When parents lend money to adult children — especially for property purchases — a formal financial agreement is essential to protect all parties in the event of separation or divorce. In 2026, the Bank of Mum and Dad remains Australia's ninth-largest mortgage lender, with families contributing an estimated $35 billion annually to help children buy homes (Digital Finance Analytics, 2025). Without documentation, these loans can become devastating losses in a divorce settlement.

Why You Need a Written Agreement for Family Loans

When a relationship breaks down, the Family Court must divide assets between the parties. Without written evidence that parental funds were a loan (not a gift), courts often treat the money as a contribution to the joint asset pool — meaning it gets split with the other party. A properly documented loan agreement or binding financial agreement protects parents' funds and clarifies the nature of the arrangement from the outset.

Tax Implications of Family Loans in Australia

The ATO closely scrutinises below-market or interest-free loans between family members. Key tax considerations for 2026 include:

  • Division 7A: Loans from a private company to shareholders or associates must comply with Division 7A minimum repayment requirements, or they are treated as unfranked dividends
  • Benchmark interest rate 2026: The ATO's benchmark interest rate for Division 7A loans is 8.27% p.a. (2024-25 rate; 2025-26 to be confirmed)
  • CGT on property transfers: Property transfers as part of a divorce settlement are generally exempt from Capital Gains Tax under the Family Law Act, provided the transfer occurs under a formal court order or financial agreement
  • Stamp duty exemptions: Most Australian states exempt property transfers between separating spouses from stamp duty when transferred pursuant to a court order or binding agreement

What Is a Binding Financial Agreement?

A Binding Financial Agreement (BFA) under the Family Law Act 1975 allows couples to agree on how their assets and financial resources will be divided if their relationship ends — either before it starts (a prenup), during the relationship, or after separation. For parents providing financial support to children, a loan agreement combined with the child's BFA provides dual layers of protection.

How to Protect Parental Loans in 2026

  • Document all loans in a formal written loan agreement signed by all parties
  • Establish a repayment schedule with a market interest rate to demonstrate genuine loan intent
  • Keep records of all transfers and repayments
  • Have your child and their partner enter a Binding Financial Agreement acknowledging the loan
  • Register any loan secured against property as a caveat on the title
  • Seek independent legal and tax advice — both parties should have separate advisers

Frequently Asked Questions

Is money given by parents considered a gift or loan in a divorce?

Without written documentation, Australian courts may treat parental contributions as gifts to the couple's joint asset pool. A formal loan agreement, signed at the time of transfer and evidenced by repayments, gives parents the strongest case for recovery of the funds.

Is there CGT on property transferred in a divorce?

Property transferred between spouses as part of a divorce settlement under a court order or binding financial agreement is generally exempt from CGT at the time of transfer under Section 126-5 of the ITAA 1997. The recipient spouse inherits the original cost base for future CGT calculations.

Do I need a solicitor for a financial agreement in Australia?

Yes. Under the Family Law Act 1975, both parties must receive independent legal advice before signing a Binding Financial Agreement. Without this, the agreement can be set aside by a court. You should also consult an accountant about the tax implications of any property settlement.

Navigating property settlement tax implications? Contact AWTS for expert advice on CGT, stamp duty, and financial structuring in family law matters.