How does family law deal with loans to couples by family
members? When does the law consider those debts to be secured or
unsecured and what is the difference?
In the unreported Full Court decision of Winston v
Winston (No 2)  FAMCFC 147, the mother of the husband
appealing against the decision had provided the husband the husband
with a loan of $1,353,100 to purchase a property, as well as a
smaller loan of $15,5176 for improvements made to the former
The Federal Magistrate found that the husband's mother would
never enforce the loans and said that "there is simply no
chance whatsoever that Ms Winston will ever require
On that basis, the loans were not included as liabilities of the
husband in calculating the property pool to be divided between the
The case was appealed and the Full Court found that in reaching
his decision, the Federal Magistrate took into account the
The husband had always been completely financially reliant upon
his family of origin;
The husband's mother had a good relationship with the
husband, and trusted and held him in high regard, nominating him as
an executor of her will;
The husband's mother had substantial personal wealth held
in trust structures which she controlled and which were worth in
excess of $20 million;
The husband's mother wanted her son to move to a place
closer to his family of origin;
The husband's mother was aware that the husband did not
have the funds to enable him to repay the debts;
The timing of the husband's purchase of property and the
circumstances surrounding the loan from his mother - specifically,
the husband entered into a loan agreement with his mother 9 days
after the trial of the matter and settled the purchase of the
property 15 days after the trial in circumstances where the husband
did not raise the purchase of the property at any point during the
Notwithstanding the above, on appeal, the Full Court found that
the Federal Magistrate fell into error in two ways by completely
disregarding the debts.
The first error was that the Magistrate failed to give
appropriate weight to the unchallenged evidence of the
husband's mother and provided insufficient reasons for his
rejection of her evidence that the loans were repayable.
The second error that the Magistrate failed to appreciate the
difference between a secured creditor and an unsecured creditor.
Specifically, the Magistrate relied on two earlier cases of the
Family Court dealing with the enforceability of loans from family
members and said that those cases allowed him to disregard the
loans from the mother in this case. The Full Court examined the
cases referred to by the Magistrate and noted that while the Court
may disregard the unsecured liability where the evidence of the
parties is vague or uncertain, or if it is unlikely to be enforced
or if it was not reasonably incurred, the position is different
where the liability is secured. In the earlier case referred to by
the Magistrate, the Full Court noted that the liability was not
simply deducted but was applied at a discounted rate because the
Court found in that case that had the husband not separated from
the wife, the husband's father may have been prepared to wait
indefinitely for the loan to be repaid.
The above case shows that it is important that where family
members provide a loan to each other, and where it is not to be a
gift, the loan should be documented, and secured to the extent
possible. The lack of security may be fatal to the question as to
the enforceability of the loan.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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