Academy Award winner suing father over unpaid loan

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Time to add yet another name to our Celebrity Money Mistakes gallery!

Academy Award-winning actor Richard Dreyfuss had a Close Encounter of the unpleasant kind this weekend, when he sued his father and uncle over money.

Dreyfuss claims he loaned his family members $870,000 in 1984, but he never got back his money or the interest he says was due.

Dreyfuss learned the hard way that loaning money to family and friends is often a recipe for trouble. Don't make the same mistake.

With times so tough and loans so hard to get as this credit crackdown makes it very difficult to borrow money from traditional sources, more and more people are turning to family and friends for financial help. We KNOW how much you want to open up your wallet and help the people you love, but don't let your heart overrule your head on this one.

If you decide to loan someone close to you money, make sure you do it the right way so you can prevent problems and bad blood later on. (Think Richard Dreyfuss is getting invited to Mom and Dad's for Thanksgiving dinner this year?!)

The number one rule for preventing problems is to write up an enforceable loan note. We've heard so many horror stories about loaning money to family, that we wrote a sample loan note you can use at our website. It has all the key ingredients you need to protect yourself and document the terms of the loan.

A formal loan note gets everything in writing and makes sure everyone involved agrees to the terms of the loan. Plus, it makes sure the IRS doesn't look at the loan as a gift (which has a whole lot of other potentially negative consequences).

Remember, a little common sense now can save lots of heartache with the ones you love later.

Personal Finance experts Ken and Daria Dolan show you hundreds of ways to save money, manage your debt and invest with confidence at Dolans.com.

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