Need advice on money arrangement with wife and mother in-law

[Anderson Silva]

My wife and I bought a home together for $600,000. We are both employed full time in secure jobs with a combined income of $115,000/year, mine being $70K, hers about $45K. For a down payment on the home we have $120,000 between the two of us, her putting in about $90,000 from the sale of her condo apartment and me putting in about $30,000 from my own money. With our combined income, decent down payment, no debts and good credit standings we certainly qualify for a mortgage with the bank at their best rates.

 

My wife has been telling me for the past year that her mom wants to give us $100,000 which is to go towards our home. She is a widow who is sitting on a decent amount of money. My intuitive reaction to this was that I don’t want to take the money on the basis that we are perfectly capable of making it happen on our own. Despite that, my wife has been trying to convince me that we should just take the money. I asked my wife some basic information regarding this money and to this day I can’t get a straight answer on what the conditions on this will be. I asked my wife if this is to be a gift or a loan and she can’t give me a straight answer. The best she put it is “my mom will technically loan us the money on paper but more than likely it will be a gift and she won’t ask for it back.” So I asked her if it’s a gift then why would I need to sign loan papers with her with no concrete schedule of repayment and why would she want to place a lien on our house for that money? My wife said that it’s in case she ever wants that money back in some sort of extreme emergency as protection so that she can get it back. To me this just sounds like her mom wants to ensure that she will get all that money back and I get none of it in case my wife and I split up. Okay fair enough, I frankly don’t want a penny of that in case anything happened but I am now wondering if having a lien on our home and living in suspense of having to repay that any day is even worth saving approx. $400/month which is how much it will save us for reducing our mortgage amount by $100,000.

 

I would welcome some advice on this issue as I’m undecided on what to do. On one hand it would be nice to have a mortgage of 380K vs 480K and save about $400 each month on payments and not pay interest on that 100K in question to the bank, but on the other hand I can’t decide if the $400/month savings are worth having a debt on paper with no strict boundaries for repayment and a lien on the home. I also wonder what other implications this can cause for me in the future. Will my credit suffer? Will I not have as much financial and credit opportunities in the future due to this 100,000 owing? Not to mention other non-legal implications like her mom feeling entitlement over our financial lives due to some of her money sitting in our home. I would appreciate some advice.

[mhowe]

You don't need the money -- don't take the "loan".

If she wants to "gift" it to you, that is another matter -- you can't take back a gift.

 

I think the widow is looking to have a financial hold on you and your wife so that she can have a place to live at some point.

Also, fact that wife won't give straight answer is a flag -- maybe not red, but orange.....

 

 

If your wife wants the loan, let her sign the paperwork. You need not.

[iamkaylee]

I'd forget the money and pay the extra $400 a month on the mortgage.

 

Vague financial entanglements like that are never a good idea and especially when it comes to getting money from family. I can see a nightmare in the making.

[pl3asehelp]

Tell her if she has 100K burning a hole in her pocket that she should donate it to poor children or something because you guys don't need or want it. Adults making their own way in the world like you guys are do not need to get involved in crap like this. If she wants to gift it to you, cool, then go ahead and donate to some cause yourself since you dont' need it.

 

And yeah, the vague answer from your wife and even the fact that the mother in law is pushing for this definitely mean there are some ulterior motives and conversations happening you're not a part of. Bad idea, don't do it.

[avman]

Yeah I wouldn't take the money either. If it's a gift then it should be documented as a gift. If it gets set up as a loan what if your mother-in-law dies? The estate could then demand repayment of the loan (after all, there would be proof the loan existed). Or if you were to divorce you could get stuck with the debt as you've mentioned.

 

I would make sure you don't sign anything you aren't completely comfortable with.

[becomingkate]

If you make bi-weekly payments, you can save $146,955.82 in interest over 30 years and shave 5 years and 11 months off your amortization period.

 

I would do that before borrowing money from family, especially from a MIL!

[DN]

Agreed with the others. This is ill-defined and you could lose the house if she demands the money back at any time.

[Godless_Heathen]

If you take the loan, put strict boundaries on it. This bit about undefined repayment terms is a huge potential headache - so treat it like a real loan, with well-defined payment terms. Set a loan period (presumably the same as your regular mortgage) and pay accordingly. Don't agree to a loan where she can require the principle back at any time.

 

Note that if you don't pay at least the Applicable Federal Rate in interest, the IRS requires that you treat the difference as a gift. Gifts aren't taxable as income, but they do effect the estate tax. This is not a huge deal since your mother in law is allowed to gift up to $10,000 per year to you (as a couple) without affecting her estate tax, and the interest will be less than that.

 

You might want to look up the current 30 year fixed AFR and use that as an interest rate instead of treating it as an interest-free loan. It will be less than what any bank will offer, and it will make an agreement where your MIL cannot ask for repayment ahead of schedule more palatable to your MIL. In which case you should draw up an amortization schedule (easy enough to do in Excel). You can deduct the interest as with any other mortgage, but your MIL will have to treat the interest portion of your payments to her as income.

[mhowe]

For the record, the gift amount is $14,000 per person ($28k to the couple) and the mother can gift away up to $5million in her LIFETIME.

 

That being said --- say no to the "loan".

[Seraphim]

I would run away from that offer.

[Anderson Silva]

Just had a conversation about this again tonight which started calmly and ended in an argument. And again I'm made to feel like an a-hole for not wanting to enroll in this taking all of your advice. I can't handle this much longer.

[Fudgie]

Your wife and MIL are bullying you. They want you to take an offer that benefits them buy disadvantages you.

 

It is not worth it. Do not take the money under any circumstances.

[Godless_Heathen]

Your wife and MIL are bullying you. They want you to take an offer that benefits them buy disadvantages you.

I don't think that's fair. It doesn't really benefit his MIL. In the very worst case, she loans them the money, then abruptly asks for it back. In the meantime she gets no interest. It benefits his wife, but only the sense that it benefits both of them - not paying interest on $100k for 30 years (or 15, I don't know the terms of the mortgage) is a pretty substantial benefit for both of them. It's $70k for a 30 year loan at 4%.

 

The root issue seems to be trust. By refusing the loan, he's saying "I don't trust you. You'll demand the money back sometime in the future at the worst possible time." Naturally, his wife and MIL find this insulting. On the other hand, the fact the MIL is insisting on a vaguely-worded contract where she can ask for the money back at any time shows that she doesn't trust him either. If that's the way she feels, it would have been better to never have made the offer in the first place. Making it and insisting on arbitrary repayment terms lays the distrust on the table in a way that would not have arisen if she had refrained.

 

This really needs to be addressed. The damage is already done at this point, so they might as well talk about it in frank terms.

[abitbroken]

I think you will feel strings attached to the money forever. Do you have children? If you do, let your mother in law spoil them with her money with trips to Disney or help with school stuff. I wonder if mom wants to do this to insure that she will be taken care of by you when she is elderly?

 

Also, money in the bank for mom would be ideal for an "absolute emergency"

 

Also, you have a loan on your home. You don't need a second loan from mom-in-law. You would save $400 a month, but you would have to make sure you had 100,000 in the bank at all times in case she called the loan due.

 

How are you guys doing as a couple? It seems strange your wife would be this adamant about it. If your mother in law wanted to truly give a gift, she would do it with no strings attached for you to do what you wish. Also, I would pay attention to the gift tax thing.

[avman]

Just had a conversation about this again tonight which started calmly and ended in an argument. And again I'm made to feel like an a-hole for not wanting to enroll in this taking all of your advice. I can't handle this much longer.

 

The fact that their exerting such extreme pressure makes me even more convinced you shouldn't do this. Tell your wife if she wants to do it so bad that SHE can sign the repayment note but you refuse. You don't need the money so there should be nothing wrong with simply turning her down. "Thanks for the offer mom. I really appreciate it. But I've thought about it and I'd just rather not". It really should be as simple as that.

[Fudgie]

Godless,

 

MIL is absolutely going to benefit from this. The fact that she is no insistent is very telling.

 

By having him sign vague paperwork saying that it is a "loan" without any real payment plans or time lines screams that this is a trap. MIL likely wants OP to sink that money into the house. In the future, for whatever reason, she can day she wants the money back, knowing that it is unlikely they could pay her it all back at once. This would give her power over the house because a good hunk of HER money went into it. She would likely use this power as a way to move herself in, under the threat of court, or perhaps wrangle the house away from you if you were to divorce your wife.

 

People need to be more skeptical here and less naive. Why would your MIL care about sinking money into your house when you are NOT currently struggling to pay it off? That is key here. If you have no need or desire for her money to go into this, then she clearly has her own agenda going on.

 

Remember, if she wanted it to be a gift, she wouldn't require loan paperwork. It's not a gift. It's a trap.

[Anderson Silva]

Wife calls me this morning and asks if to just tell her mom not to proceed with the loan. I tell her okay. We talk some more and I tell her “look I know how much this money means to you and how badly you want me to consider this offer, so I’ll look over the loan conditions and papers your mom’s lawyer prepares and seek my own legal advice and I’ll consider the offer with no strings attached.” I also emphasized to make it clear to her mom that the papers she presents me to sign I will want to review and sleep on and it by no means indicates that I’m accepting anything she prepares. My wife said okay that sounds good. So then I told her I will even pay to retain my own financial/contract lawyer to review the papers your mom’s lawyer prepares since her mom is paying her lawyer to draft up the loan contract. My wife then tells me that we have to pay for her lawyer’s services also since the money is to help us and she’s doing us a favor. At this point I got really agitated. Not only is she asking me to sign papers releasing me of the ownership of the so called 100K she’s giving her daughter to put in the house but I now have to pay for her lawyer’s time to draft up this contract against me. Am I just flying of the handle for no reason now because this situation was building up for so long or am I right to be upset over this like I am?

[mhowe]

The MIL is not doing this out of the goodness of her heart -- especially since OP does not WANT the loan.

 

The worst case -- is that she "owns" part of the house in an indirect and illiquid fashion.

 

I say again -- don't take the loan. Don't sign anything. If your wife wants to take the loan, she can sign it.

[DN]

I would not touch this offer with a barge-pole. There is something very manipulative going on here and I strongly suspect your m-i-l and possibly your wife have some hidden agenda that will see you losing the house and/or a lot of money.

[pl3asehelp]

I would hit the roof over this. I don't think I could even have a relationship at all with a MIL like this. Basically, she doesn't trust you - F her!

[mhowe]

I am soooo confused. You don't want a loan -- but she is doing you a favor.

So you have to pay for her lawyer? Whhhhhattt??

 

 

There is something very, very odd going on here.

[Godless_Heathen]

Under no circumstances would I pay for MIL's lawyer.

[Godless_Heathen]

In the future, for whatever reason, she can day she wants the money back, knowing that it is unlikely they could pay her it all back at once. This would give her power over the house because a good hunk of HER money went into it. She would likely use this power as a way to move herself in, under the threat of court, or perhaps wrangle the house away from you if you were to divorce your wife.

I agree this is a possibility, it's just that I don't think of people as being that evil. At least, not without more evidence. "Never attribute to malice what can be adequately explained by incompetence" - it seems more likely that MIL is a flake than actively plotting against Mr. Silva. Evil plots are of course possible, but assuming that it's a plot to take away the house will be highly corrosive to his relationships. If we're wrong and it's just screwiness, that sort of thinking will unnecessarily poison his family relationships.

 

While you can of course read evil into this, there's a simple explanation as to why her MIL is so insistent on giving her daughter money: people care about their kids. Sometimes quite a lot.

 

I also emphasized to make it clear to her mom that the papers she presents me to sign I will want to review and sleep on and it by no means indicates that I’m accepting anything she prepares.

This is a mistake. With any agreement, you should work out the terms you can accept before putting them on paper. Drawing up papers without an agreement is just a waste of time and money, and will make it that much more difficult for you to say "no" if the terms are unacceptable. At this point, you know the terms will be unacceptable, because you've been unable to come to a verbal agreement. Paperwork isn't going to help this.

 

Basic principles you should stick to:

 

* Under no circumstances agree to a loan where your MIL can ask for repayment at any time. Insist on a repayment schedule.

* Doubly so if you're agreeing to a lien against your house.

* Don't get lawyers involved until everyone is happy and comfortable with the agreement.

* You're not paying your MIL's legal fees.

[Fudgie]

Agreed. Don't pay for this loon's lawyer. She is definitely cooking something up

 

Godless, it's not necessarily evil, it's more about realizing that most people are inherently selfish and are looking out for their better interests. In this case, MIL is looking out for herself and possibly her daughter. This is something MILs do.

 

Surely, if MIL had his best interests in mind, why would she insist on a loan that is so vague that it puts him at a disadvantage and it's a loan that he DOESN'T EVEN NEED.

 

This is fishy.

[iamkaylee]

This is fast becoming a nightmare and you don't even have the money.

 

Do like avman says and tell her "thank you for the offer and it's much appreciated, but we'd really like to do this on our own".

 

If MIL really wants to gift the money somewhere, she can place it in a trust. I think the whole "I need to be able to get it in an emergency" jazz is a bunch of baloney. If that was the case, stick it in a bank to draw interest. Stuff the cash in a safe deposit box or fill up the mattress even.