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Preventing Legal Problems with Family Loans

Oct 20

It is a wonderful thing to be able to lend money to a family member or friend to help with a major investment or during a time of need, but this can lead to misunderstanding, bitterness and loss if not handled properly. In this short video, I’m going to talk to you about how to avoid some of those problems with family loans. One source of such problems is when the person receiving the money, or their spouse, chooses to see the loan as a gift, which doesn’t need to be repaid. Another thing to be aware of is the legal presumption of advancement, which arises when particular relationships exist between parties, such as parents and children or husbands and wives. Under that presumption, gifts between such parties will be considered gifts, unless there is evidence to the contrary. Although a purely verbal agreement to loan money is still valid, but can be difficult to prove, so entering into a written loan agreement is always recommended by us. Such a document does not need to be complicated, but it should, as a minimum, clearly identify:

The amount of the loan
When and how it is to be repaid; and
Any interest or fees payable and when they are due.

From a lender’s perspective, it is also wise to take security from the borrower in the form of a mortgage or charge over property and if possible, to register that security on an appropriate register. We often help parties to family loans to document transactions and take security and to thereby avoid the misunderstanding, loss and lasting bitterness that may otherwise arise. If you wish the find out more about family loans or similar matters, please contact us at Argon Law or have a look at our website.