Updated on 01.30.07

Financial Independence Week: When And How To Cut Direct Financial Ties

Trent Hamm

For some, deciding when to cut financial ties is easy. In my situation, it was the day I left for college: other than birthday and Christmas gifts, I was basically on my own after that (though my mother would irregularly send me small amounts of cash with the purpose of “going out and having fun” during my first year of college).

For many others, though, finding the right time to sever financial ties can be difficult. Should it end when they go to college, or should you support them throughout their studies? Should you continue to give them money while you can “afford” it? For many families, these are questions without clear answers, and by avoiding them, you’re merely postponing the inevitable.

So when is the right time to cut ties?

When your heart even begins to hint that it’s time, it’s almost always time. Many parents tend to wait longer than necessary to cut financial ties to their children out of a sense of obligation. The truth is that by paying allegiance to this imagined obligation, you’re actually damaging their personal growth by supplying them with financial support.

When your parents cut ties with you. Think back to that period and ask yourself whether that was the right time – and whether you learned important things from that separation. This is the best example you have in your life of how to cut the ties, so use it as a frame of reference to decide what is right for you.

When your children are using the money to buy many frivolous things. If you see that your children are buying brand new automobiles and other items that are clearly beyond their means without your support, it’s time to consider cutting the support because they’re beginning to use your support as part of their expected salaries.

When they begin to expect and demand what you give them. When support of an adult begins to transform from assistance to entitlement, it’s time to stop giving and let them start living.

Here are some tips for when the time comes to cut financial ties.

Make it clear why you’re doing it. Don’t just call them up and say, “In six months, you’re done,” because that will just cause resentment. Instead, call them up and reinforce the fact that you feel they are ready to be on their own. Don’t let it be about money, let it be about independence and respect for a maturing individual.

Give plenty of forewarning. Do not just cut ties without warning, because they may have made financial commitments relying on your support. Instead, give them a cutoff date that’s very clear (a calendar date, not “in about a year”). You might also want to start slowly reducing the support.

Offer advice and nonfinancial support. Offer as much advice as they want, but don’t thrust it upon them. While doing this, be very careful to follow some basic advice for talking about money to adult children. Don’t be pushy about it, but make it possible for them to come to you.

In short, you should frame the conversation about independence and respect, not around dollars and cents.

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  1. Jessica says:

    So I know this is a comment on a super old post, but going through your posts on financial independence made me think of something I went through with my parents.

    If you expect your children to be independent, don’t depend on them for tax benefits. My parents told me I would be paying my way through college, which was fine with me. However, I was shocked when I discovered they still planned on claiming me as a dependent on their taxes, and deducting my tuition from their income. By the time I discovered this, my withholding for the prior year had already been set as if I was independent, and I suddenly had a tax bill for a significantly larger chunk of the $15K I’d earned through my 3 part time jobs. This continued until I graduated (although the next year I adjusted my deductions to account for it) and then they complained that their taxes went up when they could no longer claim me.

  2. Ivy says:

    I had a similar situation to Jessica’s. I got told that because they were paying, I was to let them deduct me… which is fine. But then when they quite suddenly told me that I was on my own they kept claiming me, and I couldn’t get financial aid because I had to be off my parent’s taxes (for two years in fact). I had to leave school and work full time for a while to save up tuition and finish my degree.

  3. Robin says:

    I also actually had a really similar situation. It has caused a lot of resentment between myself and my parents. When I turned 16 and got my first job, I was suddenly on my own for anything that required cash to purchase (though I was still privy to a warm roof and the food in the fridge, health insurance and the like). When I went off to college and was set “free” my parents refused to stop claiming me and my tuition, which they weren’t paying any of. It was just salt in the wound that they used the money to buy things like a hot tub. I’m still pretty upset about this and I have a terrible amount of trouble talking to my parents sometimes. Just a thought if you’re considering cutting off your kid – there are responsibilities and repercussions on both sides.

  4. Mike says:

    Robin, Ivy, and Jessica,

    Technically according to the IRS and how college financial aid system works your parents are allowed to claim you as a depended (while you are in college) up to age 24. IF you are not in college your parents are not allowed to claim you if you are over 18. In order to have financial aid not tied to your parents (nor for them to claim you on their taxes) is possible, but requires some tricky legal maneuvering (there is actually a word for it that is escaping me at the moment). Or you can get married (though I wouldn’t get married for just that reason).

    Having your parents claim your tuition that they are not paying it illegal. Not saying you necessarily want to turn them in for it, but that is what it is. I know this was the case while I was in college as I have been doing my own taxes since I was 14 (it was a 1040EZ until my sophomore year in college when I started having to deal with other things like “allocated tips” and then capital gains on some free stock I received that got merged and I got cash for the partial share after the merger and weird stuff like that).

    I still do my own taxes w/itemized deductions that include my mortgage interest among other things. It is pretty well spelled out in the instruction book near the beginning under the “Dependents” section (or something like that).

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