By Ruthven Philip

hen the R&B group, the O’Jays, recorded the hit song “For the Love of Money” in 1974, I’m not sure they knew how evergreen the lyrics were: “For the love of money…people will steal from their mother; for the love of money….people will rob their own brother.”

Given the power of money and its impact on families, it seems only fitting to discuss some helpful financial practices when dealing with family finances. Should I lend to my cousin? What is my spouse going to think when she finds out I loaned some money to my sibling? Family dynamics can get really interesting with funny money.

Ruthven’s Family Rule 1

If you’re married, don’t lend money to family members without first discussing it with your spouse.

Some may argue, “Well, what if it’s ‘my money’?” I don’t know what “my money” means, so let’s start there. You may give yourself a shot at marital harmony, at least when it comes to finances, if you remember that you and your spouse are one, so the finances should be one.

The issues here revolve around principles of communication, transparency, and sharing with your spouse. Many people think if they share this information with their spouse, the spouse will control or dictate how “my money” gets spent. Control should have nothing to do with it! “My money” decisions impact the family finances, so even small amounts should be disclosed. When Cousin Broke doesn’t repay, it’s a problem that affects management of the family financial operation.

Ruthven’s Family Rule 2

Establish the space and place in the family budget for such events. The question should really be, from where is the loan money coming? Is it from the joint family operation fund, or the “slush fund”? This is very much a concern when “my money” truly is “our money,” and one fails to communicate that the loan is coming from the family account.

Ruthven’s Family Rule 3

Put it in writing. Don’t lend money without having an agreement in writing, even with family members. You’ve worked hard for your money, and you want Cousin Broke to know this transaction is serious. With a formalized agreement, you have the option to go to court if things don’t work out. You could also sell the debt to a collection agency, or take the path of least resistance and forgive the outstanding debt.

Include terms and clauses appropriate for your agreement. For example, you may wonder if you should charge Cousin Broke interest. Here is an Internal Revenue Service (IRS) answer: If you want to write off the debt that Cousin Broke fails to repay, the agreement will need to include interest. It must look like an “arm’s length” transaction or a more formalized agreement where each party is empowered to act in their own interest. (Coming from the IRS, you know it’s a bit more complicated than what I just summarized. I’m just giving you a basic rule.)

Ruthven’s Family Rule 4

Don’t co-sign with family members. The problem with co-signing is that its impact could be widespread and felt for many years. Imagine that you co-sign for a loan or credit card with Cousin Broke on a small amount. This debt becomes yours. So when you decide to purchase that new house or family car, your credit report score is lowered because you carry too much debt. That causes you to pay higher interest rates on that new car. This is how co-signing’s impact can last for years if you’re stuck with the debt.

Also, by now, you see the compound effect of secret transactions with “my money,” when they impact joint household finances. Once a secret transaction comes to light, things could get unpleasant!

Ruthven’s Family Rule 5

Forgive the debt. If this is not one of your rules, make it one. You are going to need its application when Cousin Broke shows up at a family event with a new iPhone, outfit, or vehicle, and you have not received the $500 borrowed from your “my money” account.

Ruthven’s Family Rule 6

Don’t Lend. When it comes to family, give if you can, and if you can’t give the full request, give what you can afford.

Nothing divides a family more than money. Make wise choices and avoid living in family financial hostility!

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Advisor, and CEO of Give2Getrich, LLC, Give2Get Rich, LLC 2021. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.