How fiance should manage lawsuit settlement


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Dear Senior Living Adviser,
My fiance is about to receive a lawsuit settlement from a wrongful death suit of his wife. He is 62 and has been financially irresponsible all his life. We are both on Social Security with no other income.

He is underwater with his house, has no retirement savings — but no other debt. His home needs many repairs, his car is old, etc.

My house and car are paid for. I have no debt and $42,000 in an IRA.

He wants to give some of the money to his three sons (all adults). How much should he give his children? Since this is going to directly affect me, how can I help him decide how to allocate the rest of the money? Thank you.
— Sharon Share

Dear Sharon,
I expect that your fiance wants to share the settlement with his adult sons because he recognizes that when he lost his wife, they lost their mother. They shared in the loss; he wants them to share in the settlement.

There are gift tax implications for large gifts above the annual exclusion amount, which for 2014 is $14,000 per person. But they aren’t all that onerous — just something to deal with at tax time when making a large gift.

You’re painting a picture that you’re in control of your finances and he is not doing a very good job with his, and the majority of the lawsuit settlement funds should be spent righting his finances for your future together. I can understand that point of view, but I’d tread lightly in volunteering your opinion on how the money should be allocated. Bringing in a financial planning professional on a fee-only basis to discuss his retirement income needs and how the settlement should be invested would get you out of the role of financial adviser.

That said, it would be healthy to have a discussion on how you’ll manage your finances as a couple after you’re married. What happens with the proceeds if you sell your house to move into his home? How many cars will you have? Will you keep your money separate or in a joint account? Who pays the utilities, the mortgage, the insurance and the cable bills?

Since he’s just 62, it could make sense for him to withdraw his Social Security claim and reapply when he reaches full retirement age, or even wait until age 70. If eligible, he would have to repay all the benefits received. This can only be done in the 12 months following when he was entitled to receive retirement benefits. He can talk to a representative at the Social Security office for more details.

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