Divorce is a financially and emotionally taxing ordeal, but it is not unusual for one or both of the parties to get financial assistance from their parents. In some situations, this money might be required to pay for court costs and attorneys’ fees related to a settlement agreement. If you are going through a divorce and have been approached by your parents about providing financial assistance, then there are certain things you should consider before accepting any money.
Purpose and Impact of Financial Assistance
Reason
All parties must first agree upon the purpose for which the money is being given, i.e., whether it is intended to be a gift or a loan to support one party during the course of the proceedings. It could play a significant role in determining who obtains what assets when everything is legally resolved, depending on the amount of money offered and if it will need to be repaid at a later date. It’s also crucial to make sure each parent is aware of precisely how his or her contributions will affect how the property will be divided after everything is said and done so there won’t be any surprises later on down the line.
Tax implications
When deciding whether or not to accept money from your parents during a divorce, another aspect that must be taken into consideration is the tax implications. Depending on how much support has been granted, it may have a major influence on both parties’ tax returns. The Internal Revenue Service (IRS) mandates any support payments made by one parent to the other be recorded on their taxes. It’s important to seek advice from a financial advisor or divorce attorney who has experience handling cases like yours so they can advise both parties on the best course of action and help you avoid any future confusion or conflicts.
Do not use the funds as leverage
Finally, it’s crucial for both parties to keep in mind that, even if your parents are providing financial support throughout a divorce, you shouldn’t use this money as a bargaining chip or leverage to get a better divorce settlement. Accepting money from parents during divorce in an effort to gain the upper hand could lead to a whole new set of problems and is likely to make things worse in the long run.
TAKE AWAY
While it is feasible for your parents to support you financially during a divorce, it is crucial for all parties to be informed of the potential implications before a decision is made. By taking the time to carefully explore all aspects of such an arrangement, everyone can be sure they are making a choice that is in their best interests.
In general, it is best to only accept money from your parents during divorce if you have given the decision significant thought and with the full understanding of both parties involved. To ensure all parties are completely informed and aware of any potential consequences, it is always a good idea to speak with a financial advisor or lawyer with experience in divorce processes.
At Purposeful Wealth Advisors, we understand the complexities of divorce and money distribution. We’ll work closely with other dedicated professionals – divorce attorneys, and accountants – to arrive at comprehensive solutions.
Contact us today to learn more about how we can help you.
Opinions expressed are those of the author and are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
