5. Family Money: Keeping the Financial Peace

Couples’ conflicts over their finances get a lot of attention. But our families can present equally thorny challenges as our (often troubled) relationships with our relatives collide with our (often troubled) relationships with money.

These can be stormy seas to navigate. It can pay to have a good compass—a strong sense of how you want to handle your money—and a good map of what you will and won’t do for your kin.

Here are some of the situations you might face, along with strategies for coping.

A: In a word, no.

Your father is the one who is ultimately responsible for his actions. As custodian, he had the legal right to withdraw money and use it for your son’s benefit. It’s not up to the brokerage firm to police what happened to the funds after they left the custodial account.

What your father did was, of course, wrong—legally and in every other sense. Once the money went into the custodial account, it belonged to your son.

Your options at this point, however, are pretty limited. You can point out that the funds weren’t his to take and ask him to return the money. If he refuses, your son could sue him, but lawsuits among family members tend to make future holiday gatherings rather tense. Unfortunately, this kind of situation isn’t uncommon, and many families decide the fight to regain the promised money isn’t worth the upset.

A: The history of business holds many examples of companies that were saved from extinction by a loan from a friend or family member and that went on to great success. These stories get attention because they’re exceptions to the rule. Many, if not most, such loans never get repaid because the business couldn’t be saved and the proprietor refused to acknowledge reality.

If her business is viable, she may be able to get a loan from a local bank, although getting approved is still a challenge in these tight credit times. If you are really her only hope, then you’ll have to decide whether you can afford to give her money you may never get back. If you can’t, you must decline. If you can, you should write up a formal loan agreement, including interest rate, payment terms, and penalties for nonpayment, and have her sign it before you hand over the cash. Such an agreement may increase your chances of getting at least some money back, and can help you later if you need to take a bad loan deduction on your income taxes.

A: How nice of your husband’s family to decide how you should spend your money. But just because you appear to be better off than they are does not mean you are obligated to support the family spendthrift.

The situation might be different if your brother-in-law’s life or health were at stake, or if he’d suffered an unexpected financial blow. In that case, you might want to honor your spouse’s sense of obligation (while perhaps persuading the other siblings to chip in).

In reality, however, what we have is a grown man who can’t figure out how to pay an $11,000 bill without pleading with his siblings for a bailout.

Your spouse should recommend that he talk to a legitimate credit counselor about a debt management program that could lower his interest rates. He can get a referral from the National Foundation for Credit Counseling at www.nfcc.org.

If you do lend the money, you should formalize it with a written agreement and collateral. But understand that, regardless of the precautions you take, the chances of his actually repaying the loan are slim.

You also shouldn’t imagine that the shame of the unpaid debt will deter him from asking for more money the next time he gets into trouble. This man never learned self-reliance, and you won’t teach it to him by giving him more money.

If it helps, it’s not unusual for family members to decide that the most successful members are “supposed” to share with the others. But your husband is long past the age when he can be forced to share his toys, or his money. He may well feel an obligation to help his siblings in a dire, life-threatening emergency, but he’s certainly not obligated, morally or otherwise, to help them pay their debts.

A: Your options are pretty simple. You can continue to bail him out, or you can stop.

A longtime spendthrift is unlikely to change his behavior. That’s particularly true if he still has people around him willing to give him money, but he may not change even if your entire family cuts him off.

Understanding that you don’t have the power to change your brother is an important but difficult first step. You may want to seek help from a counselor or a 12-step group that helps people deal with problem relationships. Since bar hopping is such a big part of his life, you (and your mother) may benefit from attending Al-Anon, the 12-step group for people who have alcoholics in their lives. You can find more information at www.al-anon.alateen.org. Another similar group is Codependents Anonymous (information at www.coda.org), which aims to help people develop healthier relationships.

I’m pretty sure that my mother gives the money to one of my older brothers, who wants to be a comedian and refuses to get a job to support himself. I think she’s tried not to give him money, but he has a terrible temper and she’s afraid of making him angry.

I want to do the right thing, but I’m getting tired of supporting everyone and not getting on with my own life. Do you see a way out?

A: Of course, and so do you. You just haven’t been willing to take the first step.

It’s important to honor your culture, but it’s unlikely that your culture includes an ancient tradition of supporting tantrum-throwing wannabe comedians. If your mom is passing along your largess, then you’re giving too much and indirectly aiding your brother’s refusal to grow up.

Figure out how much money you need to get your own place, build up a decent emergency fund, and begin saving for retirement. Your parents may have convinced you that supporting them in their old age is your duty, but you shouldn’t count on being able to convince your own kids of the same thing. Your parents’ stipend can come out of what’s left.

If that’s not enough to pay for the lifestyle to which they’ve become accustomed, they may need to take the opportunity to downsize—perhaps into a house that’s too small to house Brother Freeload. If your mother has reason to fear your brother’s reaction, a call to the local domestic violence hotline can offer resources for dealing with the situation.

All this assumes that your parents aren’t elderly, disabled, or otherwise dependent on you to stay above the poverty line. If cutting back would throw them into an economic tailspin, you may need to remain at home longer to transition them to a more realistic standard of living.

You may well face a barrage of parental and familial criticism for daring to put limits on your dole. But if you’re convinced that you have a right to a life of your own—one that allows you to help your parents without being drained by their demands—then you’ll be able to survive. Interestingly enough, so will they. Good luck.

A: As writer Erica Jong once said, advice is what we ask for when we already know the answer but wish we didn’t.

If your son has a good job and his wife works, your grandchildren are not going to starve. Yes, the lights might get shut off, and, yes, the car might be repossessed, and, yes, those consequences might be the best things that ever happened to this pair of overgrown teenagers.

Your son and his wife know they can push your buttons with these tales of dire “emergencies” created solely by their own irresponsibility. It’s long past time for you and your husband to disconnect the wiring that has caused you to impoverish yourselves for their benefit. Saying, “No, I’m sorry, we can’t help you” may not cure their free-spending ways, but it will keep your financial ship from being sunk in their wake.

A: If your son-in-law incorporated his business and paid into his state’s unemployment fund, he may qualify for benefits. If not, he can start his search for help at Benefits.gov, which is a federal Web site with links to a variety of assistance programs.

The fact that you’re helping the family financially is a blessing to them—but the fact that you’re “paying for everything” is a huge red flag. Families can fall upon tough times, but responsible ones have some savings they can tap and are diligent about finding ways to make money, even if it’s not as much as they were able to command in the past. If they can’t make ends meet, responsible families make changes—sometimes drastic changes—until they can.

What responsible families don’t do is continue relying on relatives until those relatives are bled dry. If your son-in-law isn’t actively looking for a job, he should be. If your daughter is the more employable one and can find work, then he could take over the child-care duties.

They may not take these steps if they think they can still count on you to pay the bills, so you need to be straight with them about your inability to continue supporting their family.

A: His debts shouldn’t affect your credit reports and scores unless you cosigned loans or other credit accounts or added him as a joint user to your credit cards.

Note the word shouldn’t. It’s possible that an unethical collection agency may try to get you to pay these bills by posting the overdue accounts on your credit reports. That could negatively affect your scores. Check your credit reports at least once a year at www.annualcreditreport.com. You also may want to consider ongoing credit monitoring, which can alert you if any collections or other suspicious activity shows up on your reports.

Speaking of unethical actions, you need to consider the possibility that your son could steal your financial identity. He probably has access to the information he would need to open new accounts in your name, including your Social Security numbers. His failure to pay his bills, even though it appears that he can, indicates some moral shortcomings. He may not be low enough to rip off his parents, but if you have any suspicions about his trustworthiness, consider putting a credit freeze (also known as a security freeze) on your credit reports. This freeze should prevent anyone from opening credit accounts in your name.

You can write letters to creditors telling them to stop contacting you. You run the risk that such a letter could lead a creditor to sue your son. But his creditors may sue him anyway if he doesn’t respond to their requests for payment, and you shouldn’t have to field their calls, in any case.

As you probably already know, it’s more than time to get this troublesome tenant out of your house. As long as you’re providing a roof over his head, he has little incentive to get his act together.

A: A parent’s freehandedness about money doesn’t necessarily ensure gratitude, but your approach is certainly reasonable. You set clear financial terms for your adult children, and they rose to the occasion. Yet another approach might be charging rent and then returning the payments as a gift toward the child’s down payment on a first home.

What you don’t want to have is an adult child who’s not paying rent, not saving for the future, and spending his money on whatever he pleases. That kind of prolonged adolescence does no one good.

A: It’s not as easy as you might think. Children under 18 generally are not allowed to own investments in their own names. As a result, you must decide first how to hold the shares: in a custodial account, in a joint account with them, or in your own account.

Keeping the shares in your own name may be the best option if you’re concerned about future college financial aid, because the other two choices could count heavily against them in the federal aid formulas.

You also have many alternatives when it comes to buying the shares—always with a variety of fees, charges, and options to watch. You can buy your shares through a brokerage, but you may face commissions, minimum account balance requirements, and account fees.

If this is a one-shot investment or you’re able to commit only small amounts of money at a time, a better option might be ShareBuilder, a low-cost online broker that has no minimum balance requirements.

You also might consider buying directly from the company that issues the shares. Hundreds of companies—including many your kids would know, such as Coca-Cola Co., Mattel Inc., McDonald’s Corp., and Sony Corp.—sell shares directly to investors. Again, minimum purchase requirements, account fees, and commissions may apply. DirectInvesting.com, a Web site that provides direct investment enrollment services for hundreds of companies, can get you started.

All these options are electronic, so you won’t get a stock certificate you can wrap for holiday gift giving. If that’s what you’re after, you might check out the options at OneShare.com, a site that specializes in selling single shares of stock as gifts. OneShare.com sells shares from more than 100 companies, from Amazon to Yahoo!; you pay the cost of the stock, plus transfer fees and framing that add significantly to the cost of each share.

It’s not exactly a frugal option, but your kids will get real stock certificates to hang on the wall. They’ll also get annual reports, proxy statements, and all the other paperwork that comes with being an investor.

A: You’ll probably have better luck with mom-and-pop landlords than with the corporate kind that run huge complexes. The mom-and-pop types tend to have more flexibility with potential renters who have tattered credit, particularly if those renters can make substantial deposits. If your parents don’t have much cash left over after bankruptcy—and they probably won’t—you may need to front them some money or consider letting them live with you while they save up.

You also should get a better idea of what caused their financial train wreck, to see what you can do to help avoid further crises. If they’re suffering from diminished capacity, you may need to talk to an elder law attorney about taking over their finances for them. If they’re chronic overspenders, they may benefit from budgeting classes from a nonprofit credit counseling agency or community college. Even if the only bad decision they made was to continue borrowing against their home rather than paying it off, they could benefit from some financial education and advice about how to live within their means. A session with a fee-only financial planner could help you all figure out what that will look like.

A: “Spendthrift trusts” are designed to keep profligate heirs from wasting an inheritance and keep creditors from seizing the trust money. These are fairly common trusts, but the wills have to be properly worded; if you’re not sure, have an experienced estate planning attorney review them.

While you’re asking your parents for copies of their wills, see if you can talk them into naming someone else to be the trustee. Putting one sibling in charge of another’s money is a recipe for disaster and continuing disharmony. Even if your sister understands that she’s hopeless with money, she is almost certain to resent you for standing between her and her inheritance. In many cases, the family would be far better off paying a fee to a bank or a professional fiduciary to be the “bad guy” controlling the cash.

A: Perhaps he has moved on, but there may not be much you can do about it.

If your mother had a will, it typically would have been filed with the probate court in the county where she lived. It would be a public record, so you could see how she wanted her estate divided.

In the more likely case that your mother didn’t have a will, the laws of the state where she died would determine how her estate is divided. Often those laws dictate that her property is divided between husband and her children.

If your stepfather isn’t following her will or your state’s laws, you could hire an attorney to try to pressure him. But you have to weigh that expense, and the enmity it will cause, against what you’re likely to gain. Are a few clothes and a cat-scratched basket really worth the fight?

You may find a change in attitude and approach more effective. Instead of getting angry and making demands, acknowledge to yourself that your stepfather has suffered a loss as well, even if he seems to have bounced back from it. Apologize if you’ve given offense, and then let him know you’d appreciate having something by which to remember your mother.

Whether or not you’re given the basket, be sure to use this experience to prevent a similar situation from befalling your own family. If you care about who receives what, make the appropriate arrangements. Have a will drawn up and pick an executor who will abide by your wishes. Better yet, give heirlooms and other possessions to the recipients while you’re still alive so you can enjoy their appreciation.

A: It’s interesting that your husband can’t clear up this mystery. Presumably he would know whether his late wife had a will and what it said.

You can check with probate court of the county where she died to determine whether a will was filed. If she had a living trust, that would be private and probably not filed with the court, but your husband should know what it said.

If she had no will or living trust, your husband was supposed to follow state law in dividing up her possessions. In community property states, without a will or trust, he typically would inherit stuff acquired during their marriage, plus a share of any separately held assets—possessions she brought to the marriage, says Burton Mitchell, an estate planning attorney with Jeffer Mangels Butler & Mitchell in Los Angeles. In other states, he says, your husband might inherit half of her assets, with the other half divided among her children.

State laws vary widely, and there are all kinds of exceptions to the general rules, so you may need a lawyer’s help in sorting out what belongs to whom.

In any case, you’d be smart to hire an estate planning attorney at this point. Your stepdaughter may not be able to pursue a legal case after all this time, but she could cause trouble when you or your husband dies. Any time a relative is likely to create a real fuss about an estate division, it’s good to get a qualified attorney’s advice as you craft your own wills or living trusts.

As you make your plans, try to be guided by kindness and compassion. Your stepdaughter may not have a legal right to lay claim to every item in your home, but letting her have items of strong sentimental value may be the right thing to do. Just think how you would feel if your father’s second wife gave your mother’s special jewelry or your grandmother’s treasured antiques to your stepsiblings. Lifelong rifts and family feuds have started over less.

Then again, all parties need to remember that stuff is just stuff. What’s a precious heirloom to one generation may wind up in the next generation’s garage sale. Resolving to put relationships first, instead of possessions, can really help all sides avoid painful battles.

I live in it; my brother and his wife live in another state. He and I share taxes, insurance, and a home equity loan. Other than that, all expenses are, and should be, my responsibility. He is livid that I am not leaving him my half of the house when I die, even though he is leaving his half to his wife, which I completely understand.

When I realized he was furious about this, I offered to make him the sole beneficiary of the house in my will if he would do the same for me. He will not, yet he remains angry, somehow believing that my being single should restrict my choice of beneficiaries. What am I missing here?

A: When you step back a bit from the spat, you might see that neither of your positions is entirely unreasonable.

A home is typically a major asset, and you want to be able to leave it to a beneficiary of your choosing. So does he, and his wife is the natural choice.

But he’s also probably dreading the idea that you’ll die first and he’ll end up owning the property with someone else. The constant negotiations and decisions required in homeownership can be excruciating and a cause for major conflict even when you have familial ties to bind you. It can be much worse when you don’t.

The other problem with your solution of “I’ll leave you mine if you leave me yours” is that you’d need to have a lawyer draw up what’s known as a will contract to make your promises binding, says Burton Mitchell, an estate planning attorney with Jeffer Mangels Butler & Mitchell in Los Angeles.

But remember, things change, and your agreement may not seem so good years later.

“The sister could always marry in the future. The brother could always get a divorce. Either could adopt a child,” Mitchell says. “No one should assume that the future is static and the facts won’t change.”

Before you do anything, check how your home is currently titled. If you and your brother are joint tenants, he typically would automatically inherit, regardless of what your will or other estate-planning document says.

If you want to leave your share to someone else, you probably would need to hold title as tenants in common.

You might want to consider and discuss a number of options, including these:

• Take out a mortgage and buy him out. This could have financial implications for both of you. You might have trouble making the payments on a new loan, and he probably would owe capital gains tax for half the appreciation since your parents died. But he would get his share of the asset in cash, and you should be relieved of any future recriminations on the beneficiary issue.

• Sell the house and split the proceeds. This means that you’ll have to move and that both of you could have a tax bill. (Because this is your primary residence, you’re allowed to avoid paying tax on up to $250,000 of the gain since your parents died. If your profit is more than that, you will owe capital gains tax on the excess.) But this could solve the issue of who leaves whom what.

• Wait a decade or so, and then get a reverse mortgage to buy him out. Reverse mortgages allow you to tap the equity in your home without having to repay the loan until you move, sell the house, or die. You can get a lump sum, a line of credit, or a stream of monthly checks. The older you are when you apply, the more money you can borrow, although there are limits, depending on where you live.

• Do nothing. This is always an option. You should be advised, though, that your brother may have a trump card, whether he knows it or not. As a co-owner, he could sell his share of the house or go to court to force a sale of the property. If that’s not an outcome you want, you’ll need to find a solution that works for both of you.