Financial Windfalls – The Fantasy And Epic Fails

You have just received a windfall, and you do not know what to do.  Or maybe you have a list of things you want to do and are ready to spend that money starting tomorrow.

Hold on, not quite yet.  First, let’s define instant wealth. Instant wealth is receiving a large sum of money, larger than what you are accustomed to. That amount can range from $5,000 to millions; it’s a relative amount. What isn’t relative is that more often than not, when we are lucky enough to receive instant wealth, we often have no idea how to handle it.

There are too many stories about lottery winners who get it all, then just as quickly lose everything plus more, falling from rich to well below the poverty line.

Sharon Tirabassi won ten million dollars in the Ontario Lottery. Ten years later, she has nothing to show for it. She spent almost all her winnings on a big house, fancy cars, designer clothes, lavish parties, exotic trips, handouts to family, and loans to friends. Today she works part-time, rides the bus, and lives in a rental house. What remains is in trust for her six children; the money will become available when they turn 26.

Her warning to the newly rich: “If you’re not disciplined, you’ll go broke. I don’t care how much money you have.”

Other well-documented examples are celebrities and athletes who earned enormous amounts of cash for years only to end up with nothing, not even their health.  It can also be said that money will not protect you from bad choices.

“Iron Mike” Tyson won 19 professional fights by knockout. He became the heavyweight champion of the world. In 1992, he was convicted of sexual assault and served three years in prison. When he got out, no amount of comeback matches could get him back his mojo, and after biting off a piece of Evander Holyfield’s ear during a 1997 fight, Tyson was disqualified. He never again won another championship.

Tyson had won over $400 million in his boxing career, so money shouldn’t have been a problem. However, he spent almost all his earnings in extravagant living. His divorce settlement was for $9 million, and he ended up owing $13 million to the IRS. He filed for bankruptcy in 2003 claiming debts of $27 million.

Michael Vick played for the Atlanta Falcons and had signed a record $62 million six-year contract, along with a $3 million signing bonus. Three years later, he signed a ten-year extension worth $130 million, making him the highest-paid player in the NFL. In 2007, Michael Vick went to prison for running an illegal interstate dogfighting ring. The prison sentence kept him from playing for almost two years. He lost his NFL salary and all his endorsements including a very lucrative Nike sponsorship. The loss of income and bad financial management forced him to declare bankruptcy while still in federal prison.

Kenny Anderson earned an estimated $60 million during his NBA career after playing for nine different teams. He was married three times. Tami Akbar, his first wife, was able to challenge their prenuptial agreement and received half his assets and $8,500 a month in child support. Anderson had six other children and two other ex-wives he was supporting. He was making monthly payments on his mother’s house. He also owned eight cars and an estate in Beverly Hills. He gave himself a $10,000-a-month allowance that he referred to as “hanging out money.” At the time of his bankruptcy filing, his monthly expenses totaled $41,000.

These athletes all worked hard and sacrificed many things to make it to the top of their professions. But, when it came to finances, they made spectacularly bad decisions. They were unable to exercise the discipline it takes to manage that kind of instant wealth.   

You don’t need to be a pro-athlete to come into instant wealth. It most commonly comes to us through inheritance.  According to CNBC, which is a casual reference at best, “In the next few decades, some $30 trillion will be transferred from one generation to the next.”.

This transfer has already begun as the War Babies and other generations have gone. We know that some of you have been introduced to wealth while others have not. We do not yet know how the next generation will handle their instant wealth. What we do know is you need to prepare now in order to make good decisions later. Find the right certified advisors, financial planners, attorneys, therapists, enrolled agents, and/or CPAs now; don’t wait for a crisis (a good crisis, but a crisis nonetheless).

Stock options from your employer can also make you instantly rich. The way this wealth is transferred and handled is yet another question a professional can best answer. If you are eligible for stock options or if stock is part of your compensation package, find out what that means exactly. Again, good news can quickly turn into a major headache if you are unprepared.   

Divorce settlements can also be counted as instant wealth. Prepare to take this extra money into an account and plan how you are going to make this money last. Is paying off debt the right thing to do or should you invest and use the resulting income to pay down debt.    Have you received half the business as part of the settlement?  Is it time to make sure your family is protected do you need to take care of risk either through self-insurance, insurance, or special trust and other contracts that protect your assets.

Inheritance is instant wealth, you need to stop and check and see how the assets will transfer. Will this be taxable?  Will it be distributed in a single lump sum, or will it trickle in? Will it be property that is transferred to you? How will this be managed, do you need professionals like a CFP®, CPA or Attorneys? Did you inherit life insurance, an  IRA or retirement plans as a beneficiary? Did you inherit investments, antiques, heirloom’s, land or other personal and tangible property? Did you end up with the family business?     

Are you taking your retirement in a lump sum? That too is instant wealth. You’ll need to invest and plan if you want that money to last until you are in your nineties.

These are all resources that need to be harnessed and protected. When it comes to instant wealth, the most important response is discipline. Planning your lifestyle and monitoring

your investments need to be considered. Find advisors, financial planners, attorneys, and therapists who will help you not only grow but protect your assets from the risk of your emotional roller coaster. Hire professionals, and for a time, you may want to keep your windfall to yourself. Don’t give friends and family the opportunity to take advantage of you.

Have questions? Contact Lillian Meyers.


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