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Kids Down-payment - loan or gift?

Provided by:  Jennifer Kirschenbaum, Esq.

May 1, 2018

 

 

Question:

Jennifer, 

I want to help my kids (my son and his wife) with a down payment but I’m afraid of them getting divorced (you never know, it could happen). What’s the best way?   

Thanks,
Dr. L

Answer:

Pretty common question. I’m sure you may have already conducted a poll and gotten 27 different answers, but here are 2 options, the first being the best and, in my mind, the right answer -

1.  You make a loan evidenced by a promissory note.  You take a mortgage on the property to secure the indebtedness. If a bank is giving a loan, you give the bank first priority and subordinate your interest. A condition of the note can be that the parties domicile together in the home or the note be due (also failure to close on the house if you deposit prior to show capital in your sons account, and a few other goodies).    No additional paperwork needed after this to secure against divorce because the money isn’t your sons and his spouse. It’s for the house and owed back to you. 

2.  You make a gift. You then have to deal with commingled property.  Need a post nup if a Pre nup is not in place dealing with gifts and commingled property.  You eat away at your gift tax exemption here. You also need more paper to secure the money in case of divorce. Here you are not making a loan - your son keeps the money and you then are making sure it’s protected from the spouse. Caution - this road often causes marital problems for your son.  If you like to be a disrupter and hate the house and possibly the wife, go with this option. Also the lawyers will make much more money on this option.   

Hope this helps!!    Questions on this, call or email me and either I, or Ken will get back to you. 


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