If You Lend Money to Family, Put It in Writing

Lending money to a family member is often done informally, based on trust rather than documentation. When repayment does not occur, however, the lack of a written agreement can leave even a well‑intentioned lender without legal recourse. New York courts routinely confront these disputes, and they consistently demonstrate that good faith expectations are not a substitute for a properly memorialized loan.

The risks are well illustrated in Callahan v. Coventry (Suffolk County 2013), where a plaintiff sought repayment of tens of thousands of dollars allegedly loaned to his former brother‑in‑law. The money was advanced quickly to help the family address financial pressures, routed through the borrower’s spouse, and deposited into a joint marital account. No promissory note was signed, no interest was charged, and repayment terms were discussed only orally. When repayment failed and litigation followed, the defendant alternately characterized the money as “financial assistance” and a “family gift,” while the plaintiff maintained it was a loan to be repaid within months.

Although the court acknowledged evidence suggesting the money may have been intended as a loan—including testimony that repayment had been discussed—the case was ultimately dismissed. The court found no clear, enforceable contract because the essential terms were uncertain, the identity of the true borrower was unclear, and the lender failed to join a necessary party, namely the spouse who received and deposited the funds and whose marital property was implicated. Complications arising from the parties’ divorce further undermined the lender’s claim. As a result, despite credible testimony and substantial sums at stake, the plaintiff left court without a judgment and without repayment.

The lesson is not subtle. Reducing a family loan to writing protects everyone involved. A properly drafted agreement identifies the borrower, defines repayment terms, and avoids later disputes over intent, responsibility, and enforceability. As Callahan v. Coventry demonstrates, failing to memorialize a family loan can transform a straightforward expectation of repayment into an unsuccessful lawsuit.

Paulose & Associates assists clients in drafting clear, enforceable family loan agreements under New York law. Before advancing funds to a relative—or as soon as possible thereafter—consult counsel to ensure the loan is properly documented.