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The Harder They Fall

Structured settlements don’t often make it into the mainline press and, nope, they haven’t again this month. However, every now and again, prominent publications DO visit the fundamental financial issues at work in the decision of whether or not to structure. Outright security is always a priority, but a drumbeat is building for greater focus on preservation and conservation of peoples’ recovery. And so it turns out that conserving a large sum isn’t easy – for people of all stripes, injured and non-injured, sophisticated and unsophisticated.

This month I thank New York Times writer Geraldine Fabrikant for her article “Family’s Fall From Affluence Is Swift and Hard”.1 In fact, her story is so on point that I will lead directly with the article itself before abridging slightly for purposes of space:

Grateful to have found work in this tough economy, Nick Martin teaches grape growing and winemaking each Saturday to a class of seven students in a simple metal building at a satellite campus of Highland Community College in Wamego, Kansas. Then he drives 14 miles in an 11-year-old Ford Explorer to a sparsely furnished tract house that he rents for $900 a month on a dead-end street in McFarland, a smaller town. Just across the backyard is a shed that a neighbor uses to make cartridges for shooting the prairie dogs that infest the adjacent fields.

It is a far cry from the life that Mr. Martin and his family enjoyed until recently at their waterfront camp at Tupper Lake, in New York’s Adirondack Mountains. Their garage held three stylish cars, including an Aston Martin; they owned three horses, one that cost $173,000; and Mr. Martin treated his wife, Kate, to a birthday weekend at the Waldorf-Astoria, with dinner at the "21" Club and a $7,000 mink coat.

That luxurious world was fueled by a check Mr. Martin received in 1998 for $14 million, his share of the $600 million sale of Martin Media, an outdoor advertising business begun by his father in California in the 1950s. After taxes, he kept about $10 million.
Mrs. Martin recalled the summer night in 1998 when the family was having a spaghetti dinner at home in Paso Robles, in central California, and a bank representative called to ask where to wire the money. "It seemed like an unbelievable amount," she said. But as so often happens to those lucky enough to realize the American dream of sudden riches, the money slipped through the Martins' fingers faster than they ever imagined.

Soon after the money arrived, the family bought a house in Somerset, England, and 3.5-acre camp with four structures on Tupper Lake, deep in the Adirondacks, as a summer home. They began extensive renovations at the lake, adding a stunning three-story boathouse and two other buildings. But life in England turned sour and the family's living costs; school fees, taxes and even advice for filing tax returns swelled. In 2002, fed up with England, the Martins chose a new base, Vermont, and bought a home there, as renovations continued on the Tupper Lake property.

By March 2007, the Martins were determined to move to the lake full time. They managed their expenses for a while, but the costs mounted and mounted some more as they worked at refurbishing the Adirondack property — eventually totaling a staggering $5.3 million, he also poured another $600,000 into the Vermont property.

Then came the financial crisis. The markets plunged, as did the value of the Martins' trust. The houses could not be sold. They have stopped making payments on their $1.1 million mortgage and their $53,000 in annual property taxes in the Adirondacks as well as the mortgage and taxes on their Vermont home. They cannot afford those obligations on Mr. Martin's current annual salary of $51,000.

Given the complexities and pressures of new wealth, they could not resist the temptations to indulge in everything such American “success” dictated that they consume. Their $10,000,000 fortune evaporated in little more than a decade. Mr. Martin, a strapping man with a disarming bluntness, seemed dazed by it all: "We are basically broke," he said.

Though he faults the conventional wisdom of investing in stocks and real estate for some of his woes, along with poor financial advice, he accepts much of the blame himself. "We spent too much," he conceded. "I have a fourth grader, an eighth grader and a girl who just finished high school. I should have kept working and put the money in bonds."

Though Mr. Martin could not have benefited from a tax-free structured settlement as he was not an injured claimant, his wistful mention of “should have put it in bonds” actually reveals something critical in all financial planning: establishing a secure income base. Given the timing of his windfall, had he invested only half of his new wealth in a guaranteed fixed annuity, he would have generated in excess of $300,000 per year for life and those funds would still be flowing today, guaranteed. All this landing on a man who was just sitting happily eating spaghetti with his family, think he would like to be back at that table again?

Now if Mr. Martin can edge through this nightmare, he and his family may just be okay, but imagine what difficulties an injured plaintiff faces trying to make good financial decisions with similar large sums. Becoming suddenly “cash-rich” can result in being “income-poor” before people know it.

It is a rare thing in life when you can legitimately offer something of extraordinary value to a person who could really use it. Do claimants and their families a genuine favor by informing them of this option. And if you feel unsure of how best to explain it, call Frank C. Kilcoyne, CSSC at 800 544 5533. I am here to help.

1Geraldine Fabrikant, “Family's Fall from Affluence Is Swift and Hard”, New York Times November 29, 2010
accessed January 12, 2011, http://www.nytimes.com/2010/11/26/ business/26fall.html?_r=1&ref=geraldinefabrikant.