Money talk: loans to family and friends

After reading this post by Revanche at A Gai Shan Life my first thought was that I’ve never loaned money to family, so I can’t comment on the experience. Then I realized that wasn’t true at all, and that I could write a fairly lengthy comment in response to her post. Since I’ve been trying to get myself to write more blog posts, I decided that my response was better done here.

My one experience with loaning money to family didn’t turn out so well for me. When I was 15, my father asked me to loan him the contents of my savings account. As a minor, he probably could have taken the money out of my account without checking with me, so it was nice to have him ask me first. Of course I said yes because this was my Dad, after all. My hazy memory pegs the amount he borrowed at $6,000.

The only reason I had any money in my savings account at that time was because of my maternal grandfather. Every year he gave me and my sister a savings bond for Christmas with the stipulation that we could use the money for either a wedding or college. As the bonds matured, the funds needed to go somewhere, so my parents created savings accounts for us at my father’s credit union and put the money there. In today’s dollars, that $6,000 would be worth about $15,000, so it was a pretty substantial amount for me to have in savings at a time when I wasn’t even old enough to be earning a real paycheck.

Dad wanted to borrow the money so he could do a little real estate investing and flip a house or two. He got the idea in his head that he could do this pretty easily by pooling funds with another neighbor and doing the labor on fixing up the house themselves. I don’t know the details of why he didn’t make the profit they had projected, or even if there was any loss involved, but the payback to me didn’t work the way it was supposed to. There wasn’t any documentation of this loan or even a timeline for repayment discussed, but it was understood that I’d get the money back PLUS interest in time for me to use it for college, so he had about three years to pay me back. At this time (1982-1985), interest rates for savings accounts were around 8%, so I should have been reimbursed about $7,500 in 1985 dollars (nearly $18,000 in today’s dollars).

In those three years, our family life disintegrated, though. Dad and I started clashing on typical teenage stuff; I wanted to date boys and Dad wanted me to stay away from them until I was 18, apparently. The close, warm relationship I had with my dad as a child vaporized. My parent’s marriage — which had never been very happy or close from my recollection — disintegrated completely to the point where Dad moved out in my last year of high school, and I was left living with my Mom. (Because my mother is not the most emotionally stable person this was a very stressful time for me, but that’s not something to go into here).

So there I was at 17, wanting to get my money back so I could head off to college, and Mom and Dad in the midst of divorce negotiations. Dear reader, I think you can see where this is going: Dad tried to default on the loan.

Actually, the loan would have been considered a marital debt that both of my parents needed to document during their divorce. Whether my parents had the money to pay me back or not wasn’t material, apparently, since they were still in the early stages of negotiations at the point where I needed my money, and both attorneys were counseling that this was not something that could be addressed at the time.

Mom insisted that I needed my money, and actually lost her attorney over this issue since she continued to push on the issue at every meeting despite the attorney telling her to stop. I did eventually get SOME of the money back by the time I needed it for college. I didn’t get all of my capital back, much less any interest, but I was told that was the best I could expect and to just accept it. So that’s my story about lending money to family: I got screwed.

On the other hand, I have lent money to close friends twice in the past 10 years or so and been paid back in full. For both of those loans we talked about expectations for repayment and a promissory note was signed.

I also invested money in a friend’s business a few years ago and recently learned that the business has folded. At the time I invested the money I knew I was taking a risk, though. The lost investment is going to be a capital loss on my taxes over the next few years, so it’s going to be put to use, in a way.

I think what is more important to me is the fact that my own father has never once apologized for not paying me back, or for not recognizing how his actions impacted me.

Dad did another shameful money grab at the time of the divorce, too. A few years prior, he had set up an account at his credit union that he held jointly with my mother’s uncle as a way to pay back a personal loan great-uncle gave to my parents. During the divorce negotiations, Mom documented the loan in their joint debts, and the savings account in their joint assets. She had no access to the records for that savings account since her name was never on it and Dad denied its existence. When great-uncle (whose name was on the account) tried to access it he was advised it had been closed. The best estimate was that there was roughly $10,000 in the account at the time.

So Dad not only screwed me over, he also screwed great-uncle over, and my mother, too, since she was held responsible for half of those debts while he hid away the money to repay them from his asset statement. Is it any wonder I often say that my parents are best dealt with from a distance?

To end on a somewhat positive note, though, I have come to understand that my parents are only human, so any disappointments I have in their past or present behavior is tempered with this mindset. Nonetheless, I will never trust my father with my money or my mother with my deepest emotions.