The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FIREpower on October 15, 2019, 09:23:45 AM
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Hi,
A close relative has asked to borrow money.
Disabled in July
$750/month income in pension
Seems to have Medicare
$3500/month in expenses
$1500 of this is for $40K credit card debt
$1000 mortgage
All assets tied up for at least a year and require hands-on work to bring up to market value (or much of any value), work that's impossible with current disability. Relative is optimistic about returning to work. No employment. No disability insurance. No safety net.
Wants $30K from us and $30K from another close relative.
How would you handle this, if it were you?
We do plan to lend the money, knowing it will probably never come back.
I would like a contract. I would like the relative to use $40K to pay the credit card debt right off and not create any more debt. How would you say this politely? I know you probably can't put that in a contract.
Would also appreciate any tips on sending this much money from Canada to the U.S.
All figures in USD.
Thanks for your input.
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This is a tough situation. Some thoughts:
Consider anything you give the relative a gift. Seems unlikely that you’ll get it back. Expecting it is likely to ruin the relationship.
That being said, only give what you are comfortable losing. If that’s zero, then so be it. But it’s probably somewhere between 0 and 30.
If it were me, I’d give a gift to help with credit card debt and pay the credit card company. If there were multiple cards, I’d ask for a breakout and see if I could cover one full card debt. I’d also make it clear that this is all I can do, even if I wish I could do more.
Good luck!
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Thanks, Tuskalusa.
I could look into trying to pay the credit card company directly. I didn't think of that as an option. Socially, this would be awkward, but it's the one way to guarantee the debts are paid.
Thanks again.
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They asked to borrow thirty thousand dollars? I've heard of family members asking to borrow but your relative is bold. I'm not sure contracts could be upheld in this situation since you're not receiving anything in consideration for your money. Also, what are you gonna do if the family member doesn't abide? Sue them for their nonexistent assets?
The best way to handle this is to not lend the money. The second best way is probably to set up a spendthrift trust. I don't know how they work, I've just heard of them as a potential solution to a family member who is bad with money.
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I'd be a lot more willing to offer advice and assistance with preparing the house to sell than lending/gifting money. Hand-ups are a lot more useful than hand-outs.
How is he paying his current obligations, when his pension only covers a small portion of his expenses? If that's really his only source of income, I'd recommend stopping all payments on credit cards and negotiating a settlement with them. It's better to default on them than the mortgage. It may take a few months of not making payments, but they'll eventually settle, which will save him a lot of money. You/he can just lay out the current situation to them and tell them that there simply is no money to pay them.
In the meantime, I would see what can be done to prepare the house to sell.
Can he do anything to earn extra income with his disability? Does he have a lot of stuff that can be sold in a garage/yard sale?
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The problem I see is that the situation is long-term unsustainable even if the credit card debt is paid off. What happens if the relative can't go back to work and the debts start piling up again? If they are Canadian would they be better off in terms of the benefits available if they went back to Canada?
If relative can rent for cheaper than the mortgage, I would say sell at any price - relative doesn't seem to have been doing the work necessary to keep their home in good repair even before the disability, so there is no realistic chance of them being able to keep up with the maintenance in the future. Even if they recover enough to work again, working will probably take all the physical/mental effort they have with nothing left over for house maintenance.
Also, I don't suppose that $40k on credit cards all arose since the disability in July, so your relative has a history of living on credit, apparently not much of which has been spent on house maintenance. Spontaneous change away from using credit cards seems unlikely.
Would Dave Ramsey be a starting point for your relative?
I agree that if you are to give money, it should be a gift not a loan and be clear that it is a once and only deal. The problems with transferring money from Canada to the US might be your ticket into paying directly into the credit card company rather than sending the money through different banks, if you can find a way to do it cost-effectively. The big costs on transferring that sort of sum are in getting a good exchange rate and a low commission charge, and it's worth shopping around for the best combination for the transfers (probably to more than one credit card) that you are making.
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It would trash their credit, but if they were to stop paying the credit cards for a few months the CC companies would likely settle that 40k for much, much less. With the recent disability ruling and the resulting very modest income the companies probably take 50% or less of the balance to settle in full rather than end up in what looks to them like an inevitable bankruptcy.
At least that's what I've been led to believe. No personal experience here.
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They asked to borrow thirty thousand dollars? I've heard of family members asking to borrow but your relative is bold. I'm not sure contracts could be upheld in this situation since you're not receiving anything in consideration for your money. Also, what are you gonna do if the family member doesn't abide? Sue them for their nonexistent assets?
The best way to handle this is to not lend the money. The second best way is probably to set up a spendthrift trust. I don't know how they work, I've just heard of them as a potential solution to a family member who is bad with money.
Actually, they asked to borrow sixty thousand dollars!
I would tell them that I don't have $30k, or even much extra money at all, available. (And that's true. Money in investments or earmarked for other things is not "available" or "extra".) But I would say sincere sympathetic things and make a sincere offer to help them find any and all programs from which they might benefit.
It doesn't sound like there's much reason to believe that without major overhaul, this isn't going to be a long-term problem. Even when he had a job, he raked up $40k in debt, if I understand correctly. So even *IF* he is able to go back to work for the same pay, he's in the red before even considering the additional $60k in debt he will have. And that's if he is able to get back to work, do it fairly soon, and get the same pay.
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Thanks, Tuskalusa.
I could look into trying to pay the credit card company directly. I didn't think of that as an option. Socially, this would be awkward, but it's the one way to guarantee the debts are paid.
Thanks again.
Have some words set up ahead of time to ease this. My brother asked to borrow money for a specific purpose once and I told him I'd pay the vendor directly. Brother bristled at my offer because it made him feel like a child, but he did accept it. I know it hurt our relationship. He's my older brother and hates coming to his baby sister for financial help. I wish I had said something at the time to soften the impact of what I was willing to do. I do trust him, but I think he made some bad financial decisions and wanted to make sure he didn't do that again. Instead it came out as if I didn't trust that the money was going to what he said. If I had just said something like "okay, but do you mind if I pay the vendor directly for my record keeping" then I think we could have all saved face.
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I would not do this. They have insanely high expenses, 40K in debt in addition? They are not going to get things under control through anyone gifting them large amounts of money. And asking not just one, but TWO relatives for the total amount of $60K? That is insane and they are pretty terrible (and yes, likely desperate) for thinking this is anything anyone should do in these circumstances.
The idea that it could be awkward if you ask to do alternatives (like paying the debts directly) instead of just giving them money? That's a feeling to pay attention to. You're uncomfortable with calling them out for being bad with money, but they want YOUR money because they're bad with money. You NEED to listen and express that feeling. They may have things in crisis mode due to the disabled monkeywrench that has now thrown off their delicate balance of spending more than they earned because they can't pretend any more - but it's still a problem they made before they became disabled. They just have a great reason now for why they need help and feel safe in asking others to bail them out, so they're likely going to use this as a "get out of jail free" card and hit you and the other relative up and think they'll dump their problems on the responsible ones they know...
SO if I cared about this relative, I would offer to help them, but I would not give them anything near this amount and I would not give any money directly to them.
I would tell them as a condition of the "loan" you need to have them lay all the cards on the table: exactly what they spend, what they owe to EVERYONE, if there is stuff they can sell, help them sell it, cancel all extras (cable/subscriptions/eating out/fancy store). They need to make serious cost cutting efforts. They're in hair on fire debt (which did NOT happen since July), spend too much and just became disabled? If they are doing the work, then I'd be more inclined to help them dig their way out, so are they?
I would possibly help pay down the credit card debt (take over the monthly payment myself so it IS paid, but not gift any money directly to them) and they better damned well not be adding more to it. I would also expect them to cut expenses to only that which they need to survive: mortgage/rent, insurance (health, car & home), utilities, basic food budget, cheap phone service, gas money to get to store/doctors... no eating out, no buying crap, no subscriptions, no nothing. They don't have the money to spend any more. Until they get their shit handled, why should you have to clean up their mess?
They're disabled now... continuing to act as if they are capable of dealing with this now when they didn't when they weren't disabled is delusional. Don't help them keep being this way because it is not a kindness. Unless you want to spend the rest of your life (and lots of your money) supporting them, you have to have a serious talk about how much you will help them, but they have to do the real hard work themselves.
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Frankie's Girl is spot on.
Why are the assets tied up for a year?
I would want a full accounting of how any money advanced is to be spent. Anyone in this situation is bad with money & highly unlikely to pay it back. Ask relative for the most recent statements, or even better, for online access to all the accounts. You get to ask this because you are considering supplying the money; if the relative refuses, no go. You may find that the debt is different than presented.
It would trash their credit, but if they were to stop paying the credit cards for a few months the CC companies would likely settle that 40k for much, much less. With the recent disability ruling and the resulting very modest income the companies probably take 50% or less of the balance to settle in full rather than end up in what looks to them like an inevitable bankruptcy.
You really don't want to wipe out the relative's debt only to have them rack it back up -- highly likely. I too would leave this alone & tell relative to stop payments. (My mother died with a large credit card balance & it died with her.) If you do pay down credit card debt, do it directly & close the account.
One of my brothers became fully disabled after heart valve & aneurysm surgery; he too had zero savings & expected to work again. When he asked for money, I required a full accounting of his expenses & found a bunch of wasteful spending; he didn't like it but tough. We advanced him $9K at $1K/week until it became obvious that he was doing nothing to reduce his spending & expected us to keep supporting him. Yes, he was furious; it took him years to reconcile. His problem, not mine. He did end up discharging his credit card debt through bankruptcy and ultimately lost his house. He told me he didn't report what he owes us, however I don't expect to get the money back unless he leaves it to us; he now has a small life insurance payout when his spouse died last year, but I don't want to deplete his emergency fund.
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This looks like a good situation for bankruptcy. Before you and the other relative give him 60K(!) pay for a meeting with a bankruptcy attorney. If possible go with him or Skype in so you can hear what the attorney says.
Likelihood is great that your relative will never be able to work again. He's at least 65 (to get Medicare) and completely disabling things are less likely to lead to full recovery as we get older. He needs to adjust to his new normal.
Paying the cc company directly won't really make much difference. Will more available credit he'll just use it.
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This looks like a good situation for bankruptcy.
I was wondering about that too.
I also agree with everyone who said give a (smaller) gift but not a loan. Personally I would look for them to adjust to their new circumstances and then offer a gift with no strings attached. When I am asked to loan money I just say that I don't believe in loans (which is true) and offer a gift instead if I feel so inclined.
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they are basically asking for 2 years of living expenses up front?
ballsy, for sure!
Or is this to fix up an asset to sell - supposedly paying you back rather quickly?
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Wow! That's a ridiculous number to ask for. Where did this $30,000 number come from anyway? The answer of course is a straight up 'no'.
I would offer to help in other ways like helping the prep the house for sale, finding food banks, social services, etc.
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Thanks for replying, everyone.
I think the idea is to try and fix up all the assets and remortgage the house in a year, after it's fixed up, to repay the $60,000 loans. Relative probably doesn't want to declare bankruptcy because wants to hang on to all the assets, believing that all will be fixed up and worth far more in a year (after recovering from a temporary disability--nothing has been formalized yet, and it is possible).
I'd never heard of a spendthrift trust before. Good idea, but I don't think the spouse will go for it, and the relative is through marriage.
I quickly looked into repaying the credit cards (which, from the sounds of it, have probably accumulated debt over the past 14 years), and it's not a simple matter. The IRS considers that a gift, and you can't gift more than about $15K--or we could be the ones paying tax.
Another person suggested paying gradually instead of a lump sum, but I would want to wipe out the credit card debt in one shot to save $1500/month.
I agree, it's a mess, but if I don't do it, spouse will cash out retirement accounts to do it, and I'd rather draw it out of other accounts without such a huge penalty.
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Maybe I should add that we're not in a position to help relative fix up the house, etc. in another country. We both still work and have family responsibilities here.
Relative has loaned us money in the past (which we repaid early, with interest), so we're not going to say no.
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Thanks for replying, everyone.
I think the idea is to try and fix up all the assets and remortgage the house in a year, after it's fixed up, to repay the $60,000 loans. Relative probably doesn't want to declare bankruptcy because wants to hang on to all the assets, believing that all will be fixed up and worth far more in a year (after recovering from a temporary disability--nothing has been formalized yet, and it is possible).
I'd never heard of a spendthrift trust before. Good idea, but I don't think the spouse will go for it, and the relative is through marriage.
I quickly looked into repaying the credit cards (which, from the sounds of it, have probably accumulated debt over the past 14 years), and it's not a simple matter. The IRS considers that a gift, and you can't gift more than about $15K--or we could be the ones paying tax.
Another person suggested paying gradually instead of a lump sum, but I would want to wipe out the credit card debt in one shot to save $1500/month.
I agree, it's a mess, but if I don't do it, spouse will cash out retirement accounts to do it, and I'd rather draw it out of other accounts without such a huge penalty.
A lump sum to them has the same tax implications as paying the CCs, so if it's an issue for credit card payment, it's an issue for a straight up $30k check. That said, I believe (but I am not a lawyer or tax professional so my word means nothing and you should ignore it) that each person can give each other person the max. That means you to your cousin, then you to his wife, then your spouse if you have one can give to each of them as well. I suspect you could work similar arrangements for paying the CCs, if you wanted to go that route.
But the plan to fix up the house--what makes you think it's feasible? Would they really make enough, after investing that huge sum, to pay you back plus get out whatever profits they need and expect? And what makes you think they could pay the mortgage, plus other expenses, if they were able to refi?
Do you mean your spouse would cash out retirement accounts to give this person money, or that the cousin's spouse would cash out accounts in order to pay his/her own family's debts? If it's the latter, then I think you need to accept that you can't save these people from their own bad decisions. And the fact that they are considering yet another bad decision in the face of this gives you even more assurances that they are not financially responsible, which just cements the fact that giving them $30k of your money is an atrociously terrible idea.
You say they've lent you money in the past. Have they lent you anything close to thirty thousand dollars?
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This sounds like a horrible set of decisions, probably over many years, on their part.
I think you are going to piss away $30,000 and, sometime after that, still have them just as mad at your for turning down the NEXT senseless request for money as they would have been if you said no right away.
Maybe they really have a solid plan that's not based solely on wishful thinking and good intentions. If so, you haven't presented it in a convincing manner.
As for gifts, that's an annual maximum that doesn't get taxed. So, you could give some this year and some in January, and more the next January, over and over again until you reach a very, very large amount of pissed away money -- before taxes kick in on the gifts. And the recipient pays the taxes...
That annual max is per recipient, so if they are married it's double that. I don't know if you and your spouse can each give them the max (for 4 times the amount). Sounds fishy to me, so double-check that.
At this point, your plan is to give $30,000 to someone who can't handle their money, has serious medical issues, is hemorrhaging money EVEN if you pay off their credit cards AND their house in full, and expecting to be repaid.
At least get the money in cash, piss on it, dry it off, then turn it back into the bank before you write the check.
If you're going to piss away $30,000, at least do a thorough job of it.
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What are these assets other than the house that the relative plans to fix up? Really it doesn't matter what they are (I'm picturing something like classic cars). What matters is what is the plan for them? Sell once they are fixed up?
I don't think relative will ever qualify for another mortgage with that income. It won't help to have the house fixed up. Is relative unwilling to sell the house if the disability is not temporary?
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I have a lot to say, but honestly there's no point if your spouse is just going to do it anyway.
Brace yourself. This will likely get very very ugly and cost you at least 30K.
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I would still recommend that he stop paying on the credit cards and settle for half of the current debt. Then the $30k could be put to better use.
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Let's just look at the numbers, seriously.
$3500 expenses/month.
$700 income.
Now, let's assume they pay off the $40,000 credit card.
$2000 expenses/month.
$ 700 income
-$2000 expenses
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-$1300 monthly deficit.
There's $20,000 left over after the CC are paid off.
$20000 / $1300 = 15.38 months of living expenses before their debt starts getting bigger again.
Oh, wait, they have to make some repairs to the house. That will cost some money. Let's assume it's $10000 in materials and labor.
($20000 - $10000)/$1300 = 7.69 months before their debt starts getting bigger again.
Now, let's look at some edge cases.
Let's assume that the $40000 on the credit card and $20000 on the mortgage pays off the house.
Or, you and other relative each gift them $15000 this year and $15000 next year (tax free) and $50000 pays off their house leaving $10000 to tide them over until they start working again and they declare bankruptcy to get the credit cards off their back.
The above is the best possible cases.
Except you mentioned that they are on medicare, which, barring unusual circumstances, means they are at least 65 years old.
How much longer do you think they can keep working? Because once they quit working, their expenses are $1000 a month with an income of $750 a month. They still can't make ends meet!
And do you know what that means? It means you'll be covering the difference until the day they die. And, of course, repairs on the house when the roof starts leaking, etc. And that assumes they suddenly get great with money and don't waste it. Is that likely? What are the odds of them spending their utility money on frivolous things and then hitting you up for an extra cash infusion?
Or it means them losing everything because I don't even see how they pay the property taxes on their income.
You've given us no reason to expect they make enough to sock away tons of money for the next few years or that they have the personality to do so.
Remember, this is all THE BEST POSSIBLE CASE given the facts you've laid out.
I keep harping on that because, with you being on the hook for all these future expenses, why in the heck would you want to rush to make sure some soulless bank gets all their credit card loans paid off in full? So your relative can feel better (for a little while only!) about the complete mess they've made of their finances? Frankly, when people have screwed up this badly they NEED to feel bad about it - it's an important part of something called LEARNING NOT TO DO THAT AGAIN.
Your relative has $40000 in credit card debt. Unless that's all recent medical expenses, it means that they've had an overspending problem for a goodly while. And that means that, barring an epiphany, they will have another one just as soon as the emergency (in their mind) is over. Which means that its not unlikely that the situation will actually be worse than the best possible case I listed above. And remember, if your cash infusion doesn't pay off the house, the best possible case is an extra $1000 per month worse.
Do they qualify for social security? How much will it be? Will that be enough to stabilize their finances if they can't work again or they can only work a few more years?
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I would still recommend that he stop paying on the credit cards and settle for half of the current debt. Then the $30k could be put to better use.
Along these lines, I would recommend that he talk to an expert who can outline his best options and the consequences of any settlements or bankruptcy in detail.
There is a best way for him to handle this debt, and he should figure that out with expert help. There's a reason they exist.
It doesn't matter though.
He probably won't bother if he thinks he can just solve his problems with personal "loans" from family.
And counter to what other people are saying, I think the WORST thing you can do here is attach strings to the money and try and use it to leverage change in his behaviour. He's either going to seek your advice and input or he'll resent you for trying to push it on him. He'll likely push back against what he sees as you being a paternalistic asshole.
If you are willing to lose this money, then just give it to him and be prepared to lose it. Any other power plays you do along the way will just make this uglier.
Y'know what's A LOT worse than losing 30K to an irresponsible family member???
Being made out to be the bad guy while losing 30K to a family member.
If he humbly and genuinely seeks your advice, then offer it with caution, but otherwise, say goodbye to your money and instead focus on getting your spouse to firmly agree that that's it. 30K is the end of it no matter what further crisis happens.
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I'd recommend marriage counseling for you guys if your spouse is willing to cash in retirement accounts to help out a relative while YOU would prefer not to (or at least prefer to explore all options before doing something that drastic).
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I'd recommend marriage counseling for you guys if your spouse is willing to cash in retirement accounts to help out a relative while YOU would prefer not to (or at least prefer to explore all options before doing something that drastic).
I really didn't want to be the first one to say this.
100% agree.
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This $30k will be a gift. You will never see a dime back and in fact will likely receive requests for even more gifts in the future. If you're ok with this, go ahead. If not, don't.
the end
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I have a few questions but no new answers.
Is he on Medicare or Medicaid? There’s a difference in who is eligible and what is covered,, and Medicaid will attach a lien to the house to seek repayment. See https://www.theatlantic.com/magazine/archive/2019/10/when-medicaid-takes-everything-you-own/596671/ (https://www.theatlantic.com/magazine/archive/2019/10/when-medicaid-takes-everything-you-own/596671/)
Assuming he goes back to work, would he make enough to cover his expenses and pay the money back (both to you and the other person he asked) if you decide to treat it as a loan? How long would it take?
Which state is he in? Some states have homestead exemptions for bankruptcy where at least part of the value of the primary residence can be shielded.
You mentioned pension, which I assume to be different from social security. Is he eligible for social security, and if so, how much would that be?
You also probably should get something of a reality check on the value of those other assets. I think most people tend to overvalue their stuff, or want retail while the buyer is looking to flip the thing so is looking to pay wholesale.
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Y'know what's A LOT worse than losing 30K to an irresponsible family member???
Being made out to be the bad guy while losing 30K to a family member.
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Hi all,
Spoke to accountant, who basically ran the same numbers and said that even if we paid off the credit cards, relative will go back into debt because there's no way you can balance $700 in and $2000 out per month. It almost doesn't matter if we pay the credit card directly, because the relative can go back with an improved credit score and take the money out again.
Accountant said that we can pay $30K now, but the real question is, what happens in a few months when relative comes back again for more?
I'll ask questions about how much assets are worth and if relative is willing to sell them as-is if/when that happens.
The problem with declaring bankruptcy is that Relative wants to hang onto assets. Same problem with not paying credit cards for a few months and negotiating a lower fee. Accountant says this is more a tactic for people without assets.
Thanks for reading. Agree that it's $30K gone and that it will probably only buy a few months anyway. Spouse doesn't want to think about it right now, but as I said, Spouse is willing to cash in own retirement plan with a 20% penalty in order to hand over the money.
Thanks for the concern about our marriage, but I'd just go out and earn more money to make up for this. I like semi-FIRE, but I like Spouse more.
Hope the rest of you don't have to deal with stuff like this.
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I would practice some tough love and offer advice/emotional support, stressing that I am not a bank.
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“The problem with declaring bankruptcy is that Relative wants to hang onto assets. Same problem with not paying credit cards for a few months and negotiating a lower fee. Accountant says this is more a tactic for people without assets.”
Of course they want to have their cake & eat it too. Especially if you postpone reality.
Bankruptcy usually excludes/preserves the house. Unfortunately, as my brother discovered, he still had too much house for his greatly reduced income. We advised him to sell it. He ultimately lost it to foreclosure. He and his spouse were each allowed their cars, which he couldn’t drive, but still cost money in insurance, inspection, & registration fees — selling one would have brought in needed cash while eliminating the expense.
If you are determined to spend money, give Relative the shortfall of $1300 each month to maintain house & food while they see if working is ever going to be possible again & if Social Security is available. The credit cards need to be shut off, not replenished. Let Relative decide about using assets to pay down debt.
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"Buy" his assets from him.
If he miraculously gets his shit together; "sell" them back to him.
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Hi all,
Spoke to accountant, who basically ran the same numbers and said that even if we paid off the credit cards, relative will go back into debt because there's no way you can balance $700 in and $2000 out per month. It almost doesn't matter if we pay the credit card directly, because the relative can go back with an improved credit score and take the money out again.
Accountant said that we can pay $30K now, but the real question is, what happens in a few months when relative comes back again for more?
I'll ask questions about how much assets are worth and if relative is willing to sell them as-is if/when that happens.
The problem with declaring bankruptcy is that Relative wants to hang onto assets. Same problem with not paying credit cards for a few months and negotiating a lower fee. Accountant says this is more a tactic for people without assets.
Thanks for reading. Agree that it's $30K gone and that it will probably only buy a few months anyway. Spouse doesn't want to think about it right now, but as I said, Spouse is willing to cash in own retirement plan with a 20% penalty in order to hand over the money.
Thanks for the concern about our marriage, but I'd just go out and earn more money to make up for this. I like semi-FIRE, but I like Spouse more.
Hope the rest of you don't have to deal with stuff like this.
Of course he wants to keep his assets. I want to keep 100% of my paycheck. Unfortunately, reality interferes and I have to spend some of it on food and rent.
He can't afford his assets. They aren't really even assets as it sounds like he owes money on at least some of them. And he couldn't afford them even when he had his job, because he racked up tens of thousands of dollars in debt, some (much?) of which happened when he still had his job. And he was just fine with that, because he didn't address it. He's not realistic about finances and hasn't been for quite some time.
Have you laid out the numbers for your wife? Have you tried explaining that this would be throwing good money after bad? Have you suggested that in lieu of writing a check made out to "Lost Cause" you might instead offer to pay for the bankruptcy attorney and to assist them in finding programs?
If they refuse to file for bankruptcy and/or try to negotiate the cards, they are just showing you, again, that they are completely unrealistic about their finances and aren't willing to actually look at the reality of their situation and what needs to be done. And that's all the more reason not to give them a massive amount of your money, when you can clearly see that it won't fix the problem. They want to delay the inevitable and use $60,000 of other people's money to do so.
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Please don't enable a person who is irresponsible with money. Help them in every other way with advice, apart from giving them money. Let your wife talk to the accountant if she doesn't want to listen to you.
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I totally get wanting to give the initial money.
I'd be pretty firm now that this is the one and only gift. It sounds like this is going to become endless financial support very quickly. If your spouse can't commit to that, when does it ever end?
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This isn't a relative problem, this is a marital problem.
It's a HUGE issue that your spouse is willing to do this against your wishes and literally doesn't even want to think about the logistics and consequences.
Unless your marriage is set up where you previously agreed that neither of you have any say about what you each do with your own money, then your main concern should be finding a way to get through to your spouse.
I don't know what your net worth is, but 30K given unilaterally by one partner to a non-dependent in-law is batshit crazy extreme.
Even if this relative was your spouse's own child or infirm parent, this would still be an extreme decision to make without considering the other partners concerns.
This would be an issue even if this "solution" was a good idea. The fact that it isn't, and an accountant has confirmed that, and your spouse still doesn't want to communicate with you...
This is a marriage problem.
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This isn't a relative problem, this is a marital problem.
It's a HUGE issue that your spouse is willing to do this against your wishes and literally doesn't even want to think about the logistics and consequences.
Unless your marriage is set up where you previously agreed that neither of you have any say about what you each do with your own money, then your main concern should be finding a way to get through to your spouse.
I don't know what your net worth is, but 30K given unilaterally by one partner to a non-dependent in-law is batshit crazy extreme.
Even if this relative was your spouse's own child or infirm parent, this would still be an extreme decision to make without considering the other partners concerns.
This would be an issue even if this "solution" was a good idea. The fact that it isn't, and an accountant has confirmed that, and your spouse still doesn't want to communicate with you...
This is a marriage problem.
Indeed. If my husband would give away such a big sum without my consent, I would be infuriated and would force HIM to work longer to make up for it. In your case, you (OP) want to work longer to repay the sum, while you didn't agree on donating it.
As has been explained here and by the accountant, giving them money now wil enable them for a couple of months, after which they will come back to you/your wife and ask for the next injection of money. If you have shown generosity once, they will come back again and again. What will prevent your wife from sponsoring their life over and over again.
There are several threads on this forum about people financially helping out relatives who are irresponsible with money. They all end up being mentally and financially abused by those relatives.
The general wisdom is to never help people more than they are willing to help themselves. Let them show you what they are doing to improve their situation (selling stuff, changing lifestyle, cutting eating out), before you help them a bit.
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Just some example stories of people who have sponsored their relatives/friends, or are trying very hard not to abused anymore:
https://forum.mrmoneymustache.com/journals/playing-with-fire-is-getting-burned/
https://forum.mrmoneymustache.com/ask-a-mustachian/should-my-sister-declare-bankruptcy/
https://forum.mrmoneymustache.com/welcome-to-the-forum/family-frustration/
https://forum.mrmoneymustache.com/case-studies/protecting-my-savings-from-my-more-spendy-family/
https://forum.mrmoneymustache.com/antimustachian-wall-of-shame-and-comedy/short-rant-and-update-on-my-parents/
https://forum.mrmoneymustache.com/welcome-to-the-forum/small-loans-to-family-and-friends-driving-me-nuts/
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This sounds like a horrible set of decisions, probably over many years, on their part.
I think you are going to piss away $30,000 and, sometime after that, still have them just as mad at your for turning down the NEXT senseless request for money as they would have been if you said no right away.
Maybe they really have a solid plan that's not based solely on wishful thinking and good intentions. If so, you haven't presented it in a convincing manner.
As for gifts, that's an annual maximum that doesn't get taxed. So, you could give some this year and some in January, and more the next January, over and over again until you reach a very, very large amount of pissed away money -- before taxes kick in on the gifts. And the recipient pays the taxes...
That annual max is per recipient, so if they are married it's double that. I don't know if you and your spouse can each give them the max (for 4 times the amount). Sounds fishy to me, so double-check that.
At this point, your plan is to give $30,000 to someone who can't handle their money, has serious medical issues, is hemorrhaging money EVEN if you pay off their credit cards AND their house in full, and expecting to be repaid.
At least get the money in cash, piss on it, dry it off, then turn it back into the bank before you write the check.
If you're going to piss away $30,000, at least do a thorough job of it.
This is a sideline to the main convo, but I believe this is incorrect. The GIFTER is responsible for gift taxes, not the recipient, and only if the gift exceeds the annual limit, which is currently ~15K per person per year. But most of the time gifter never owes taxes either. So that's a minor issue in the OP's bigger mess.
https://www.moneyunder30.com/gift-tax (https://www.moneyunder30.com/gift-tax)
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This sounds like a horrible set of decisions, probably over many years, on their part.
I think you are going to piss away $30,000 and, sometime after that, still have them just as mad at your for turning down the NEXT senseless request for money as they would have been if you said no right away.
Maybe they really have a solid plan that's not based solely on wishful thinking and good intentions. If so, you haven't presented it in a convincing manner.
As for gifts, that's an annual maximum that doesn't get taxed. So, you could give some this year and some in January, and more the next January, over and over again until you reach a very, very large amount of pissed away money -- before taxes kick in on the gifts. And the recipient pays the taxes...
That annual max is per recipient, so if they are married it's double that. I don't know if you and your spouse can each give them the max (for 4 times the amount). Sounds fishy to me, so double-check that.
At this point, your plan is to give $30,000 to someone who can't handle their money, has serious medical issues, is hemorrhaging money EVEN if you pay off their credit cards AND their house in full, and expecting to be repaid.
At least get the money in cash, piss on it, dry it off, then turn it back into the bank before you write the check.
If you're going to piss away $30,000, at least do a thorough job of it.
This is a sideline to the main convo, but I believe this is incorrect. The GIFTER is responsible for gift taxes, not the recipient, and only if the gift exceeds the annual limit, which is currently ~15K per person per year. But most of the time gifter never owes taxes either. So that's a minor issue in the OP's bigger mess.
https://www.moneyunder30.com/gift-tax (https://www.moneyunder30.com/gift-tax)
And at $30k, they could just classify it as $15k from each spouse and not have an issue on that front.
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I totally get the “don’t do it” responses that are so prevalent on this thread, but you also stated that the person lent you money in the past, and so I also understand the feeling of wanting/needing to reciprocate.
So a couple more things I would consider are how much money was loaned to you and how long ago (in other words, how does it compare to the size of the request now being asked for)? Were you in a tight spot in general or was it for a specific purpose such as starting/expanding a business? And what size obligation would that merit, if any? (I’m not saying you should be totally transactional about this, but I think a $5000 loan would create less of an obligation (maybe $10-15K) than a $150,000 loan.)
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I agree with the spouse that if this person lent you money when you needed it, then you need to strongly consider reciprocating. HOWEVER, realize that with $750 coming in and a $1000 mortgage this is not going to help them. Even if the house was really close to being paid off, what are the taxes and insurance? For me, the property taxes and insurance would eat up most of that $750, leaving not enough to live on.
So, you need to get on the same page with your spouse. If (when) this person comes asking for more, what will you do then? How much is enough?
If your spouse won't even discuss this with you, you need to consider how far they are willing to go to support this person, and how much you are willing to keep working to meet this financial burden.
In terms of the actual "loan", don't make any different requirements on it then were made when they loaned you money or you will be the bad guy. At this point I would consider it a loss, and just be working to mitigate how much loss your spouse is going to mandate to support this person.
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I'm not a Canadian tax professional, but my understanding is that there is no gift tax in Canada. So if a Canadian gives money to a US person, no gift tax rules should apply. Gift tax applies to the giver, not the recipient, so the $15,000 gift tax exclusion is not at issue. There are foreign gift reporting requirements if a US person receives a gift of more than $100,000 from a foreign person. Unless you, too, are a US person?
I'm guessing the easiest way to deliver the money is by check. You should consult with your bank in Canada on if you can denominate a check in USD, because I've found that Canadian banks are a little more friendly about currency conversion than US banks.
I agree with most of the other posters that this is a huge mistake. But if you're going to do it, is there an actual problem with purchasing one of these mysterious "assets" from the relative? Filing a US tax return on rental income or gain on sale is worth $30,000. If the "assets" are movable, you could also ship them to Canada and sell them there.
6 months from now when this relative inevitably runs out of money and runs up more credit card debt, is there anything stopping your wife from cashing out her retirement account to help him again? You are suggesting that your wife will resort to what is essentially financial blackmail - emptying a tax advantaged account at a penalty to both of you in order to fund a relative of hers. While I'm usually against paying penalties, it may be best to allow her to do it so that she no longer has money in her own name to hold over your head in a "Do what I want, or pay the price" scenario. It may seem harsh, but given her knee-jerk reaction to override you in this financial decision, you are very likely to be faced with this exact same issue when she tries it again in the very near future. I realize it sounds harsh, and I'm not suggesting you be bitter or resentful about it - but knowing that this is your wife's instinct, it's likely best if you allow her to drain her accounts so that it prevents any such issues in the future.
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I'm not a Canadian tax professional, but my understanding is that there is no gift tax in Canada. So if a Canadian gives money to a US person, no gift tax rules should apply. Gift tax applies to the giver, not the recipient, so the $15,000 gift tax exclusion is not at issue. There are foreign gift reporting requirements if a US person receives a gift of more than $100,000 from a foreign person.
I'm guessing the easiest way to deliver the money is by check. You should consult with your bank in Canada on if you can denominate a check in USD, because I've found that Canadian banks are a little more friendly about currency conversion than US banks.
I agree with most of the other posters that this is a huge mistake. But if you're going to do it, is there an actual problem with purchasing one of these mysterious "assets" from the relative? Filing a US tax return on rental income or gain on sale is worth $30,000. If the "assets" are movable, you could also ship them to Canada and sell them there.
6 months from now when this relative inevitably runs out of money and runs up more credit card debt, is there anything stopping your wife from cashing out her retirement account to help him again? You are suggesting that your wife will resort to what is essentially financial blackmail - emptying a tax advantaged account at a penalty to both of you in order to fund a relative of hers. While I'm usually against paying penalties, it may be best to allow her to do it so that she no longer has money in her own name to hold over your head in a "Do what I want, or pay the price" scenario. It may seem harsh, but given her knee-jerk reaction to override you in this financial decision, you are very likely to be faced with this exact same issue when she tries it again in the very near future. I realize it sounds harsh, and I'm not suggesting you be bitter or resentful about it - but knowing that this is your wife's instinct, it's likely best if you allow her to drain her accounts so that it prevents any such issues in the future.
That's assuming she only has a small amount of money in her own accounts.
It also doesn't solve anything because if she's willing to do that, then eventually the marital conflict will be about shared accounts.
It doesn't in any way prevent the inevitable conflict.
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I get it. Even though your original post clearly said you were going to do it (loan money) everyone spent their energy telling you not to. While that's good advice it doesn't help you.
So 30K is moving one way or another from your household to the relative's (I'm guessing in-laws) AND the relative wants to maintain the illusion it's a loan that get paid back in lump sum when the house is refinanced. Think about setting it up as a silent second mortgage. By "silent" I mean no monthly payments or balloon payment on a certain date. A second mortgage would document that it's a loan so if the relative dies you'd get paid back before the estate was otherwise divided up. If the house was sold or refinanced the second would be sitting there for you to get paid before profits are given to the relative.
Not sure if this is really good advice. As several people noted, you don't want the relative (and your wife) to think you're a dick at the same time you're losing 30K. It really depends on whether the relative is pitching this as a straightforward loan.
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Hey all,
I showed this thread to Spouse, who said, "That wasn't helpful at all." Relative did lend us money in the past at slightly better payment terms than the banks were willing to lend to us, and we both feel like we should give.
Another relative told me to hand over the money immediately and budget to give a total 60 or 90K. I explained that we don't have that kind of money if we want to afford our kids' education.
I wrote a friendly e-mail to Relative, asking for more details, budget, what to do when it all runs out within a few months.
We'll see what happens. Thanks for weighing in.
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Another relative told me to hand over the money immediately and budget to give a total 60 or 90K.
That sounds nuts.
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Hey all,
I showed this thread to Spouse, who said, "That wasn't helpful at all." Relative did lend us money in the past at slightly better payment terms than the banks were willing to lend to us, and we both feel like we should give.
Another relative told me to hand over the money immediately and budget to give a total 60 or 90K. I explained that we don't have that kind of money if we want to afford our kids' education.
I wrote a friendly e-mail to Relative, asking for more details, budget, what to do when it all runs out within a few months.
We'll see what happens. Thanks for weighing in.
Make sure you also have your own spending numbers available if you get his budget. And compare the numbers. If, theoretically, the relative budgets twice as much as your family spends, is it then reasonable that you will finance his life?
And if he borrowed you money in the past, is the number he asks now a reasonable amount compared to then? It also makes a difference who you borrow to. A bank would not give a new loan to someone with a pile of consumer debt, because chances are big than they won't pay back. Why would you as a private person with less access to tools to retrieve the debt, take a bigger risk than a bank?
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Does your wife believe they will be able to pay you back? Or is she just willing to write off $30,000 because this relative once did you a favour? (Which, of course we all assume you paid them back promptly?)
Is $30,000 a lot of money to you relative to your savings and earning potential?
I mean, maybe we're all flipping out over this amount; but to you it's an average night out at the casino?
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I think you should get to counselling with your wife about this quickly.
Her side of the family are normalizing this extremely unusual demand. It doesn't even really matter that this person loaned you money at a better rate than the bank, because you obviously had the capacity to pay it back, and this person doesn't.
Either get to counselling with your wife, or insist that she sit down with you and an accountant who can show her that this is not a loan, this money will disappear.
This is not a reasonable request, and it is not reasonable for your wife to railroad you into losing many tens of thousands of dollars just because you were loaned money before.
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You keep mentioning that they lent you money in the past. Was it anywhere near the amount they are asking you for? Did they have good reason to believe you could pay it back (unlike their current situation)? You said their loan was at better rates than the bank, which suggests you could have gotten a bank loan. They almost certainly can't. That tells you something about one of the major differences here.
And of course your wife didn't find the thread helpful. She has her mind made up and is determined to proceed, even in the face of logic and math. This thread doesn't agree with the narrative she's created. It was unhelpful because she wasn't looking for help. That doesn't mean she's right or that you should give up on changing her course, even if it's just finding some middle ground. Perhaps that could be that you lend them only the amount they lent you (assuming that's meaningfully less than $30k), and perhaps you offer additional resources and help.
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When the money is short and feelings run high, there will be temporary unhappiness. What happens after that depends on what you do and how you do it. So act for the long term.
Why is your wife set on this? Is the person lent to an emotional manipulator, who knows how to push her buttons better than you do because you're a person of reason and don't know how to push buttons? Why did ya'll take a loan in the first place for a couple of percent? Did the lending relative do this to gain an emotional advantage?
Logic says calculate the loan savings, multiply it by market returns since that date, and "pay them back" with a "gift" in that amount to wash your hands of obligation. But...as everyone pointed out, there are emotional roots and marital questions in this.
Have you and wifey discussed whether it would be wiser to help the relative after their seemingly inevitable bankruptcy?
Is your wife normally involved in the family finances? Is this out of character?
Best wishes!!!
PS. I wouldn't divorce over $33,000. But I would seek to establish a sound sustainable basis for the marriage. It sounds like decision making is not yet a united front.
Personally, I wouldn't be comfortable in a marriage where decisions were irrational and a spouse's concerns were disregarded. So I'd want to find a way to meet the wife's concerns, but also yours - you're both important. Perhaps find a way to show care to the sick, but not to accept the sick's requests. Bring them dinner and a hug but no check, for example, and the offer of the bankruptcy lawyer. Leave calmly, repeat the same actions later.
Result: A united front by two responsible adults who preserve their financial future; assistance that resolves the problem if really needed, plus care shown at an affordable price; a record of finding solutions that husband and wife can eventually respect.
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what to do when it all runs out within a few months.
To me, this is really the heart of the matter. You've already accepted you are going to do the "loan" and already accepted that you'll probably not get it back. For both your and your brother's sake he needs to have some sort of sustainable plan and currently there is none, even if he doesn't pay you back.
Personally I would indicate that I would try to find the money to help him (not make it sound like you have 30k lying around), emphasise its a one-off, assure him that you value and care about him and your relationship and BECAUSE of that you'd like to help him find the best plan (including getting some advice that you could offer to pay for) to ensure his ongoing financial stability.
If he just wants the money and is hostile to help, then I would give it, and work on girding my loins for the inevitable request for more.
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You mentioned a 20% penalty. There will presumably be taxes due as well, so why don't you stop calling it $30k? Have your accountant do the math (if you can't) and start using the real number. Next, what does this number represent compared to her total account balance?
In some ways, this is no different than a spouse who insists on buying a boat, or a new car, or a bigger house. However, all of these scenarios, including your own, are indicators of bigger problems in the marriage.
Finally, your relative charged you interest? What interest rate are they offering to pay you for this loan no bank would touch?
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So you feel obligated to lend the money because they lent it to you. However these two things are about as different of a situation as can be.
1. You were lend money by said relative when you had decent income coming in and good future prospects correct?
2. Now you lending to a relative who most likely is completely unable to repay is a completely different situation.
So I guess what I am saying is the fact they lent you money in the past has zero bearing on this situation. IMO they lent to you when you had a 800 credit score. They want you to lend to them when they are insolvent. This is not a quid pro quo.
Apples/Oranges
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1) How much is left on their mortgage and what is their yearly property tax?
2) How much is the house worth?
3) Is the $750 disability insurance, or SSDI?
4) Can they collect Social Security anytime soon? How old are they?
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Hey all,
I showed this thread to Spouse, who said, "That wasn't helpful at all."
Yeah dude. If the visit to the accountant, who said all the same things that we did, didn't convince her, then a bunch of rando's on the internet weren't going to change her mind. She ain't interested in the opposing point of view. She's emotionally invested in whatever this twisted family dynamic is, and clearly such paltry things as "logic," "marital strife" or "a paid professional telling her not to do something" are not going to stop her.
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Hey all,
I showed this thread to Spouse, who said, "That wasn't helpful at all."
Yeah dude. If the visit to the accountant, who said all the same things that we did, didn't convince her, then a bunch of rando's on the internet weren't going to change her mind. She ain't interested in the opposing point of view. She's emotionally invested in whatever this twisted family dynamic is, and clearly such paltry things as "logic," "marital strife" or "a paid professional telling her not to do something" are not going to stop her.
Agreed. It seems as though she is emotionally invested in providing help to this relative. So perhaps the way forward is to reframe the issue as: what is going to be most helpful to relative and is there something we can do that will be more thoughtful and useful than a lump sum of money that may just go to the finance companies rather than helping relative?
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Is your wife's family by any chance from another culture/country?
Also, depending on how your finances are set up, you might be able to frame this, or at least part of it, as her discretionary spending. If this is SO important to her, you can't really support it (as backed up by an expert and because you truly don't believe it is actually helping them in the long run to enable them to postpone the inevitable). But if she wants to make cuts to her personal spending (not family spending), then you will agree to a dollar for dollar match. For every dollar she cuts from her personal grooming, shopping, other family assistance, whatever else budget, you will agree that a dollar of your joint money (to include all retirement accounts) can also go to them. Something like that?
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Can't your relative just resell one of their purses to pay off the credit card?
https://www.neimanmarcus.com/p/the-row-margaux-15-alligator-top-handle-bag-prod210710164 (https://www.neimanmarcus.com/p/the-row-margaux-15-alligator-top-handle-bag-prod210710164)
The above is meant as a lighthearted poke at the fact that we don't have much information about what the sum of $30,000 means to you.
I lent a relative money to rehab a house because there is high probability that the money is returned and earns an outsized return. I did not lend money to a relative who could spend the same amount on frivolities and have nothing to show for it 3 years from now.
I have to say though, requesting that they repay a credit card with your hard earned money while being near 100% certain you will not be repaid is the dumbest suggestion in this thread. Why should the credit card company get repaid 100% for their lending but you get the shaft for yours? Certainly they should be able to recover from the credit ding of shafting the credit card company spending less than $40K.
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You will not get repaid, you could be asked for more and your relative may end up resenting you. Debt can cause some strange emotions.
If you want to give a 30K gift, that's up to you.
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You will not get repaid, you could be asked for more and your relative may end up resenting you. Debt can cause some strange emotions.
If you want to give a 30K gift, that's up to you.
Actually, apparently nothing is up to him and his wife gets to make unilateral 30K spending decisions.
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In the thread on killers of wealth, one of those I listed was "failure to divorce a profligate saboteur."
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In the thread on killers of wealth, one of those I listed was "failure to divorce a profligate saboteur."
Can you give that thread address?
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...
Can you give that thread address?
Try
https://forum.mrmoneymustache.com/welcome-to-the-forum/most-common-killers-of-wealth/msg1669633/#msg1669633
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Hey all,
Do you have any idea what's crucial to include in a promissory note, besides the amount and the repayment terms? Accountant told me that we probably don't need to go to a lawyer for this because we won't want to take relative to court for non-repayment. Even so, I'd like to know what to look for in the free form I download from the Internet.
$30K is a significant part of our annual income, especially since I'm semi-RE. We can afford it, but not repeatedly. I don't feel comfortable with it because I want to cover our children's future education.
I said, "What do you think about making this a one-time thing, and after this, it's bankruptcy?"
Spouse doesn't want to think about it.
I know that makes all of you think we need counselling, but we'll handle the first $30K. After that, we'll see.
Thanks. I know it seems like I'm not listening, but I do hear you. I will quietly advocate for bankruptcy and refinancing. Spouse does have considerable retirement accounts that, if drained, means I'm back to work for another six years or so, and THAT would be a problem.
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Is there any way to have a direct conversation with this relative alone and explain how bankruptcy works, your children's college costs, and that you'd have to return to work in order for him to delay the inevitable? If you're already semi-RE; they might be assuming you're loaded.
I'm not saying go behind your wife's back but if she 'doesn't want to think about it'; tell her not to worry about anything and you'll take care of it. I find it hard to believe this relative would knowingly put you in this situation.
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You're wasting $30k.
Here's what's going to happen. You'll give them $30k and they will live off it for a while. Six months from now they will declare bankruptcy. By then, the $30k won't have helped them at all, and it won't be helping you anymore either.
Whether you help them or not, they will declare bankruptcy. The only difference is they might be able to put it off a few months, but what does that matter?
But maybe the credit card company will send you a Christmas card. They are the only ones coming out ahead here.
You're wasting $30k.
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Hey all,
Do you have any idea what's crucial to include in a promissory note, besides the amount and the repayment terms? Accountant told me that we probably don't need to go to a lawyer for this because we won't want to take relative to court for non-repayment. Even so, I'd like to know what to look for in the free form I download from the Internet.
$30K is a significant part of our annual income, especially since I'm semi-RE. We can afford it, but not repeatedly. I don't feel comfortable with it because I want to cover our children's future education.
I said, "What do you think about making this a one-time thing, and after this, it's bankruptcy?"
Spouse doesn't want to think about it.
I know that makes all of you think we need counselling, but we'll handle the first $30K. After that, we'll see.
Thanks. I know it seems like I'm not listening, but I do hear you. I will quietly advocate for bankruptcy and refinancing. Spouse does have considerable retirement accounts that, if drained, means I'm back to work for another six years or so, and THAT would be a problem.
Do you plan on trying to secure the debt in any way? I assume not, but you could fairly easily and cheaply attache a lien to the house so that you have some recourse. When I refinanced my mortgage via my parents, we did this. We contacted a realtor (or maybe it was a mortgage person?) and they did the paperwork for a fairly low fee.
As for other terms, you should probably also include what happens when payments are missed or skipped. Saying, "you owe me $30k at 4% APR" is pretty meaningless. Adding that "payments are due on the 1st of the month, and late by the 5th, and that late payments will accrue a $25 fee for one week, $75 for two weeks, $150 for three weeks, and $300 for for weeks, and an additional $100 for each week after that, as well as the additional interest accrued" actually makes those terms mean something. And shows the relative you do actually expect payment.
I suspect your wife won't allow that because it's "mean" and she's completely unwilling to see basic sense in all this. But if you want any hope of getting your money back, I'd be specific in terms, although you may want to do some googling to make sure you are within your local laws. It also gives you some leverage to not lend more when (not if, when) they don't meet the specific terms of the first loan. You can tell your wife that if they didn't meet the initial terms, why would you ever give them more money?
I can't believe you are going to cave on this without at least getting a promise from the wife that this is absolutely it in terms of loans, until this loan is paid off. You are caving without getting anything in return. You've told her that she gets to do whatever the hell she wants, and that your desires don't matter. And then *you* go back to work if her delusional plan falls through?
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Does your wife not have a plan on how to finance your children's education? That she doesn't want to think/talk about it, is no excuse. You can't just give away a big part of your savings without thinking of the long term consequences. Her solution is probably that you are working more, so her problem is solved. And she will have fulfilled her guild towards having borrowed money from them in the past.
Could you compromise be that you are willing to give the relative x amount after he declares bankruptcy? That way, you know the money will not go to the credit card companies.
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Two tips on talking it through: validate your wife's feelings. There's nothing wrong with her feeling like you all should do this. Feelings tell us things, even though they don't define reality. And clearly she has extremely strong feelings about it, and there's absolutely nothing wrong with having strong feelings; that's just information.
+1 It takes us analytical people a long time to get here sometimes. Feelings matter to financial decisions. I think this deserves more attention. You, of course don't want bad things to come to the relative: homelessness, despair, an inability to receive medical treatment.
You also don't carry 40K of credit card debt - there is a reason for this beyond having had good health. It's mostly due to your choices and spending priorities. You can't force these choices on the people you give money to, so just giving them money is not going to bring them to your level of success.
I have had a difficult time making decisions regarding family and finances, partially because my level of financial comfort is very different from my family's. I would be uncomfortable without a safety fund, or money in case of unemployment, but others are not. I would forgo newer cars, a bigger house, and more expensive vacations to build up a safety fund, while my family would not. My point is that you should be cautious projecting yourselves into the situation this relative is in, and asking "how would I feel about this". Because you would likely have been stressed as heck when the credit card balance was 10K and not being paid off.
I think in your shoes, I would spend some time explaining to my spouse that I care about all the things she does - that the relative end up free from a hopeless situation, successful, healed from their condition, and independent.
You're relatives' needs have the potential to overwhelm your ability to pay for them. If not in this situation, than possibly the next. I would argue that the point where the money you're talking about is so high that it pulls you from working part time to working full time, or from being FIREd back to work, your relative's needs have overwhelmed your ability to pay for them.
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Assuming that you are going to do as stated, and loan the money despite the many good reasons against, my advice on the best way to do it is to set milestones, and loan based on that.
For example, we will loan you:
$5k immediately (assume this is a gift)
$5k after you've developed a sustainable budget (...that has no more luxuries than your budget)
$5k after you've met with a financial planner or bankruptcy lawyer
$5k after you've put your house on the market
$5k after you've accepted an offer on your house
$5k after you've been able to keep the balance on the credit card lower/same for 3 months
If they can't meet targets you* establish, you KNOW you are throwing away money with the credit cards as the only winners. You also have an easier way to stop the bleeding, if they fail to do any work themselves to fix matters. This follows the "never help someone more than they help themselves" maxim.
[ETA: *To clarify, you here can be a joint you, I'm not saying this needs to be a unilateral command. If you can get them to sit down at the table with you and figure out next steps, they'll have some ownership over the steps and are more likely to want to make them happen.]
Privately, see if you can get your spouse to agree - in writing - with you for next steps. e.g. if they complete all of the steps, we'll forgive the first $5k afterwards. On the other hand, if they do not do a step, they don't get the milestone money. If X, then we won't give anything more other than help with a bankruptcy lawyer. (It's pretty troubling the spouse refuses to even acknowledge the looming possibility of bankruptcy. My guess is the relatives are even worse on this point.) As part of the conversation, consider making explicit and immediate the tradeoffs of loaning the money (e.g. together agree that you will take a camping vacation instead of a trip this year to save some of the $30k, that you will cut the dining out budget by 50%, both work overtime, etc.) It's dramatic, but you might also consider a postnup agreement regarding loaning the money.
[btw, everyone keeps talking about it being the wife wanting to loan the money. Did the OP ever say wife? I thought the OP kept it gender neutral. Just an interesting observation on MMM crowd assumptions.]
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Two tips on talking it through: validate your wife's feelings. There's nothing wrong with her feeling like you all should do this. Feelings tell us things, even though they don't define reality. And clearly she has extremely strong feelings about it, and there's absolutely nothing wrong with having strong feelings; that's just information.
+1 It takes us analytical people a long time to get here sometimes. Feelings matter to financial decisions. I think this deserves more attention. You, of course don't want bad things to come to the relative: homelessness, despair, an inability to receive medical treatment.
You also don't carry 40K of credit card debt - there is a reason for this beyond having had good health. It's mostly due to your choices and spending priorities. You can't force these choices on the people you give money to, so just giving them money is not going to bring them to your level of success.
I have had a difficult time making decisions regarding family and finances, partially because my level of financial comfort is very different from my family's. I would be uncomfortable without a safety fund, or money in case of unemployment, but others are not. I would forgo newer cars, a bigger house, and more expensive vacations to build up a safety fund, while my family would not. My point is that you should be cautious projecting yourselves into the situation this relative is in, and asking "how would I feel about this". Because you would likely have been stressed as heck when the credit card balance was 10K and not being paid off.
I think in your shoes, I would spend some time explaining to my spouse that I care about all the things she does - that the relative end up free from a hopeless situation, successful, healed from their condition, and independent.
You're relatives' needs have the potential to overwhelm your ability to pay for them. If not in this situation, than possibly the next. I would argue that the point where the money you're talking about is so high that it pulls you from working part time to working full time, or from being FIREd back to work, your relative's needs have overwhelmed your ability to pay for them.
Yes. This is why I advocate helping them in non-financial ways. Likely (and this is just a guess and is something you should calmly talk with your with about to determine if it's accurate) she doesn't want to abandon family. She wants to help people who are very much in need of help. Acknowledging that and showing her that you actually very much want to help them as well will go a long way. Then with that agreed upon, you can transition into the best way to help them. Even if you were a zillionaire, throwing money at them likely would not be the best way to help. It seems your accountant agrees with this. You can help with resources. You can help with knowledge. You can help with elbow grease is you live nearby (working on the house to get ready for sale). You can pay for a consultation with a bankruptcy attorney. You can even pay for a session with an accountant.
These are things that are likely to actually help solve their problem. Giving your money to credit card companies and other creditors, with them as the pass-through middle man, is not. So your hesitance to give them the money isn't because you don't think they are worth $30,000. It's that $30,000 won't change their situation. It won't actually help them. They gave you the help you needed when you needed it (which happened to be money in your case, and from the sounds of it, that was a situation where you could clearly repay the loan and had a viable plan to do so). You want to give them they help *that they actually need* when they need it.
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Assuming that you are going to do as stated, and loan the money despite the many good reasons against, my advice on the best way to do it is to set milestones, and loan based on that.
For example, we will loan you:
$5k immediately (assume this is a gift)
$5k after you've developed a sustainable budget (...that has no more luxuries than your budget)
$5k after you've met with a financial planner or bankruptcy lawyer
$5k after you've put your house on the market
$5k after you've accepted an offer on your house
$5k after you've been able to keep the balance on the credit card lower/same for 3 months
If they can't meet targets you establish, you KNOW you are throwing away money with the credit cards as the only winners. You also have an easier way to stop the bleeding, if they fail to do any work themselves to fix matters. This follows the "never help someone more than they help themselves" maxim.
Privately, see if you can get your spouse to agree - in writing - with you for next steps. e.g. if they complete all of the steps, we'll forgive the first $5k afterwards. On the other hand, if they do not do a step, they don't get the milestone money. If X, then we won't give anything more other than help with a bankruptcy lawyer. (It's pretty troubling the spouse refuses to even acknowledge the looming possibility of bankruptcy. My guess is the relatives are even worse on this point.) As part of the conversation, consider making explicit and immediate the tradeoffs of loaning the money (e.g. together agree that you will take a camping vacation instead of a trip this year to save some of the $30k, that you will cut the dining out budget by 50%, both work overtime, etc.) It's dramatic, but you might also consider a postnup agreement regarding loaning the money.
[btw, everyone keeps talking about it being the wife wanting to loan the money. Did the OP ever say wife? I thought the OP kept it gender neutral. Just an interesting observation on MMM crowd assumptions.]
Based on my experiences and those of people I've known who lent money to family and friends, I would never ever loan money with this type of paternalistic micro-management unless it was to my own child.
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Okay @FIREpower, let me see if I have this right. Your wife insists you allow relative to borrow money, $30K to be exact.
Virtually everyone on this thread tells you it's a bad idea.
Now you're asking us how to do it, because you're going to do it anyway?
Did I miss something?
Assuming I did not: hire a lawyer.
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I think the title of this thread should be changed to "Relative needs to declare bankruptcy and file for public assistance"
It's a hard "no" from me. Sorry your wife is refusing to listen . . . this relative is driving a wedge into your marriage while also robbing from your children's futures. Please make sure your wife hears these things (again.)
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Your accountant assumes that you won't collect aggressively against your relative. But when they go bankrupt, a properly drafted lien against their house might give a chance to get some of the money back. You'd be competing against other creditors, not against your relative's interests.
"Properly drafted" probably means "get a lawyer", as the other poster said. I think the details influence whether you will or will not have any real chance to get repaid from the bankruptcy, presumably from proceeds of the house sale. Even if you just hand the money back to the relative, they might be happier at that point than if the money went to their credit card company.
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Based on my experiences and those of people I've known who lent money to family and friends, I would never ever loan money with this type of paternalistic micro-management unless it was to my own child.
I'm not surprised as you advocate for handing over the check with a smile and hoping it ends there.
I get it - that the family may (or rather will) resent putting strings on the loan/gift. But, I'm trying to brainstorm a way that the OP can get the relatives to make changes for the better AND to avoid shelling out the whole $30k if nothing is being done to better the situation so the money isn't down the drain with a hand out again. Perhaps others can come up with better ways, but it did seem like marital therapy/just say no/they must declare bankruptcy decrees had already been discussed ad nauseam without success.
So, if they want ideas for how to hand over the money, they can just write a check (and then another and another...) as you already suggested in this thread, or they can try to structure it to accomplish something to better the relatives, even if they aren't happy about it. Depends in part on what matters most to them (relatives getting back on their feet? Or relatives happy with them?) and how they think they can best accomplish that top goal.
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Another suggestion
Keep the house payment current. Period. With MMM skills it will be easy and meet the desired outcome. Which is helping, without causing undue hardship to the responsible side of the equation.
A scenario for spouse to consider: hand over 30k, watch the card balance drop and then watch relative drop dead. Financial aid with undesirable outcome.
Keeping the house payment current provides aid with protection to unforseen circumstances.
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Hi all,
Spoke to accountant, who basically ran the same numbers and said that even if we paid off the credit cards, relative will go back into debt because there's no way you can balance $700 in and $2000 out per month. It almost doesn't matter if we pay the credit card directly, because the relative can go back with an improved credit score and take the money out again.
[...]
The problem with declaring bankruptcy is that Relative wants to hang onto assets. Same problem with not paying credit cards for a few months and negotiating a lower fee. Accountant says this is more a tactic for people without assets.
[...]
Your relative is bankrupt already and your wife needs to understand that. The plan needs to be finding the means to keep the house if it is not protected. If it is, your relative needs to rip the bandaid, give up the other assets and buckle down to live on $750 or a bit more a month. What you can do is perhaps offer to pay the mortgage and help with home repairs with the other relative who is also on the hook for 30K until the house sells and the debtor can go back to work (if at all). You may well need to explore all options with an attorney, including defaulting on the unsecured credit card debt.
Refusing to acknowledge that this ship has sailed and is sinking already will not help anyone.
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Based on my experiences and those of people I've known who lent money to family and friends, I would never ever loan money with this type of paternalistic micro-management unless it was to my own child.
I'm not surprised as you advocate for handing over the check with a smile and hoping it ends there.
I get it - that the family may (or rather will) resent putting strings on the loan/gift. But, I'm trying to brainstorm a way that the OP can get the relatives to make changes for the better AND to avoid shelling out the whole $30k if nothing is being done to better the situation so the money isn't down the drain with a hand out again. Perhaps others can come up with better ways, but it did seem like marital therapy/just say no/they must declare bankruptcy decrees had already been discussed ad nauseam without success.
So, if they want ideas for how to hand over the money, they can just write a check (and then another and another...) as you already suggested in this thread, or they can try to structure it to accomplish something to better the relatives, even if they aren't happy about it. Depends in part on what matters most to them (relatives getting back on their feet? Or relatives happy with them?) and how they think they can best accomplish that top goal.
Lol! No, that is not at all what I advocate.
I advocate urgent and immediate therapy for this couple and from the very beginning have said that this is a marital issue.
If the money is handed over, the money is lost. What I don't think is a good idea is creating more conflict within his marriage and making himself the bad guy while losing his 30K.
I don't think he should roll over and hand over a cheque with a smile, I just don't think the relative is the person he needs to strike up conflict with as they are not his source of problem here.
I simply don't see any strategy where trying to micro manage the relative leads to a reality where the wife sides with OP down the line.
Maybe I'm wrong, but having been through something similar very recently, it's very very very easy to become the bad guy when loaning/giving money, and logic often doesn't really apply.
To be 100% crystal clear, since obviously my previous posts were misinterpreted. I don't think OP should hand over any money.
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Maybe give them some cash now and then stall for time saying your money is tied up. Who has $30,000 lying around? Keep making suggestions like looking into bankruptcy, alternative housing, budget planning, etc and maybe things will shift...
Can any other relatives (or you!) take this person in?
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I think the problem is that in a hard place, that credit card is going to be too tempting when things stay tight. So I don't expect your relative to get rid of the cc forever especially when they are feeling strained.
I also think you are setting yourself up for future asks, so it might be wise to say something like, this is all we can do, this is a one time thing.
I also think that Financial Peace is a good suggestion, as well as making a budget. You may want to make your gift contingent on seeing a budget.
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I think the problem is that in a hard place, that credit card is going to be too tempting when things stay tight. So I don't expect your relative to get rid of the cc forever especially when they are feeling strained.
I also think you are setting yourself up for future asks, so it might be wise to say something like, this is all we can do, this is a one time thing.
I also think that Financial Peace is a good suggestion, as well as making a budget. You may want to make your gift contingent on seeing a budget.
Still, even if they would say it is a one time thing, we know that the relative will get into new problems within short time, maybe a few months at best. How will OP's wife react if the relative is forced out of his house this time? Will she want to help him again financially?
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If you are willing to lose this money, then just give it to him and be prepared to lose it. Any other power plays you do along the way will just make this uglier.
Y'know what's A LOT worse than losing 30K to an irresponsible family member???
Being made out to be the bad guy while losing 30K to a family member.
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Got it. FWIW, this is where it seemed to me that you were suggesting to just hand over the money with a smile.
(And yes, you did advocate for therapy. I think everyone except OP has advocated for therapy because the ultimatum tossing/unilateral decision-making is just a train wreck in action.)
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If you are willing to lose this money, then just give it to him and be prepared to lose it. Any other power plays you do along the way will just make this uglier.
Y'know what's A LOT worse than losing 30K to an irresponsible family member???
Being made out to be the bad guy while losing 30K to a family member.
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Got it. FWIW, this is where it seemed to me that you were suggesting to just hand over the money with a smile.
(And yes, you did advocate for therapy. I think everyone except OP has advocated for therapy because the ultimatum tossing/unilateral decision-making is just a train wreck in action.)
Yeah, I get that.
At that point he hadn't actually established that he didn't have a real choice in the matter. That comment was more or a bluff call pointing out that he was going to lose 30K regardless of how he tried to control the "loan". Granted, I thought he had some autonomy in the decision. He doesn't.
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Could you give some money every month to help cover food, lights, water and shelter? Screw the CCs. It will take a while before you get to a $30k total, and it will go a little at a time rather than a rush of fresh cash into a desperate situation. Like sending $1500 a month for a year to cover mortgage and some food. You're only at $18,000 and perhaps the person will get it together in that time.
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Saw this column today and thought of this thread. Michelle has good advice; also some interesting stories in the comments.
https://www.washingtonpost.com/business/stop-doling-out-money-to-your-adult-children-it-doesnt-really-help/2019/10/25/208ed9e4-f66f-11e9-a285-882a8e386a96_story.html