Loans in the Family Law Context - Sastry & Sastry Case Study

A grandmother pours hundreds of thousands of dollars into her son's home renovations, buys the furniture, funds the legal fees, and even lends money to cover a court-ordered property payment to his wife. The marriage ends. The son says all of that money is a liability — a debt owed to his mother — and that it should reduce the property pool before any split is calculated. The wife says it was never a real loan. Who wins? The answer from a 2023 decision of the Federal Circuit and Family Court of Australia might surprise you.

The Case: Sastry & Sastry [2023] FedCFamC1F 816

Sastry & Sastry was a contested family law matter before Justice Brasch involving both parenting and property proceedings after a lengthy marriage. The parties separated in 2017 but did not reach a final resolution until the judgment handed down on 26 September 2023.

The property pool, centred on the former matrimonial home in suburban New South Wales, was valued at approximately $1.195 million including superannuation. Neither party disputed that a property order should be made. What they disagreed about was what went on the balance sheet, and particularly whether large sums allegedly loaned by the husband's mother, the paternal grandmother, counted as liabilities that would reduce what the wife received.

Two Alleged Loans

The husband placed two separate alleged debts to his mother on the balance sheet.

The first and larger of the two — Item 14 — was said to amount to approximately $216,942. The paternal grandmother's case was that she had funded extensive renovations to the former matrimonial home at the time of its purchase in 2004 and through to 2005, as well as providing money for chattels, appliances, furnishings, utilities and other household expenses over the years. She maintained all of this was a loan, not a gift, and that she expected to be repaid.

The second alleged debt — Item 15 — was smaller, sitting at approximately $36,824. It arose from a specific event: when the court made an interim order in 2019 requiring the husband to pay the wife $50,000 as a partial property settlement, the husband borrowed that money from his mother. Unlike the larger debt, this one came with a written loan agreement and the husband had been making monthly repayments of $800 until they paused and then resumed.

The Statute of Limitations: A Debt That Time Forgot

For Item 14, the court applied a legal principle that many people outside the legal profession have never encountered: the statute of limitations. Under section 14 of the Limitation Act 1969 (NSW), a contractual claim — including a claim to recover money lent — must be brought within six years of the date the cause of action first accrues. For a loan repayable on demand, that clock starts ticking from the moment the money is advanced, not from when a demand is eventually made.

The paternal grandmother said she told the parties, before and shortly after the renovations began nearly twenty years ago, that she expected to be paid back. There was no written agreement. There were no demands for repayment recorded in evidence — only the grandmother's evidence that she had expressed an expectation. That expectation, the court found, was not the same as a demand.

Applying the principles set out in Halstron & Halstron [2022] FedCFamC1A 65, Justice Brasch concluded that the alleged loan in Item 14 was statute-barred. The six-year limitation period had long since expired. Whatever the grandmother had advanced in 2004 and 2005, she had no enforceable claim to recover it and the alleged debt could not be counted as a liability on the balance sheet.

This is a trap that catches many people off guard. It does not matter how genuine the intention to repay might have been, or how much money changed hands. If more than six years have passed since the loan (repayable by demand) was made — and no formal steps were taken to preserve the claim — the law will not assist recovery.

What About Item 15?

The second alleged debt, Item 15, was not statute-barred. There was a written agreement, and the husband had been making repayments. Justice Brasch accepted it was a genuine loan.

But it still did not make it onto the balance sheet — for a different reason entirely.

It was a post-separation loan and putting it there, the court reasoned, would mean that the wife effectively subsidised the $50,000 payment she had already received and spent on reasonable living expenses. The court had already found, separately, that the $50,000 should not be added back into the pool for the same reason.

Including Item 15 as a liability would have produced the opposite result through the back door. That outcome was not just and equitable, and so the loan was excluded from the balance sheet — though it was noted as a relevant consideration when assessing contributions.

So What Happened to the Grandmother's Generosity?

Excluding both items from the balance sheet did not mean the grandmother's financial support was simply ignored. Justice Brasch was satisfied that the paternal grandmother had been generous to the parties during the relationship and continued to be generous to the husband after separation — including by funding nearly $280,000 of his legal fees. That generosity was a real contribution, even if it could not be quantified in the precise dollar terms the grandmother had claimed.

Equally, the wife's father had provided ongoing financial support — approximately $200 to $300 per week from the birth of their first child onwards — as well as contributions to the purchase price and renovation of the properties. His generosity was a contribution in the wife's favour.

When all contributions were assessed holistically, the court determined that the husband's side of the ledger was slightly stronger due to the grandmother's renovations and financial support. A five per cent adjustment in the husband's favour was made. But when the section 75(2) factors were then assessed — including the wife's greater day-to-day care of the children and the fact that the grandmother remained a financial resource for the husband — a five per cent adjustment in the wife's favour was warranted. The two adjustments cancelled each other out, producing a final result of 50 per cent to each party.

What This Case Means for You

If you are relying on a family loan to reduce the pool, you need to act well before you get to court. A loan must be documented in writing, include clear repayment terms, and — critically — have been advanced within the last six years, or be subject to ongoing repayments that keep the limitation period alive. An expectation of repayment, however sincerely held, will not survive a limitations argument without those foundations.

If the evidence is unclear, courts will give weight only to what can be properly established — and amounts that cannot be proven may still be relevant as contributions, rather than debts, which often produces a very different outcome in the final calculation.

At Surge Legal, we advise clients across all stages of family law property proceedings, including disputes about parental loans, contributions, and the construction of the balance sheet. Whether you are just starting the process or dealing with a contested hearing, we can help you understand where you stand.

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For further information about how property settlements work and what goes on the balance sheet, visit our Property Matters and Consent Orders pages.

This article is a general summary of Sastry & Sastry [2023] FedCFamC1F 816 for information purposes only. It does not constitute legal advice. Please contact Surge Legal to discuss your individual circumstances.