There’s a good chance your personal economy has been turned upside down by the COVID-19 pandemic. For many people, their retirement accounts have had a really rough 2020. Others have seen their jobs lost or furloughed. And none of that considers the impacts of trying to care for children who are now home every day from school. In the midst of this, your personal economy could likely use a boost of cash. While you may be waiting for that stimulus check from the government, you may consider borrowing money from friends or family.
Perhaps you are on the other side of the coin. You’re able to ride out the pandemic, but you have family members who can use help. Their personal economy is precarious and you are going to loan them some money. But then your spouse asks that one question that will keep you up at night:
What if they don’t pay us back?
That Old Adage
There’s an old saying that you shouldn’t lend money unless you are comfortable with not getting it back. Especially when it comes to family members, this saying can hold true. You may think that family members are more inclined to pay back the money, but you’d be wrong. Plenty of studies have shown the opposite to be the case.
In practical terms, many lawsuits find their way into the court system between family members. The money was lent. It wasn’t repaid. And now, with most courts closed for all but essential filings, you may not have any way to get your money back until business returns to normal at the courthouse.
What Can I Do?
The simplest thing you can do is before you lend them money, write out an agreement. The agreement should say who the parties (the people borrowing and the people lending) are. It should say how much is being borrowed. If you want to be repaid with interest, you should state that.* You also want to specify when the money is being repaid. Going with monthly payments? Make sure they are spelled out and on what day of the month the payments are due.
Does The Agreement Have To Be Complex?
While it may seem like this agreement is complex, it really doesn’t have to be. But you want to make sure you have the important terms in case you don’t get repaid. At some point when the courts are reopened, a judge may be looking at it and trying to figure out what you agreed to. And if you didn’t agree that you should be paid interest? You won’t be getting interest.
Do I Need A Lawyer?
You can draft the document yourself. But as with any other document, what you don’t know and don’t include can come back to hurt you. I have been involved with a variety of lawsuits that could have been avoided if the family members just had something in writing. They assumed that their family member was good for the money. Their personal economy was strong, why worry? But without it, it becomes a “he said, she said” case for a court to unravel. Rather than spend years in Court, a meeting or two with an attorney could have created a document and avoided all those lawyer bills.
You May Also Like
- How Do I Loan Money To My Kids?
- Lending Money To A Friend – Do I Need A Contract?
- What Do All Those Clauses Mean At The End Of My Contract?
If you’re thinking of loaning someone money and need a contract drawn up or, if you’re already ahead of the curve and have put something together yourselves and just want an attorney to review it, call my office to set up a virtual Legal Strategy Session and we can review the best options for you – (877) AMAYERS.
* The amount of interest you can charge varies by state. You can do a quick Google search for “Usurious Interest Rate in ____” and it should guide you to what rate is allowed and what is considered usurious.