You’re thinking about starting a business with a friend. You’re engaged. You’re considering loaning money to a family member who really needs help right now. Or, you’re in another situation where the thought of a contract has crossed your mind. But, you don’t need a contract because you trust them, and asking for a contract shows a lack of trust, right?
Sometimes, people get offended when we ask to put things in writing. They may wonder why you don’t trust them. They may think you doubt their ability to do what they promised. They may worry about your intentions later. All of these responses are normal, and often prevent people from writing their agreement down.
Yet, many lawyers live a lucrative life dealing with all of the situations that could have been significantly helped by a contract. The story to these lawyers is often the same – “I thought I could trust him.” Countless relationships have been destroyed over unmet expectations, loans not repaid, or strained business relationships.
In my experience, a good contract solidifies relationships and helps to keep friends and family together later. Good contracts help each side talk openly and honestly about the situation before them.
Consider these examples. Will lost his job and needs a little extra money to get by. “Jake is a nice brother” he thinks to himself, “has plenty of money and probably could help me out a little. I’m sure he would understand if it took me a little while to repay him while I get back on my feet.” When Jake is asked about loaning Will some money, Jake thinks “I needed this money to pay off some of my bad business decisions, but no one knows about that yet. If I don’t give it to him everyone will think I’m a miser. I’ll have to give it to him to keep relationships good in the family, but I’m going to tell him I need it repaid within 6 months at the latest.” Jake agreed to loan the money, and told Will he thought 6 months was an appropriate amount of time to be repaid.
Unfortunately for Jake and Will, they kept the remainder of their thoughts to themselves, and neither knew what the other was really thinking. When the 6 months passed and Will hadn’t repaid the debt, Jake grew frustrated as his debts were also coming due. A rift formed, and things went bad for them. Jake couldn’t believe that Will hadn’t followed through with the 6 month promise, while Will couldn’t believe that Jake was getting so frustrated over Will taking a little extra time to repay the debt. Things were still tough, and it was ridiculous for Jake to expect repayment at this time.
Another example. Rachel and Mary were going in to business together. They were great friends and did everything together. They agreed to split everything 50/50. The business grew slower than expected, forcing Mary to take a second job to help make ends meet. Rachel became frustrated that Mary wouldn’t sell her expensive house and was working a second job instead. Rachel started to grow upset at carrying the bulk of the business. Rachel felt Mary was dishonest and not living up to her agreement to contribute 50/50, while Mary felt betrayed that Rachel would expect her to sell the home she had worked for years to be able to build. Their relationship soured, and the business did not succeed. Both blamed the other for being too selfish and not understanding enough of the other’s situation.
While these are just examples, they reflect a story common to almost every business or relationship. Both sides in a relationship have expectations, and when those expectations aren’t met, the relationship begins to break down.
A good contract is a contract where both sides discuss their expectations, needs, and desires with each other. Including a good lawyer in the process helps in identifying issues that the people involved may not have thought about. The lawyer can look objectively at the situation, and help point out areas to think about and discuss with each other, especially when the lawyer has seen the types of things that make relationships go bad.
Ultimately, a good contract is one where you have a plan ‘A’, but where you also include a plan ‘B’. What if things don’t go as expected? What then? What is fair at that point? If the loan isn’t repaid in six months, what is the fair thing to happen? If the business doesn’t grow as anticipated, what then? If a partner leaves for a different opportunity, how is that situation handled?
Anticipating a secondary plan, and possibly another backup plan to that, enables friends to stay friends, and family to stay family. Life happens. It always will. Today’s expectations aren’t always tomorrow’s reality. Being honest about this fact and discussing expectations and what happens when those expectations aren’t met helps to resolve many a conflict before it starts.
Additionally, contracts help both sides remember the full agreement. No matter how smart someone is, they will forget details of an agreement. Memories change or fade over time, and even the most honest people can end up with different memories of the original agreement. Having a contract to review helps both sides keep their memories together, and serves as the record of the actual agreement reached earlier.
Finally, contracts can also be amended and changed as circumstances change, provided that both sides are still willing to work together. So, if you don’t know how things will go in the future, you can make your best plans, and then continue amending and updating as events unfold.
With the fast pace of life, the quickness with which memories fade, and the fact that all of us have expectations that we often don’t communicate unless required to, good contracts can help to maintain a good relationship with friends and family. These contracts help you plan for what’s fair if everything goes well, and what’s fair if it doesn’t go as expected.
Good contracts put both parties and their expectations on the same page (pun intended). If you worry about how to approach your friend, family member, or other associate about signing a contract, just say that you want to be fair, that you worry about your ability to remember everything, and that you value them enough to memorialize your commitment to them in writing. Most are respectful of your feelings when you express them as a way to help you stay fair in the relationship, as opposed to requesting that a contract be written up to ensure that they are going to do what they promised.
There’s an old saying that “an ounce of prevention is worth a pound of cure.” This is especially true in any situation dealing with agreements and relationships. Taking a little time today to talk through things and write up an agreement will help prevent and solve many issues that could arise later, and that could cost you a valued relationship.
Contact Hepworth Law for assistance in drafting up a custom contract suited for your situation and relationship. Hepworth Law drafts business, loan, real estate, prenuptial, licensing, construction, partnership, and many other types of agreements, and will always focus on creating a style and feel that works best for your relationship.
Good contracts make good friends, and every friendship is worth the small cost of communicating expectations, discussing potential scenarios, and memorializing an agreement of how to deal with the good and bad that comes with life. When friendships and relationships are founded on something solid, they last longer, grow stronger, and can remain lasting through the years. Getting an agreement while you’re still friends may be the best thing you do to help keep the relationship healthy, vibrant and strong through the years.
This article is not legal advice, and no attorney-client relationship is created by this posting. This information is general in nature and may not apply to your specific situation. You should contact an attorney and discuss your specific situation and needs, as the above information may not provide the legal results you need in your situation. This is an advertisement for legal services provided by Hepworth Law, LLC in Utah.