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Back child support given in a lump sum...will he have to pay taxes?

Mil and Fil divorced when dh was 12. Fil didn't pay support for dh and his 2 younger sisters. So here we are, 25 years later. Dh has only seen his dad a handful of times since the divorce, the last time he saw his dad was 8 years ago.
Well, today dh got a phone call from a family member asking him to call his dad. Apparently fil got a large settlement from something and wants to give dh a check for him to split with his sisters...we're not sure if he legally has to (mil never sued him or anything) or if it's something he wants to do, but of course we want to take that $. I just don't want dh to get stuck paying taxes on it, we're talking upwards of $50,000.
I've never dealt with CS so I have no idea how any of it works.

 
Anonymous

Asked by Anonymous at 11:53 PM on Jan. 22, 2011 in Money & Work

This question is closed.
Answers (7)
  • If this is for back child support then the money needs to go through his mom not directly to the kids. His mom paid for them growing up so the money is owed to her. And FIL will want to have documentation of this because she can at any time sue him for it.

    However if he does decide to gift more than that, then he is the one in charge of paying taxes on it not your husband.

    'Who pays the gift tax?
    The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement."

    http://www.irs.gov/businesses/small/article/0,,id=108139,00.html#1

    That's the URL to the IRS website. It has tons of good information on there. Congrats to you and your husband. It sounds like FIL is turning over a new leaf!
    Erica_Smerica

    Answer by Erica_Smerica at 10:26 PM on Jan. 23, 2011

  • You can receive up ton $13,000 gift without paying taxes. As far as splitting it you may want to talk with a lawyer about handling that for you that way it doesn't look like he received the $50,000. Or you could ask the fil to write everyone separate checks. But there is no way this would be considered child support.
    JeremysMom

    Answer by JeremysMom at 7:24 AM on Jan. 23, 2011

  • $13,000 was the threshold in 2010 ($13,000 for individual, $26,000 ($13,000 each) for a married couple); not sure if that amount is still the cut off for 2011. And like JeremysMom says, if FIL is giving the $$$ to 3 people, he'll need to do it individually (no more than the threshold amount to avoid taxes) and not all to one person who will then distribute to the others. In that scenario, the individual who receives everything will be taxed on the entire amount, even if he turned around 2 seconds later and distributed to the others. Talk to an accountant re: your options and tax consequences before you even touch 1 cent of the money.
    Anonymous

    Answer by Anonymous at 1:30 PM on Jan. 23, 2011

  • I would assume you pay taxes on it. I mean, doesn't it ask on the tax forms if you were paid any type of support or if you paid any? Technically, he isn't paying CS because he is not a child anymore, but that is a lot of money! I would assume if IRS found out about it and you didn't pay taxes you would get in trouble but I really couldn't say for sure!
    ILoveCade

    Answer by ILoveCade at 11:58 PM on Jan. 22, 2011

  • See, that's my concern. Dh is supposed to go get the check and split the money with his 2 sisters. They've decided to include mil and split it 4 ways. So we need to figure the tax thing out before he hands them any of that money or they'll get their cut and we'll get screwed!
    Anonymous

    Comment by Anonymous (original poster) at 1:18 AM on Jan. 23, 2011

  • Thanks for the replies, ladies. Dh called his dad today. As it turned out, it's NOT child support he's giving them. Actually, it's not $ that HE is giving them anyway. Fil served in Vietnam and was awarded a settlement recently, they backdated it to 1988. (apparently mil gets nothing as they divorced in '86). I'm guessing that's a decent amount for fil! Fil found out that dh and his sisters qualified for college assistance, which they had been turned down for before because when they were in college, he hadn't gotten his settlement yet. Apparently they will be reimbursed that money now after meeting with fil at the VA office with their birth certificates and transcripts. Mil is mad she gets nothing, both sils are mad that dh will get more as he has a 4 year degree and one sil has a 2 year and they other only went a few semesters. It's X amount of dollars per month they attended college.

    Anonymous

    Comment by Anonymous (original poster) at 11:04 PM on Jan. 23, 2011

  • And the $ is tax free (according to fil...we'll check)

    The sils don't even want to go to the VA office, but they have to if they want their money. Fil has been a jackass in the past, leaving mil to raise them with nothing, but it really seems to me that he's trying to do something for them now. He didn't have to tell them they could get this money, they never would have known. He's willing to drive 10 hours round trip to go to the office with them. And it was pretty sweet to hear ds talking to his only grandpa on the phone for the first time.
    Anonymous

    Comment by Anonymous (original poster) at 11:09 PM on Jan. 23, 2011

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