Traditional wisdom tells us never to lend money to friends. But traditional wisdom has it slightly wrong. Lending money and property to friends is okay, as long as you feel comfortable with the arrangement and get it in writing. That’s right—signing on the dotted line isn’t just for men in suits; making contractual agreements is important in your personal life as well. In their book, Put It in Writing!: Creating Agreements Between Family and Friends, Deborah Hutchison and Divorce Court judge Lynn Toler give us the nitty-gritty on when and how to draw up written contracts.
Why Write It Down?
You wouldn’t enter into a business deal without a written contract, so why would the rules change once friends and family members become involved? If anything, these relationships require the greatest protection against misunderstanding because they are the most important. We should turn to those close to us for help when we need it, but we also need to keep things clear.
As anyone who maintains a journal knows, writing things down helps us understand our feelings. For both you and your partner in the agreement, exploring the consequences and intricacies of an arrangement through writing gets you thinking about these elements in ways that you might not if you didn’t put pen to paper. Asking someone to sign his or her name to an agreement also reveals how committed the person is to its terms. If you’re not sure that Uncle Bob really intends to pay you back that $50, whether or not he gives you his John Hancock can be a good (though not foolproof) gauge of his sincerity.
Contracts aren’t just for lending money, either. Hutchison and Toler recommend written agreements for all kinds of social situations, including loans, house sharing, parenting, and splitting the care of aging parents with siblings.
How to Start
Hutchison and Toler stress the importance of approaching written agreements in a nonconfrontational way. You want the other parties to understand that your desire to draw up a contract is not based on mistrust—you just want to avoid misunderstandings by creating a record of the deal.
