A divorce brought an unexpected financial reality into focus for one family.
Calling from Ann Arbor, Michigan, Mike told “The Ramsey Show” that his older sister is going through a divorce and has three children, the oldest about three years from starting college. He said she and her husband had been living comfortably, with their children in private schools, luxury vehicles, and regular vacations.
As the divorce process unfolded, Mike said the numbers showed something different. The couple had under $50,000 in savings, including retirement accounts. At the same time, his sister planned to buy her husband out of both their home and her dental practice, a move that would require $800,000.
She could not qualify for a bank loan because she was already overleveraged, Mike said.
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Mike said his parents initially agreed to provide $400,000, and then decided to cover the entire amount using their retirement nest egg.
Before his parents finalized their decision, Mike said his sister asked whether he and his husband could lend her $400,000. He said that amount would require selling one of their properties.
She later called back and said she had made other arrangements. Those arrangements turned out to be their parents, Mike said.
“All this is a horrible idea,” co-host John Delony said.
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Mike said it remained unclear whether the $800,000 would be treated as a loan or a gift. He said his parents also wanted conditions attached, including repayment if his sister reconciled with her soon-to-be ex-husband.
“So we’re going to let her go almost a million dollars in debt to us. Awesome. Great plan,” co-host Rachel Cruze said.
Mike said he shared his concerns with his parents, and added that he is the executor of their will. He wanted his parents, who lived frugally and paid for his and his siblings’ college education, to enjoy their retirement rather than use it to sustain a lifestyle that no longer matched the numbers.
“Sometimes the greatest gift is to let it all the way unravel and sit with somebody in the ash,” Delony said.
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