The holidays can be a wonderful time of year. You see family and friends and get caught up on each other’s lives. But the holidays can also be stressful and filled with awkward moments, particularly when it comes to money and family. And I’m not just talking about squabbling over who skimped on the presents! I’m talking about more serious issues that can put a damper on the holiday festivities.

I like to read Quentin Fottrell’s column on titled “The Moneyist.”  If you Google his column you might see one of these headlines: “‘He emptied our joint account!’ —three husbands and one boyfriend tried to steal this woman’s money.”  Or, “My husband asked me to file a joint tax return without telling me he owes back taxes.”  Or this one, “My boyfriend and I have two kids — should I pay off his $130,000 student debt?” 

What do these headlines have in common? Money issues with family or loved ones! Many of the problems between spouses, older and younger generations, and significant others come down to the mismanagement of money. As cultural critic, H. L Mencken, once said, “When somebody says it’s not about the money, it’s about the money.” And that’s especially true when it comes to families and money.

Most people don’t enter a situation with bad intentions. Yet, money predicaments are far too common. Here are four tips to help you avoid some of the more common pitfalls:

1. Don’t make loans you can’t afford to forgive. There are many great examples where loans to family and friends worked out well for everyone. But there are probably just as many examples where loans can be a catalyst for disaster, and what began as a loving gesture ends up causing financial distress and heartache.  According to a study by Lendingtree, 27% of Americans who borrowed from or loaned money to family members had negative consequences, including difficult interactions and hurt feelings.

By the time loved ones ask you for a loan, they may have already exhausted other means of financial help. They’re in a tough situation. And while they most likely intend to repay the loan, be aware that they might not be able to make good on their promise. If you have money to spare and entered into the loan agreement prepared to consider it a gift, then make the loan. But don’t put yourself in a place where you are dependent upon a loan being repaid.  In the same Lendingtree survey, the percentage of loaned money that was paid back was less than 60%.

2. Don’t co-sign. When a co-signed loan goes into default, creditors don’t go after the original borrower who they know doesn’t have the ability to pay. They’ll be contacting you, the one with the financial means to pay and a good credit history. If a family member couldn’t get a loan on his or her own, that probably means he or she won’t have the money to pay the loan once you’ve co-signed. That leaves you, as the co-signer, picking up unplanned debt. This can be a huge setback to your own financial plans.

3. Do credit checks. Too many people become blindsided by monetary issues, like debt and taxes, when they’re already deep into a relationship. You should make it a point to do annual credit checks to protect yourself from fraudulent debts. And when you get involved with someone, share the importance of doing credit checks with your loved one. If he or she is reluctant to look under his or her own financial hood, you may have to consider that he or she might have something to hide. A poor financial situation shouldn’t be a deal breaker by itself. But if your loved one is having financial difficulties, he or she should be willing to get out of trouble on his or her own without risking your financial security.

4. Be smart about holding properties jointly with family members. Let’s say you have real estate you intend to pass on to the next generation.  Being proactive and having conversations with the future owners before the property is passed on can help everyone understand each other’s unique situation. These conversations also help you, as the current owner, understand how difficult maintaining the asset can be for everyone. With a greater understanding of all perspectives, navigating through the complexity of joint ownership can be easier. Ultimately, you may decide to sell the asset. That decision is less difficult when everyone is on the same page.

Having conversations and making decisions about money can be tough when it involves family. But finding yourself in a dire financial situation because you didn’t think things through and protect yourself is much worse. Being proactive can save both your money and family relationships.

Bill Wendling, CFA, is a Senior Portfolio Manager with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website or email Bill.

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