It is often the case to assist either a friend or family and lend them money.

This is exactly what my client did when to assist a friend, she lent him a considerable amount of money to assist him in a time of need. As a precaution they wrote out an agreement as follows:

I Mary Smith lend to Joe Brown the amount of $xx,000.00 and I Joe Brown promise to repay the $xx,000.00 to Mary Smith.

Signed Signed

Mary Smith Joe Brown

23 September 2010

Because Mary wanted to help Joe there was to be no interest or any specific repayment time. Joe continued to have difficulties and made several small payments then for a time made excuses before making several infrequent payments. This went on for 3-4 years and then he stopped making repayments and finally ceased making any repayments. Mary came to me recently to enquire whether she could recover her money from Joe.

A loan agreement to be enforceable has to be in writing and include the following details:

  1. The name and address of the lender and borrower;
  2. The amount of the loan;
  3. How the loan is to be repaid;
  4. The date when the loan must be repaid; and
  5. The rate of interest if applicable.

Mary whilst having a written agreement did not have sufficient information to enable recovery of her money through the courts. Legislation in all states has been enacted to limit the time for you to recover a debt. In New South Wales you have six years from the day after the debt falls due and if you have a judgment regarding a debt then recovery must occur 12 years from the date of the judgment.

In accordance with the details required to create a binding loan agreement a simple IOU is worthless, although many loans are still created on the basis that an IOU is enforceable. IT IS NOT!

I always recommend that when lending money to anyone, especially close friends and family that you use a properly drafted loan agreement to ensure clarity and the ability to recover your money. All too often especially in my family law work, after the breakdown of a marriage, due to lack of proper documentation proving money provided was a loan and not a gift becomes an insurmountable task.

Please contact me if either you or a friend needs assistance with a loan agreement.

Have a wonderful day,



0419 233 670

  1. I am available to discuss legal matters either in my office or by Zoom conference; please note that notary services must be undertaken in person.

Liability limited by a scheme approved under Professional Standards Legislation

Published On: September 21st, 2022 / Categories: Business Law, Civil Law, Family Law /

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