Sarah and her husband rent a place in Los Angeles and are expecting their first child. But she called into The Ramsey Show because of a tricky situation involving her mother-in-law, homeownership and the IRS — one that caught host Dave Ramsey off guard.
Why? Because this caller’s situation includes $1 million in debt and potentially deceiving the IRS.
“Sarah, there’s just so much going on here that you’re not talking about or you don’t know,” Ramsey said in a clip posted July 12. “And it’s really, really scary. There’s a line of crazy running through this conversation.”
Don’t miss
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don’t have to deal with tenants or fix freezers. Here’s how
- I’m 49 years old and have nothing saved for retirement — what should I do? Don’t panic. Here are 6 of the easiest ways you can catch up (and fast)
- Robert Kiyosaki warns of a ‘Greater Depression’ coming to the US — with millions of Americans going poor. But he says these 2 ‘easy-money’ assets will bring in ‘great wealth’. How to get in now
Here’s what was revealed during the exchange.
A questionable situation
Sarah’s mother-in-law currently lives with the couple in their rental home. However, Sarah says her grandmother-in-law has offered to buy her mother-in-law a house in Sarah and her husband’s names so her mother-in-law “is not docked by her unpaid debts from the IRS” — and the three would continue to live together in the new house.
“She has a lot of unpaid debts and so grandma is trying to take care of her by providing a home,” Sarah said.
Her mother-in-law, 55, is going through a divorce and lost her job in September after a corporate restructuring. Right now she’s making DoorDash deliveries to bring in some extra cash.
She’s also apparently $1 million in debt.
When Ramsey asks why her mother-in-law is almost $1 million in debt, Sarah responded: “I don’t ask questions.”
Sarah says she adores her mother-in-law, but wants to know if this setup would be a wise decision and, if so, what they need to “have on paper.”
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Why this is unethical
Ramsey answered clearly: “I would not do this.”
He said, by doing so, “you are tying yourself to people you don’t ask questions about, permanently, and you are taking away her reasons for getting back on her own feet. This is not good. It is not healthy.”
He said Sarah’s mother-in-law needs to recover from the grief that comes from ending a marriage and experience “what’s known as a life — not hiding at her son’s house from reality.”
Secondly, “the whole reason to do this is to deceive,” he said.
“Your grandmother-in-law is teaming up with her daughter and using you guys to deceive the people that she owes,” Ramsey said. “This is deception and I’m not going to participate in that. It’s a lack of integrity. It’s unethical.”
Ramsey guessed the debt belongs to the mother-in-law’s ex-husband — perhaps unpaid IRS debt from a failed business venture. It’s possible the mother-in-law had nothing to do with it, in which case she could potentially get rid of the debt using innocent spouse relief.
Innocent spouse relief can “relieve you from paying additional taxes if your spouse understated taxes due on your joint tax return and you didn’t know about the errors,” according to the IRS.
“I got a feeling she didn’t buy purses to get to a million dollars [in debt],” Ramsey said.
If the mother-in-law qualifies for relief and grandma wants to give her daughter some money to clean up any debt that’s left over, “I got a feeling it’s not going to be that much,” Ramsey said.
He also believes this is a better option than buying a house under deceitful circumstances.
“That would be the ethical thing,” he said. “Try to settle it.”
What to read next
- You don’t have to be a millionaire to gain access to this $1B private real estate fund. In fact, you can get started with as little as $10 — here’s how
- Here are 5 ‘must have’ items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you?
- Accredited investors can now buy into this $22 trillion asset class once reserved for elites – and become the landlord of Walmart, Whole Foods or Kroger without lifting a finger. Here’s how
- Rich, young Americans are ditching the stormy stock market — here are the alternative assets they’re banking on instead
Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free. Subscribe now.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.