Awkward Money Situation? Write It Down.

When family members or friends borrow money or live together, creating a formal contract can prevent breakdowns.

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Shortly after Deborah Hutchison finalized her divorce in the mid-1980s, she realized she had a problem. Her ex-husband had missed several of his spousal support payments, and she wasn’t sure how to get him to pay on time each month. So she came up with the idea to send him a bill for the $750 payment. As soon as she took that approach, she never missed out on a payment again.

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That experience gave Hutchison the idea to start “Bill Your Ex,” where she encouraged others to follow her example. She found that women in particular often found it difficult to ask for payments, even when they were legally entitled to them. “They said, ‘He’ll get mad at me.’ I said, ‘He’s not paying you anyway, so what’s the difference?’” Hutchison found that putting the request in writing through her product often made it easier for women to demand their money.

Hutchison soon realized that there was a need for putting other awkward money situations in writing, too, so she launched a series of agreements, which she sells on her website for about $5 each. They address everything from adult kids living with parents to teenage driving to letting someone borrow your vacation home. “It’s an emotional contract, not a legal contract,” she explains, which she says help establish basic ground rules and open communication between everyone involved. Hutchison also recently co-wrote a book on the subject, Put It in Writing.

The agreement for parents allowing grown children to move back home starts by affirming that both the parents and children are committed to maintaining a positive, respectful relationship, and asks each side to explain the reasons for the arrangement.

Then, the family sets ground rules: When will the children move out? Will they pay rent or contribute to household expenses? What happens if they miss a payment? Can they use the family car? Can they host parties at the house or stay out all night? The agreement ends with a chore checklist. Even if the adult child is unemployed and can’t pay rent, he can always help with something, whether it’s organizing family photos or helping a parent with the computer, says Hutchison.

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“It makes you sit down and talk. Kids sometimes don’t realize all the things parents do for them. It’s a win-win situation and helps avoid complaints, confusion, and resentment,” says Hutchison. She says that she took the same approach when figuring out how to care for her parents. She made a formal agreement with her siblings specifying that she handles her mother’s finances, her brother sends money, and her sister handles medical support. “We define it. It dissolves dysfunction,” she says.

How do you handle your own awkward money situations? Have you ever put your arrangement in writing, and if so, did it help?

Twitter: @alphaconsumer