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On-call Loans in Family Law

Written and accurate as at: Mar 15, 2018 Current Stats & Facts

Often in family law matters a parent of one of the spouse parties has lent money to the couple on the basis the money is to be repaid to them when they call on the repayment.

Often the on-call loan is in the form of a written agreement.

Typically, the parties enter into the agreement with the intention of being able to be repaid the money if their child separates from their partner.  Very often the money has been lent to the couple to help them purchase a home.  If the home is to be sold or transferred to one spouse party, the parent will want to be repaid the money owing to them under the loan in full.

It is important to understand the legal status of an on-call loan both within the Family Law context, as well as the statutory limitation period in which the debt, including an on call debt is enforceable.

An on-call loan is a contract.  As such, the Limitation Act 1969 of NSW, or Limitation of Actions Act 1958 of Victoria will apply. Each State has its own legislation dealing with the limitation dates.

In NSW and Victoria, the statutory limitation period in which the parent can enforce repayment of the debt pursuant to a loan contract is 6 years running from the date of which the cause of action first accrues.

In NSW, if the loan agreement is in the form of a deed then the time period is 12 years running from the date of which cause of action first accrues.  In Victoria, if the loan agreement is in the form of a mortgage over the property, the time period is 15 years.

Many clients inform us that the loan agreement is valid as repayment of the debt has not been called upon.

Whilst the term “on call loan” would logically suggest the time limitation period starts to run when the debt is called upon to be repaid, it is legally calculated from the date that the money was first advanced or lent.  This is when the cause of action accrues.

We acted for a parent who sought repayment of an on-call loan 14 years after the money was advanced to her adult son and his partner to help them purchase a home. By the time her son and his partner separated, the parent had retired and was no longer earning an income.  She sought repayment of the loan.

The parent’s son and partner were litigating their property settlement in the court. The son’s position was that the debt was repayable to his mother. The wife’s position was that the parent was out of time to enforce the agreement.  The wife also sought the bulk of the net sale proceeds of the home.

The judge agreed that the parent was out of time to enforce the debt, but there was evidence before the court that the son and his partner had repaid part of the moneys from time to time, and that were it not for the loan that they could not have entered into the Sydney real estate market.

In this instance, the court made orders that the sum advanced to the son and his partner less the repayments that had been made were to be treated as a contribution that the son had made.   Consequently, the son received a larger share of the matrimonial asset. That son later repaid his parent voluntarily.   The son was not legally bound to do so.

The situation could have been worse for the parent.

This could have been avoided had the parent and her son and his partner entered into a new loan agreement before the expiration of the six-year time limit.  This would also make it clear to the spouse party that the debt has not been forgiven or forgotten.

If moneys are to be lent to adult children then parents should carefully consider its terms and:

  1. Document the terms of the loan clearly in a written loan agreement or mortgage, ideally with both their child and their spouse/partner to sign it so that they are each bound and all of them acknowledge the debt;
  2. The agreement should be in the form a deed to extend the time limitation period to 12 years (if in NSW), or a mortgage to extend the time limit to 15 years (if in Victoria) from the date the money is first lent;
  3. Consider securing the debt eg a caveat or mortgage secured against their child’s   home and if the loan is to be repaid receiving regular repayments;
  4. Diarising the time in which the agreement should be renewed so as to not face the risk of it being out of time should a parent seek to enforce it;
  5. Obtain advice before the parent offers to put up their own home as security for a debt for their child and their spouse/partner.

It is important to note that in family law property settlements, liabilities, including on call loans should be disclosed. Whilst the court must consider third party creditor’s rights to repayment, it does not have to make orders that the third-party creditor in fact be repaid out of the matrimonial asset.  This means a parent’s debt might be acknowledged, but not ordered to be repaid.

Third party creditors including parent creditors, can apply to be joined in such proceedings. Their case for repayment of the debt can be made stronger by evidence that the agreement that is not out of time, a written loan agreement and records of payments made and received.

Furthermore, if there is security for the debt then this may provide some evidence of the expectation by that parent that the debt was a bona fide one and was to be repaid.


Written by Annabel Murray

Accredited Specialist (Family Law)

Head of Family Law, Sydney

Australian Family Lawyers

Suite 21, Level 2, 104 Bathurst Street

Sydney NSW  2000



This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. Historical performance may not be a reliable indicator of future performance. You should not rely solely on past performance to make investment decisions.

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