The Moneyist: ‘I’m really upset’: I borrowed $10,000 from my brother with a $200-a-month payment plan. We fell out, and now he wants the money back in full

Dear Quentin,

Just before the pandemic I got into a bit of financial trouble, and my brother lent me $10,000. During the pandemic, we fell out and we have not been speaking for several months. We are now communicating through our sister. 

He now says he wants all the money back even though we had an agreement that I would pay him $200 a month and so I’m wondering even though there’s no agreement on paper how do I deal with this because he’s demanding the money. I don’t have it.

I’m really upset. I obviously now wish that I hadn’t borrowed the money, and I wish I could get the money from somewhere else to give to him so I could just have him off my back, but I’m not in a position to do that. What can I do?

Indebted Sister

Dear Indebted,

If you lend a family member or friend money, it’s always wise to have the person sign a promissory note, outlining the terms and length of the loan. In this case, it sounds like you had a verbal agreement. You do not intend on reneging on the loan, but you want your brother to stick to the original terms of the agreement: $200 a month. 

Verbal agreements are binding in many states, including New York and Florida, but don’t include real estate, among other restrictions. In Florida, such agreements must meet the legal standards for contract formation and, of course, you must be able to prove that you had an agreement in the first place, including that there was an exchange of value.

Proving a verbal agreement is another challenge: As Kimberly Schultz, a Plantation, Fla.-based attorney points out: “This is where it gets tricky. In the case of a dispute, you need proof that there was a contract in the first place. If it was a verbal agreement, it is a situation of one person’s word against the other.”

“Who can be believed? If in doubt and you do have a choice, always get something in writing,” Schultz said. “A written contract can be scrutinized and picked apart and it helps to eliminate disputes quickly. It is always preferable. But, now you’ve done it. You’ve entered into a verbal contract. What can you do?”

The good news is that you want to honor your agreement with your brother, even if he is using your personal dispute as leverage to put you under pressure — emotionally and financially — to return the remainder of the $10,000. Perhaps you have an email chain or other witnesses to attest to this loan, and your payment plan.

Few families have members who have not fallen out at some point in their lives, and I expect this situation will resolve itself in time. But it is a lesson in borrowing money from family and/or friends as a last resort because the relationship — and pre-existing problems in the relationship — will inevitably complicate matters.

Money, when we have enough of it to pay our bills and hopefully save, can bring peace of mind and not a small amount of freedom to make decisions about our lives and futures, but unfortunately it can also be used as a way to control people and punish them, as you are experiencing now. He is being unreasonable. 

Separate your personal relationship from your financial relationship. Assuming you don’t have a high enough credit score to take a loan from your bank to pay him off in full today, tell him that the two issues should be dealt with separately. Be calm and matter of fact. Stick to your original plan. 

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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Also read:

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‘How can I be fair to both?’: I spent $20,000 more on my daughter’s education than my son’s education. Should I level the playing field — and invest $20,000 in stocks for my son’s retirement?

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