicholes Family Lawyers, we have extensive expertise in drafting and advising clients on how to best protect their assets, to avoid them being lost further down the line where disputes arise. Please contact our office at 03 9670 4122 to arrange an initial consultation.