Keeping it in the family can cost...

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There is a line in the film The Godfather III, which perhaps in a nutshell sums up the problems of mixing money matters and family: ‘Friends and money – oil and water.’

While most families don’t conduct their affairs in quite the same way as the Corleones in the famous films, the sentiment has a feeling of truth about it.

Similarly, Polonius’s advice to his son Laertes in Hamlet, ‘Neither a borrower or a lender be; for loan oft loses both itself and friend’ underlines the dangers of financial arrangements, particularly informal ones, between friends and family.

Money does have a way, even in boom times, of creating tensions in families.

One person’s priority for spending may not be another’s and unhappiness about the overspending of one person may be countered with accusations of meanness from the other party.

So it doesn’t take a huge leap of imagination to consider what strains and stresses the recession has brought to individuals and families

In fact finances are often a key factor when it comes to the root of an argument and what can ultimately drive couples apart and on to divorce or separation.

Children also worry about family conflict and if that takes the form of loud and regular disagreements about money, it adds another layer of anxiety and undercurrent to an already testing time.

Looking to friends and family for support in troubled times is often a natural thing to do, but it can potentially cause more problems than it solves, particularly if the support is primarily financial.

Borrowing or receiving a loan from a family member without any formal arrangement or documentation can create not just tension but complex and costly legal problems in the future.

In 2007, before the recession, research carried out by the Skipton Building Society showed that 51% of people in the UK had lent money to family members over the last ten years and that more than £25 billion was owed to family members in this way.

Families do fall out and when they do it can sometimes be spectacularly, with the fall out having devastating effects.

Parents sometimes help out their children or other family members with an initial cash injection to start a business.

This combination of the personal and commercial could, if a dispute or misunderstanding arises and if not supported by a clear agreement independently witnessed, damage relationships and take a significant time to unravel.

This is a situation that can be financially, physically and emotionally draining.

The very nature of relationships with family and friends is that they rely on trust and the cushion of a good and positive relationship history.

However, the consequences of not having lawyers involved to negotiate a legal agreement that all parties are happy with can be expensive.

Life is unpredictable at best and divorce, family breakdown or death can create unexpected anguish and problems.

If for example, someone who has borrowed money from you ‘informally’ without a legal agreement, stops making the agreed repayments, or the payments become irregular, what happens next?

Significant costs can be incurred to the lender pursuing the loan repayments.

So what may have initially been a thoughtful and supportive gesture might become a costly and stressful experience, to say nothing of the damage to a relationship.

Any arrangement, whether it be business, financial or both, can be in writing, with the parties concerned making quite clear to their solicitors what their intentions are if, sadly, the worst comes to the worst and relationships break down.