Parents concerned about gifted down payment funds becoming a marital asset if daughter heads for divorce

A: Well, interestingly, if she’s closed on her home and she’s married, those funds you gave her may already be part of her marital assets. We understand your interest in keeping the funds you gave your daughter for the purchase of her home separate. And, we can understand why you’d want that money to return to you in the event of her death or divorce.

However, the time to plan for that was at the time you gave her the money. Many parents want to assist their children when they purchase a home. Home prices have risen dramatically in much of the country over the past few years and most young people have trouble scraping together the down payment. This is part of the reason why the average age of a first-time buyer is now 36, according to the National Association of Realtors (NAR).

When your daughter purchased her home, you likely gave her the money around the time of the purchase. We suspect that your daughter’s lender required you and your spouse to sign a letter indicating that the funds were a gift to her and that you were not seeking repayment. Providing what’s known as a “gift letter” is standard practice when a borrower (your daughter) receives funds from another person to use in the downpayment of a home.

The lender wants to understand what debts and assets that borrower has before lending the money and if you didn’t “gift” the funds to your daughter, those funds would have shown up as debt she owes and would have limited the amount of money she and her husband could borrow for the home.

If your daughter bought her home with her husband, we think that the funds have become commingled between them. Then, they’d be considered a marital asset. If, however, your daughter purchased the home before she got married, then it’s possible that the home and the money she put down to purchase the home would be considered assets that she had prior to marriage.

You and your daughter should sit down and talk about this gift and what your hopes (or expectations) would be in the case of divorce or death. As an aside, be prepared for this conversation to go poorly. If your daughter feels she is in a good marriage and you start talking about what will happen in case of a possible divorce, she may feel you no longer fully support her or her choices. She may also worry that your “gift” had some pretty strong strings attached to it. Your request might get more complicated if your daughter and son-in-law have kids. Your request to be repaid may impact your grandchildren.

If she agrees to your request, then set up an appointment with an estate attorney to think through your options. While you and your spouse are interested in protecting your $30,000, this might be a good time to think about your estate plan and your daughter’s estate plan.

One option is to get the home she purchased put into a trust. If she and her husband agree (assuming they co-own the property), the trust document could provide that before the home is sold or the property is transferred to your daughter’s husband, you and your spouse would be repaid the $30,000 you provided for the down payment.

The estate attorney may have other estate planning suggestions for you, and your daughter as well. Some of the rules regarding marital property may differ from state to state so it would be smart to hire someone who has knowledge of the state in which your daughter and the property are located.

Of course, if your daughter has the cash on hand, she could repay you that money now or over time. In turn, especially if you don’t expect to need the money to pay your own expenses in retirement, you can put that money in an account for the benefit of your grandkids or even in a college savings account.

There are a number of ways to frame what by all accounts could be an extremely difficult conversation. A trusted financial advisor or estate planner should be able to help.

(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, a financial wellness technology company. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through her website, ThinkGlink.com.)