When you enter into financial deals with family, be prepared for some uncomfortable and sometimes ugly disagreements. When things go wrong, it does become personal.

Recently I weighed in on the financial situation of twin brothers. They had bought a home together. One brother took off after a few years of sharing the home, leaving his twin to take complete care of the property, physically and financially. When the brother living in the home got married, he refinanced and his twin agreed to sign a “quitclaim deed,” giving up ownership in exchange for an unspecified share of profits once the home was sold.

No sale is pending, but the brother who left is trying to negotiate – after the fact – what he’s owed based on the home’s appreciated value. So what’s fair?

I don’t think they call it “sweat equity” for nothing. What I thought was fair was to give the brother back his down payment of $20,000, plus a modest return. The brother had walked away from the investment leaving the responsibility for the mortgage and upkeep to his brother. Now he wants back in. With a vague agreement for money later, why should he get more when he did so little?

Well, some of you thought he does deserve more. I have a feature I call “Talk Back” in which I allow readers to provide counterarguments to something I’ve written.

One reader, Valerie from Quartz Hill, California, suggested that the fair thing would be to get the home professionally appraised and then decide on a split.

“Subtract expenses, including refinancing fees, annual real estate taxes, property improvements, etc., and don’t forget ongoing maintenance; and offer him half of what is left,” she wrote.

For reader Christine, the situation hit home. She and her sister also bought a home together. Her sister lives in the house but Christine does not.

She says her sister also wanted her to sign a quitclaim deed to refinance the property. “I didn’t trust her and did not do it. I do not live in the town where the building I own is located, but that does not vacate my right to ownership. … The lesson might be: Don’t trust anyone to do the right thing: Get it in writing, even if it is your twin brother.”

One reader suggested the brothers try mediation. There are non-profit community-based conflict dispute centers around the country that offer free mediation such as the Conflict Resolution Center of Montgomery County. Nolo.com provides some good tips on what’s involved in that process. Search the site for “Why Consider Mediation?”

“Mediation is particularly valuable when your dispute involves another person with whom – either by choice or circumstance – you need to remain on good terms,” according to Nolo.com, “so a huge advantage of mediation is its ability to get a dispute resolved without destroying a relationship.”

Reader Joyce Ellis, a retired California real estate broker, said she’s seen a lot of situations like the one pitting brother against brother.

“Many important issues were neglected between the brothers over time,” she wrote. “However, in order to reach a fair solution, one must treat it as an arm’s-length transaction.”

Ellis offered some very useful questions:

From the time the brother left, what has been the fair-market rental value on the property?

 What is the value of the tax advantages that the remaining brother enjoyed that the departing brother didn’t share?

 What is a fair management credit to the remaining brother, since the absent one didn’t have that burden?

What is the vacancy factor for that area?

 What is the value of the improvements made by the remaining brother?

“When these matters are factored in and then balanced against the appreciation or depreciation in value today, there is likely to be a different picture altogether,” Ellis wrote. “I imagine some accommodation could be made on each of their parts but, make no mistake, memories are long, and hurts fester. If this matter is allowed to be treated as anything but an arm’s-length transaction, it will color relationships from now on and rear its head in surprising and painful ways for years to come.”

It’s too late to try and treat the situation as an arm’s-length transaction. This is exactly why you need to work out all this stuff before you mix your money with a relative. Better yet, perhaps you should just avoid business deals that rely on good faith before or after the fact. At least spell out the arrangement formally in a written contract so that family bonds don’t cloud what’s financially fair.

Michelle Singletary can be contacted at:

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