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FS-The Dangers of Family Loans
Jan L. Warner & Jan Collins

Question: When we were married 12 years ago, my husband's parents gave us $35,000 to purchase our home. I always understood this was a gift, and that my husband and I signed some type of receipt for the money for tax or gift purposes. At least, that is how it was explained to me. My in-laws never asked for a payment. Then my husband left home, and now they have produced this joint note and want not only the $35,000 principal, but also interest for 12 years, which brings the total to more than $75,000.

I work, but don't have the money to make these payments, and I was the one who ended up staying in the home in question. My husband is not willing to help. His parents now have a lawyer and are threatening to sue for their money. My lawyer tells me that they have that right. Is there a way to work this out in a settlement?

Answer: While we have not seen the terms of the receipt/note that you say you and your husband signed, and while the issues that have arisen are best answered by your lawyer, it would appear even to the uninitiated that your husband's parents are engaging in a bit of "collateral pressure-cooking" in order to make you settle the case.

In the final analysis, the terms of the note are decisions to be made by a court; however, if the note were signed jointly, then you and your husband would appear to be equally responsible. Given the facts, it appears unlikely that this would be an issue had your husband not left home.

What are your options? If you are going to receive alimony, you could ask the court to require your husband to pay your share of the note over time and, if all requirements for alimony are met, these payments could be tax-deductible to him and taxable to you according to the terms of a properly worded divorce or separation agreement -- again assuming you have a legal obligation to make the payments.

Since it appears to be a joint debt, your husband's payments of his half would not be deductible to him because they would not be considered as payments made "on behalf of a spouse" -- even if made according to the terms of a divorce agreement. If you choose this route, because of the intricacies involved, we suggest not taking any action without the advice of your attorneys and a certified public accountant.

On the other hand, you may want to try to offset any amount you may owe against other assets and try to get your husband to assume this "debt." For example, you may wind up taking less from an IRA or investments to make up for this "debt."
Either way, your question points up the problems that arise when people sign documents they don't understand. While young married couples always welcome inter-family financial assistance, future unexpected payback can be devastating. Always read what is put in front of you -- before you sign it.

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Suggested Reading:
Separation and Divorce Guidebook
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FS-Be Wary of Credit Issues with Ex
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FS-Becareful of Bargaining Away Alimony As Child Support
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FS-Lawyer Tells Me to Lie & Pension Double Dipped
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FS-On and Off Again Reconciles Can Create Agreement Disasters
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FS-The Dangers of Family Loans
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FS-Transference of Affection & 10 Tips of Divorce
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