Originally from Alternatives to the High Cost of Litigation

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Normally, a plea for financial help to a bank results in a documented interest-bearing loan contract. A similar communication to a family member (or friend), even one of some legal sophistication, all too often becomes a resented gift or at the very least interest-free borrowing repaid partly or fully at some undetermined time.

Some of this, of course, is a voluntary act of judgment. In the author’s immediate family, the repayment rate based on extremely limited experience is 100% and reimbursement too quick to generate any sort of interest calculation. A loan agreement would be silly and an inappropriate way to manage the occasional minor family liquidity moment.

But any adverse experience immediately triggers a need for clarity about the terms of the advance and its repayment. Happily, in law, most loans are repayable on demand where no conditions to the contrary exist. Families, though, should not be testing the local court system or even having conventional arbitrations. Making the demand for payment can itself easily fracture a family unit.