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Handshake deals can lead to serious complications

If you're working with people you consider friends, it may be tempting to skip drafting an official contract. You'll just use a handshake deal. After all, you trust each other. If you do ask for a contract, it may even feel awkward and that person may be offended.

As common as this is, you need to know that handshake deals are a serious risk. If things do not go as planned, you can run into some significant complications.

For example, one case involved art collectors and dealers. They considered themselves friends and worked together for years buying expensive pieces of art as investments.

However, it eventually became clear that they were not exactly being fair with each other. The collectors claimed that the dealers had taken advantage of them and their relationship. In fact, it was even claimed in one case that the relationship only started because one person specifically befriended the other to gain their trust, thus creating a relationship they could exploit.

These relationships deteriorated eventually, leading to legal action. Without contracts defining their relationships and the terms, though, the collectors were basically told that "they were smart enough to have known better."

Though not all deals involve artwork or these types of sums of money, this story helps to illustrate the problems with a handshake deal. If you make one with a friend, what happens if that friendship fades or if you realize you were never really friends to begin with? What legal protections do you have? Is that how you want to risk your investment?

As such, it is very important to understand the ins and outs of contract law.

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