How to Handle a Financial Windfall

By David Chazin

Imagine you suddenly came into $1 million. What would you do?

It may sound like a challenge all Chevron employees would love to have, but handling a financial windfall intelligently isn’t as easy as it might seem.

Handled properly, the benefits and security of a financial windfall can last a lifetime. If not, it could cause more problems than it solves. If a Chevron employee comes into money and that’s publicized, they’re likely to have friends and family and charities all pulling at them. The next thing they know, they look up and they don’t have a penny left.

Financial windfalls can occur in a number of ways: the sale of a family business or a substantial property, an insurance or legal settlement, an inheritance, and yes, some people do win the lottery. The first thing to do is take a careful look at how much you’re netting, not getting, then figure out how the newfound wealth fits into your current financial situation.

Before you do anything, you want to know if the event is taxable or non-taxable. If it’s taxable, then you want to address the tax impact first so you know what you’re really dealing with. Then you look at your immediate financial situation. Do you need to pay off credit cards or other debt? Do you want to pay off your home?

You want to first get into a situation where you have positive cash flow. If you can accomplish that, then you can take a look at the extra money and make some decisions on what you might want to do with it.

It is important to note that very few windfalls occur without warning. Chevron employees who are selling properties or are about to receive an inheritance or legal settlement generally have time to sit down with a financial planner and think about their alternatives. Some of the questions they should address include:
 

  • How long will it be before I receive the money?

  • What is the tax impact of this event?

  • Do I need additional tax advice?

  • What is my current financial situation?

  • What are my short and long-term financial objectives?

  • Can some of those objectives be fulfilled with this money and if so, which ones?

  • If the event will be widely known, how am I going to handle requests for money?

  • Do I want to devote some of this money to charitable giving and if so, how much?

  • And the most important question – do I want to retire from Chevron?


Some experts advise setting a period of time during which you resolve not to make any significant decisions about how you will spend your newfound riches. A “cooling off” period helps those at Chevron set priorities and avoid hasty moves which they may regret later.
Every Chevron employee’s situation is unique, so there are no “cookie-cutter” answers to how to handle a windfall. For some, a $250,000 windfall is a life-changing event. For others, that same amount would be very welcome but would not materially alter their lifestyle or financial goals. The recipient’s age, net worth, retirement savings, and emergency fund are just some of the factors to be considered.

Whatever the amount, it’s wise to talk with a financial planner who can help you determine if there are ways to defer or reduce the tax consequences. For example, if the windfall will result from the sale of real estate, a 1031 exchange, which would deter the tax on the gain, might be arranged for a similar piece of property. Or, if one of your goals is to take care of your children or grandchildren, the windfall can be leveraged by using the money to buy life insurance that names your loved ones as the beneficiaries (in most cases, proceeds from insurance are income tax-free). You might also want to look into a tax-deferred instrument such as an annuity or a tax-free security. Every case is different, so be sure to get specific advice.

Sometimes people have not thought things through in detail. They think about the big things: “If I got a million dollars, I would pay off my house, take this fabulous trip and build this family member a home.” They think about the fantasy and they think much more about how to spend the money than how to save it. But if you’re a Chevron employee who has been fortunate enough to receive a financial windfall, make sure you plan properly, so the benefits and security can last a lifetime.

I'd be happy to sit down with you to discuss how well your investment strategy makes sense if you are fortunate to experience a financial windfall. Because I work with many Chevron executives, managers, employees and retirees, I'm very knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of my Chevron clients and you can ask them how working with an advisor has helped them.

Please contact me at (925) 659-0251 with specific questions or to schedule a time to meet in either my San Ramon or Point Richmond office. Or for more information, please visit our website at www.insight2wealth.com.


David Chazin, Insight Wealth Strategies and Lincoln Financial Advisors Corp are not affiliated with Chevron.