How to Manage a Financial Windfall

“What would you do if you won the lottery?” It’s a common question asked by people who really just want to tell you their answer, which usually involves some combination of Italian luxury goods, exclusive real estate, and daily freedom between the hours of 9 and 5. As they say, you’re more likely to get struck by lightning, but many people do find themselves in a similar situation, struggling to manage a financial windfall after receiving a divorce settlement, inheritance, life insurance payout, or proceeds for the sale of a business.

In all of these situations, it is important to remember the emotional component. Whether a marriage has ended, a family member has passed away, or a life’s work has been monetized, each event is life changing in more than just the financial sense. When you receive a windfall, it generally signifies that you have recently lost something too:  a marriage, loved one, or business. So it is important to take time and adjust to the new normal. In other words, do not make any big decisions (read:  purchases) before you have taken time to process.

Your first priority is to seek professional advice. If you are used to handling only a fraction of the funds you now have available, you will need guidance on setting priorities and establishing a game plan to maximize your new-found wealth. Look for someone paid on a “fee only” basis and not through sales commissions on financial products to ensure that you are actually receiving objective advice. This advisor will help set objectives like paying off debt, saving for retirement, and funding kids’ education.

Keep in mind, however, that you get your share, but Uncle Sam may also get his. Taxes do not apply to the receipt of inheritance, life insurance payouts, or divorce settlements. But they make a huge difference in alimony or during sale of a business. One strategy for reducing taxes on the sale of a business is seller financing. Setting up an installment sale for your business will allow you to defer recognition and resulting taxes on some of the gain. This technique is especially useful if it will keep you out of the highest bracket (39.6%) and spread your gain out evenly over a number of years.

A financial windfall also engenders a desire to give back to your church, community, or alma mater. This reaction is healthy and good, but you also want to have a plan for how much and when. It is easy to start writing checks whenever there is money in the bank and it is “for a good cause.” But you need to decide in advance what organizations are important to you, how much you want to set aside for them, and when you will be contributing. You want to have the greatest impact on the organizations most important to you and also create the greatest tax benefit for you. That attitude may sound selfish, especially in regard to giving, but this way of thinking is all a part of prudent financial planning.


Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at