Updated: Feb 15
Have you ever lent money to friends or family? For many of us, it’s the first place we turn when financial stress strikes. However, before handing out cash to those you love, it pays to take a few legal precautions to protect yourself and avoid possible conflict.
Talk through terms and conditions
Just like with a bank, setting out terms and conditions for the money you lend can help clarify expectations. Talk candidly with the person you are considering lending money to and answer questions such as:
Is this transaction a gift or a loan?
Will interest apply? If so, what will be the annual rate?
What will be the term of the loan?
How do you expect to be paid back? For example, cash or direct deposit?
Map it out on paper
The truth is, lending money to family and friends can result in a dispute later down the track. Having a paper trail that highlights the terms and conditions of the loan agreement can help avoid potential conflict.
Keep copies of any emails, letters and text messages, and consider drafting a formal loan agreement in consultation with a lawyer.
Consider reviewing your Will
Depending on the circumstances of the loan, you may wish to review your Will. Especially in the event, you are lending money to a child, family member or someone who is a beneficiary of your Will – to prevent them from ‘double-dipping’.
The size of the loan should also be a consideration. Suppose the person you are lending money to is in a relationship. In that case, you need to consider the ramifications should the relationship break down and whether or not the money could end up in the general marital asset pool. Chat with your lawyer regarding any concerns before you transfer funds.
Need some legal help? Our team can help you put together a simple loan agreement or provide legal advice specific to your situation. Contact us for a confidential and no-obligation discussion.