Third Parties in Property Settlement Disputes: What Happens When Mum, Dad or the Sibling Helped Buy the House?

Family Law: 01 April 2025

Author: Krystel Ong - Our People

When a couple separates, dividing property can be complicated—especially when family members have helped along the way. Whether it was a parent contributing to the deposit or a sibling helping with the mortgage, it’s not always clear how these contributions should be treated.

Were they gifts, or loans that should be repaid? And what happens if those family members want to be involved in the legal process? In this article, we’ll explore how the courts deal with third-party contributions in property settlements, and what you need to know if you or your family are in this situation.

These kinds of disputes are becoming more common, especially with rising property prices in Australia. We are seeing more cases where mum, dad, or even siblings are brought into legal proceedings in the Federal Circuit and Family Court of Australia.

Gifts vs Loans – What's the Difference?

The key question the court asks is: Was the money a gift or a loan?

• A gift means there was no expectation of being paid back. It becomes part of the couple’s shared property and is divided just like any other asset.
• A loan means the money is owed back. If the court accepts this, it can reduce the property pool that needs to be divided between the couple.

The person saying it was a loan (often the parent or the party whose parents contributed) needs evidence to prove it. A simple “we meant it as a loan” isn’t enough. The court will look for evidence, like:

• A written loan agreement prepared by an independent lawyer
• Bank transfers with clear references
• Records of repayments and interest being paid
• Messages or emails showing intent

What everyone intended at the time really matters. The court looks at whether the family member expected to be paid back, and whether the couple saw it as a loan or just financial help. It also considers how the money was treated during the relationship—was there talk of repayment, or was it simply left alone like a gift? Any evidence showing what was agreed (or assumed) at the time will be important.

If the court determines that a financial contribution from a family member is a loan, it will be considered a liability in the property pool. This means it must be repaid before the remaining assets are divided between the parties. If deemed a gift, it is included in the property pool and subject to division between the parties.

Generally, debt recovery cannot be brought after more than six (6) years from the commencement of the action to recover the loan.

If there’s no strong evidence, the court is more likely to say it was a gift—especially when it’s from a parent.

Real Case Examples

Let’s look at some cases that show how courts deal with these issues:

Pelly & Nolan [2011] FMCAfam 530

In this case, a father gave his son $250,000 to help buy a property, and later added another $70,000 when the son bought a second property. Importantly, these payments were backed up by a written loan agreement. The court accepted that the son was expected to repay the money, and treated the full $320,000 as a genuine debt owed to the father. That amount was deducted from the total pool of assets before dividing the rest between the separating couple.

Maddock & Anor (No.2) [2011] FMCAfam 1340

Here, the father of one of the parties provided $240,000 to help the couple purchase and build a home. However, there was no formal agreement, no repayment plan, and no mention of the money being a loan until after the relationship ended. The court found that, in reality, the money was a gift, not a loan. It noted that the father probably wouldn’t have asked for it back if the couple had stayed together—so it was included in the shared asset pool and not repaid.

Liakos & Zervos and Anor [2011] FamCA 547

In this case, a father gave his son around $587,000 over several years. Although the payments weren’t originally documented, the father and son signed a Deed of Agreement after the separation to formalise the loan. But the court wasn’t convinced. There had never been any repayments, no attempt to enforce the agreement, and the court found that the “loan” was only being raised now to reduce what the wife would receive. In the end, the court treated the money as forgiven, and not a debt to be repaid.

What Happens if a Third Party Wants to Join the Case?

If a parent or relative wants to formally claim an interest in the property (say, to get their money back), they can ask the court to be added as a third party.

This is common when:

• There’s a dispute about ownership, like who paid the deposit or owns part of the home
• The family member wants to protect their financial interest
• One party argues the loan should be repaid before the property is divided

The Federal Circuit and Family Court of Australia has the power to join third parties under the Family Law Act 1975. But the court must be satisfied that:

• The third party’s interest is genuine
• It’s necessary for a fair outcome
• Joining them won’t cause unnecessary delays or complications

So… What Does the Court Do?

At the end of the day, the court looks at all the evidence to figure out what was intended. If a contribution was a genuine loan, the court will usually deduct it from the asset pool. But if it looks more like a gift—especially if there’s no paperwork—the court will treat it as part of the property to be divided.

Every case is different. The court considers the length of the relationship, how the money was used, and what was said or done at the time.

How to Protect Family Contributions

If you're planning to help your child or a relative buy property, or if you’re receiving help, it’s crucial to protect everyone’s interests from the start.

We highly recommend that you obtain independent legal advice prior to making any payment or contribution.

This isn’t just good practice—it can save thousands in future legal fees. A lawyer can prepare a proper loan agreement that is binding on the parties.

At Aitken Partners we regularly assist clients dealing with complex property matters involving third-party contributions. Whether you’re separating or planning to support a loved one, we can help you understand your rights and protect your interests and draft legal documents to help protect your interests.