07 Mar Protecting assets from deadbeat stepchild

Q. My wife’s 39-year-old daughter, who has never worked, convinced her mother to cosign for student loans 20 or so years ago. I’m 76 and retired and my wife has no income. We’ve always filed “married filing jointly.” Last year the IRS took all of my tax refund to pay back the student loans. I appealed as an innocent party and eventually got my refund back. What should I do so this doesn’t happen again?
— Stepdad

A. The smartest thing you can do is speak to an attorney to make sure you are protected against these student loan repayments. Because your personal situation has many moving parts, we don’t want to steer you in the wrong direction.

But we want to offer a couple of ideas.

First, consider filing as “married filing separately” in the future.

“This way, nothing comes back at the husband,” said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston. “Of course, there is additional income tax, but it comes with peace of mind.”

Then, assuming you’re no longer working and you’re paying taxes through estimates or withholding on pension benefits, you can reduce the estimated payments to minimize or eliminate the refund.

“While there may be interest or penalties, it is likely to be less than any amounts due on the student loans if he is found to be liable for their repayment,” Karu said.

And finally, Karu said, tell your stepdaughter it’s time to get a job, assuming she is able to work.

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