Atheist: “It would have been better for God to have never created us so we would never have to pay the penalty for our sin.”
Answer: The problem here is that the question is not being asked from a God-centered perspective, it is asking the question (why God created the world/humans at all) from a man-centered perspective: “what’s in it for us?”
God didn’t create the world merely for our benefit; God created us for His glory. He created a world that would display His glory most fully and most perfectly. That is to say, every aspect of God’s character could be shown in its most extreme form. If God had created a world in which no one sinned, what aspects of His character could He have shown—His creative power, His loving-kindness, His provision for his people? But what about His mercy? Or His justice? Or His wrath? And would we have seen even His creative power to its fullest extent if there had been no death and therefore no resurrection? Could we have known the greatness of His loving-kindness if He had not shown it to faithless Israel?
Paul explains something of this in Romans 9:22-23
‘What if God, desiring to show his wrath and to make known his power, has endured with much patience vessels of wrath prepared for destruction, in order to make known the riches of his glory for vessels of mercy, which he has prepared beforehand for glory…’
God’s wrath expended against unrepentant sinners demonstrates the riches of His glory, just as His mercy shown to those saved demonstrates His glory. God didn’t create us to be happy; He created us to be holy, and to be in a holy relationship with Him.
The last aspect to this question is the idea that the punishment of hell is far worse than not having existed at all. God is a just God. Sinners will pay appropriately for their sins in hell—not a second more, and not a second less. The descriptions of hell in the Bible were not given like a scientific journal. There are metaphors that offer what the payment of sin will be like. If the description of hell makes you uncomfortable…good! It should. The only thing you should be thinking is, "If the Bible is true and the claims of Jesus are true, then I want to be with Jesus--not that place without Jesus. We will never know the full details of heaven or hell while we are here on earth. It is one of those missing pieces of our puzzle of truth. Don't let the mystery of what can't be known take away from all that CAN BE KNOWN.
The bottom line is this: Hell is not a place you want to go, or a place you want your loved ones to go. So instead of going to great lengths to twist God’s own character around and trying to checkmate Him with His system of justice, why not just accept His offer of salvation through His son Jesus Christ?