How should my Spouse and I handle a $300,000 Settlement?

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Topic Author
smithbt2
Posts: 38
Joined: Fri Oct 05, 2018 8:44 pm

How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 10:47 am

My spouse received a $300k settlement from which spouse will receive $225k after legal fees. I can't discuss the exact specifics of the case, but we are definitely satisfied with the outcome. Of course, we both realize that $300K is not truly a lot of money, after taxes and attorney fees. Here's a summary of our current financial situation.

Settlement Details

Amount: $300,000
Attorney Fees: $75,000 (25%)

Ages

Me: 24
Spouse: 28

Income

I earn a salary of $90,000, plus I have options of 200,000 Common Units, equal to roughly 3.2% of the Company.
I earn an additional $1,125 (sometimes as much as $1,500) per month through my Limited Liability Company.
My spouse is a full-time, hourly employee earning $18 per hour.

I have a mortgage certificate and receive a Federal Tax Credit of 25% of the interest I pay on my mortgage, capped at $2,000, for the life of the loan.

Debts

My Auto Loan - $923 per month with a remaining balance of $47,591 - 3.49% APR, 60 Months
Spouse's Auto Loan - ~$568 per month with a remaining balance of ~$21,000 - 21.99% APR, 60 Months (horrible rate, I know...)

Mortgage - $1815 per month with a remaining balance of $290,700 - 3.625% Interest Rate, 30 Years. I closed on a refinance on Friday, getting out of the 4.875% Rate I had from my purchase in December. The payment was $2050 until Friday. I do have PMI of $108 on the loan, so I can reduce the mortgage further by eliminating PMI. The house and mortgage are solely in my name.

Student Loans - $4,800 Remaining at ~4%

No Credit Card Debt :D

Retirement

My SEP IRA: $1,156.11
My Roth IRA: $9,199.98
My Rollover IRA: $7,909.76

I do not have a 401(k) Plan available to me at this time. Management and I are evaluating 401(k) Plan Options and I believe we will move forward with Employee Fiduciary in 2020 (low fees!).

My spouse does not have any money set aside for retirement at this time. :|

Assets

Primary Residence - $310,000
My Savings - $20,000
My Checking - $1,600

Questions / Concerns

1. What are our options to tax defer some of this money for retirement? It will be paid by the employer as 1099.
2. If we file together as Married, will I still be eligible for the Roth IRA? I suspect not, which is concerning since I contribute to my Roth IRA weekly. It might make sense to file as Married - Filing Separately.
3. Are the attorney fees of $75K deductible from the taxable amount of $300K?
4. I believe it is best to eliminate the auto debt and pay down the mortgage (roughly $45,900) to eliminate PMI. Does this sound like a good plan?
5. I understand my car is expensive, but it is not going anywhere. It is a sports car and I get a lot of enjoyment out of it. At least I didn't buy new - it would have been a $90,000 car new. I bought it Certified (2015 Model Year) and let someone else eat the biggest depreciation. I do work from home so I don't have a daily commute, which saves miles on my car. It is garage kept.
Last edited by smithbt2 on Sun Aug 11, 2019 11:09 am, edited 1 time in total.

Olemiss540
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Olemiss540 » Sun Aug 11, 2019 10:55 am

You are LITERALLY in the 1% in terms of positioning yourself to be financially independent at a young age. Yet you are making HORRIBLE financial decisions with regards to finances. Between the two horrible car purchases you have put yourselves in a position to be bailed out by a harassment suit that should have went to recovery from a traumatic and horrible situation.

I would chunk whatever money that came out of the lawsuit into a taxable brokerage account invested in a growth stock mutual fund and force myself to dig out of the hole I put myself into with sports cars and 22% auto loans to hopefully train myself to never make that mistake again. Continue diligent savings once your loans are fully paid off (excepting the mortgage) and save 30% of your gross pay into retirement accounts so you can make decisions for yourself once you hit 40.

The bright side is there are few mistakes at your age that could derail your future, and you are obviously extremely savy/intelligent in business matters so hopefully have a tremendous upside potential with regards to future income potential.
Last edited by Olemiss540 on Sun Aug 11, 2019 10:57 am, edited 1 time in total.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

lgs88
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by lgs88 » Sun Aug 11, 2019 10:55 am

Zero out your spouse's car loan. You're not gonna get better than 22% in the market over the life of the loan.
merely an interested amateur

fru-gal
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Location: New England

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by fru-gal » Sun Aug 11, 2019 10:56 am

So you have $225,000 to do something with.

I am more concerned with the irresponsible lack of saving and very overly expensive car on fairly small salaries. This does not speak well of good financial planning.

The $225,000 should go 100% into savings/investments and an emergency fund, not into spending. I will leave others to discuss what it should be invested in. Update: I missed the unbelievable interest rate on the spouse's car loan. Pay that off now.

BarbBrooklyn
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Location: NYC

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by BarbBrooklyn » Sun Aug 11, 2019 11:04 am

Isn't this your spouse's money?
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Topic Author
smithbt2
Posts: 38
Joined: Fri Oct 05, 2018 8:44 pm

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 11:06 am

BarbBrooklyn wrote:
Sun Aug 11, 2019 11:04 am
Isn't this your spouse's money?
It is, technically. But it is "our" money. I pay the mortgage and all of the household bills, except for my spouse's auto loan. My spouse also did not work for 2 years, a time during which I paid all bills.

HomeStretch
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by HomeStretch » Sun Aug 11, 2019 11:06 am

What does your spouse (who received the settlement) want to do with the proceeds?

Settlements can be accompanied by non-disclosure agreements. If that’s the case here, I wouldn’t post details even anonymously in a public forum. Your 1st paragraph could be edited to say “spouse received a $300k settlement from which spouse will receive $225k after legal fees”.

ETA: if house and expensive car are in your name only, if spouse’s settlement funds are used to pay the debt off/down, adding spouse’s name to titles would be appropriate.
Last edited by HomeStretch on Sun Aug 11, 2019 11:11 am, edited 2 times in total.

Goal33
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Goal33 » Sun Aug 11, 2019 11:06 am

I don’t know but you’re making big car mistakes. This is coming from somebody who is not your typical anticar Boglehead.

Maybe keep the cars because you already made the mistake but definitely pay off the loans.
A man with one watch always knows what time it is; a man with two watches is never sure.

JGoneRiding
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by JGoneRiding » Sun Aug 11, 2019 11:08 am

No way as your wife would I pay for your ridiculously expensive toy! So I would remove that option.

Your wife should pay off HER. Car and then in exchange for a quit claim she should pay off the PMI and then I personally would save 100% of the remainder. With that big of a jump start she can be set for future retirement.

Topic Author
smithbt2
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Joined: Fri Oct 05, 2018 8:44 pm

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 11:11 am

JGoneRiding wrote:
Sun Aug 11, 2019 11:08 am
No way as your wife would I pay for your ridiculously expensive toy! So I would remove that option.

Your wife should pay off HER. Car and then in exchange for a quit claim she should pay off the PMI and then I personally would save 100% of the remainder. With that big of a jump start she can be set for future retirement.
I supported her and paid all costs - including her vehicle - for two years while she did not work. At the time she had a Chevy Tahoe (more expensive than my sports car!) She lives in my house and does not pay any bills, not even Internet or utilities. As a result I have saved very little.

Topic Author
smithbt2
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Joined: Fri Oct 05, 2018 8:44 pm

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 11:15 am

HomeStretch wrote:
Sun Aug 11, 2019 11:06 am
What does your spouse (who received the settlement) want to do with the proceeds?

Settlements can be accompanied by non-disclosure agreements. If that’s the case here, I wouldn’t post details even anonymously in a public forum. Your 1st paragraph could be edited to say “spouse received a $300k settlement from which spouse will receive $225k after legal fees”.

ETA: if house and expensive car are in your name only, if spouse’s settlement funds are used to pay the debt off/down, adding spouse’s name to titles would be appropriate.
Spouse has horrible credit, bad enough to either make the rate very high or the loan won't go through. That's why everything (except the one loan) are in my name. I have excellent credit.

Thanks for the advice. I updated the first paragraph.

Grt2bOutdoors
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Grt2bOutdoors » Sun Aug 11, 2019 11:21 am

smithbt2 wrote:
Sun Aug 11, 2019 11:06 am
BarbBrooklyn wrote:
Sun Aug 11, 2019 11:04 am
Isn't this your spouse's money?
It is, technically. But it is "our" money. I pay the mortgage and all of the household bills, except for my spouse's auto loan. My spouse also did not work for 2 years, a time during which I paid all bills.
It's your spouse's money. Spouse should pay off her car loan, immediately. Spouse should use what ever money left over to pay for therapy if needed, her therapy. You should take $100-$160 and take a Dave Ramsey course. You are fortunate to be earning that kind of money but you have financially destructive spending habits - large auto loans that total nearly 3/4's of your annual income, you are paying PMI which indicates you bought too much house - you are house poor. If it were not for the windfall (if you want to call it that), you'd be in a bigger hole. Your spouse should immediately fund a spousal ROTH IRA for herself this year.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

tomd37
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Location: Middle Tennessee

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by tomd37 » Sun Aug 11, 2019 11:23 am

One big question comes to mind for which I do not have the answer - Is this settlement amount considered taxable income and can anyone cite an IRS publication reference :?:
Tom D.

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TomatoTomahto
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by TomatoTomahto » Sun Aug 11, 2019 11:25 am

You folks are living too large. The settlement fortunately or unfortunately will bail you out, but presumably you can’t count on those every year or two.

It’s time for you both to grow up!!! Effectively zero retirement savings. Expensive automobiles. Sheesh.
Okay, I get it; I won't be political or controversial. The Earth is flat.

German Expat
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by German Expat » Sun Aug 11, 2019 11:26 am

There will be not many options for not paying taxes. Does your spouse have a 401k? If so put the maximum allowed in there. Also pay off the high car rate and try to get out of PMI.
Since you got a head start try to put all money for the payments you get rid off (e.g. the car loan payments, pmi) into savings.

Topic Author
smithbt2
Posts: 38
Joined: Fri Oct 05, 2018 8:44 pm

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 11:28 am

Grt2bOutdoors wrote:
Sun Aug 11, 2019 11:21 am
smithbt2 wrote:
Sun Aug 11, 2019 11:06 am
BarbBrooklyn wrote:
Sun Aug 11, 2019 11:04 am
Isn't this your spouse's money?
It is, technically. But it is "our" money. I pay the mortgage and all of the household bills, except for my spouse's auto loan. My spouse also did not work for 2 years, a time during which I paid all bills.
It's your spouse's money. Spouse should pay off her car loan, immediately. Spouse should use what ever money left over to pay for therapy if needed, her therapy. You should take $100-$160 and take a Dave Ramsey course. You are fortunate to be earning that kind of money but you have financially destructive spending habits - large auto loans that total nearly 3/4's of your annual income, you are paying PMI which indicates you bought too much house - you are house poor. If it were not for the windfall (if you want to call it that), you'd be in a bigger hole. Your spouse should immediately fund a spousal ROTH IRA for herself this year.
Not eligible for Roth IRA with high income?

I live in a HCOL area and I bought a townhouse. I evaluated purchasing a Condo. It was more expensive than a townhouse when considering HOA plus Condo Association Fees and Condos have higher interest rates. My mortgage is cheaper than renting a nearby apartment which is 1/4 the size of my townhouse. You do not know the entire situation. I paid for my spouse's therapy - OUT OF POCKET.

02nz
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by 02nz » Sun Aug 11, 2019 11:32 am

Something is very wrong here. You have under $20K in retirement savings (admittedly you're young) but over 4X that amount in car loans. That's nuts. You should have cut down to one car, rather than keeping one as a toy and another at an usurious rate. I say this as someone who is more into cars and probably spends more on them than the average Boglehead: you should get rid of the $50K toy that isn't really even used for transportation, even at a loss.

Obviously you should get rid of the high-rate car loan and student loan - and pay off enough of the mortgage to get rid of PMI.

The two of you need to work as a team on the finances. (No offense but a remark like "She lives in my house and does not pay any bills, not even Internet or utilities. As a result I have saved very little" makes it like she's a deadbeat renter; if that's the attitude the two of you are headed nowhere good, financially or relationship-wise.) Set your financial goals together, get your spending under control, and have your wife start putting some away toward retirement in her own accounts as well.

You're way way early in the game. This can turn out very well or very badly. Choice is yours.

SpaghettiMonster
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by SpaghettiMonster » Sun Aug 11, 2019 11:35 am

The above responses are all very reasonable so I will not add to them. I will however say that what really struck me about this post is how much “my” and “her” there are and how very little “we” and “us” there are. She gets to live in your house and you pay all the bills except for her car. She doesn’t pay for utilities or internet - this sounds like you’re treating the financials more like a roommate situation rather than a married couple situation. This separation of responsibilities makes the statement that this settlement is “ours” rather than “hers” even more strange. As disconcerting as your financials may be, there may be other issues to address as well.
Last edited by SpaghettiMonster on Sun Aug 11, 2019 11:36 am, edited 1 time in total.

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midareff
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by midareff » Sun Aug 11, 2019 11:35 am

I would certainly kill the spouse's car loan and the student debt. Then I would plan on keeping your way too expensive vehicles for a long, long time while saving monthly what the car and loan payment was. Three fund portfolio ... way too much car debt for your income.

cochlearboy
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by cochlearboy » Sun Aug 11, 2019 11:36 am

Regarding your questions:

1) I would max out both your IRA and your wife's IRA. At 28, your wife is badly behind on getting the ball rolling on her retirement. I know that 30% of gross pay that the above poster recommended may be too hard for your wife to meet. However, at minimum, she should be contributing 10% of every check. Living from paycheck to paycheck during your 20s, 30s and 40s is a surefire path to having no choice but to work during your 60s and 70s. For god's sake, please don't have children until you guys straighten out your finances.

2) nope. the settlement will count towards your married income. Married but filing separately would allow you to keep your Roth contributions. But, filing single - your wife will pay a bigger tax share. One thing that you may not be aware of is that you can re-characterize your roth IRA contributions to a traditional IRA. I would run the numbers and see whether re-characterizing your contributions is better.

3) I suspect so, but this depends on the wording of your attorney's engagement letter. look at what it says regarding the settlement amount.

4) Agreed, getting rid of that auto debt (esp. the 22% one - what was your wife thinking?!? thank god you have a head for finance on your shoulders). getting rid of PMI makes sense.

5) While sounding a little harsh, the above posters are correct that you are buying cars that are too big for your salaries. I know that the car makes you happy, but it is never ever wise to dig yourself into a big debt hole (esp over a depreciating asset like a car). Going forward, I strongly recommend that you never purchase cars (or boats) with debt. Always pay in cash. If you don't have enough cash to pay for a car, then either save more or choose a cheaper car.

TIAX
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by TIAX » Sun Aug 11, 2019 11:40 am

smithbt2 wrote:
Sun Aug 11, 2019 10:47 am
I earn a salary of $90,000, plus I have options of 200,000 Common Units, equal to roughly 3.2% of the Company.
I earn an additional $1,125 (sometimes as much as $1,500) per month through my Limited Liability Company.
My spouse is a full-time, hourly employee earning $18 per hour.
Why is your spouse's income so much lower than yours? Can you work on that? Is your spouse helping with your side business?

Northern Flicker
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Northern Flicker » Sun Aug 11, 2019 11:44 am

I supported her and paid all costs - including her vehicle - for two years while she did not work. At the time she had a Chevy Tahoe (more expensive than my sports car!) She lives in my house and does not pay any bills, not even Internet or utilities. As a result I have saved very little.
You made a bad financial decision to buy a car costing about 3x or 4x the cost of a car that is just reliable transportation (costing even more once the cost of repairs etc are factored in) and you are trying to blame your low savings rate on your spouse?

Trader Joe
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Trader Joe » Sun Aug 11, 2019 11:55 am

smithbt2 wrote:
Sun Aug 11, 2019 10:47 am
My spouse received a $300k settlement from which spouse will receive $225k after legal fees. I can't discuss the exact specifics of the case, but we are definitely satisfied with the outcome. Of course, we both realize that $300K is not truly a lot of money, after taxes and attorney fees. Here's a summary of our current financial situation.

Settlement Details

Amount: $300,000
Attorney Fees: $75,000 (25%)

Ages

Me: 24
Spouse: 28

Income

I earn a salary of $90,000, plus I have options of 200,000 Common Units, equal to roughly 3.2% of the Company.
I earn an additional $1,125 (sometimes as much as $1,500) per month through my Limited Liability Company.
My spouse is a full-time, hourly employee earning $18 per hour.

I have a mortgage certificate and receive a Federal Tax Credit of 25% of the interest I pay on my mortgage, capped at $2,000, for the life of the loan.

Debts

My Auto Loan - $923 per month with a remaining balance of $47,591 - 3.49% APR, 60 Months
Spouse's Auto Loan - ~$568 per month with a remaining balance of ~$21,000 - 21.99% APR, 60 Months (horrible rate, I know...)

Mortgage - $1815 per month with a remaining balance of $290,700 - 3.625% Interest Rate, 30 Years. I closed on a refinance on Friday, getting out of the 4.875% Rate I had from my purchase in December. The payment was $2050 until Friday. I do have PMI of $108 on the loan, so I can reduce the mortgage further by eliminating PMI. The house and mortgage are solely in my name.

Student Loans - $4,800 Remaining at ~4%

No Credit Card Debt :D

Retirement

My SEP IRA: $1,156.11
My Roth IRA: $9,199.98
My Rollover IRA: $7,909.76

I do not have a 401(k) Plan available to me at this time. Management and I are evaluating 401(k) Plan Options and I believe we will move forward with Employee Fiduciary in 2020 (low fees!).

My spouse does not have any money set aside for retirement at this time. :|

Assets

Primary Residence - $310,000
My Savings - $20,000
My Checking - $1,600

Questions / Concerns

1. What are our options to tax defer some of this money for retirement? It will be paid by the employer as 1099.
2. If we file together as Married, will I still be eligible for the Roth IRA? I suspect not, which is concerning since I contribute to my Roth IRA weekly. It might make sense to file as Married - Filing Separately.
3. Are the attorney fees of $75K deductible from the taxable amount of $300K?
4. I believe it is best to eliminate the auto debt and pay down the mortgage (roughly $45,900) to eliminate PMI. Does this sound like a good plan?
5. I understand my car is expensive, but it is not going anywhere. It is a sports car and I get a lot of enjoyment out of it. At least I didn't buy new - it would have been a $90,000 car new. I bought it Certified (2015 Model Year) and let someone else eat the biggest depreciation. I do work from home so I don't have a daily commute, which saves miles on my car. It is garage kept.
This is your wife's settlement money, not yours. She should make the decisions since it is her money. Also I would sell your car and buy something reasonable - without a loan.

Topic Author
smithbt2
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 12:02 pm

Northern Flicker wrote:
Sun Aug 11, 2019 11:44 am
I supported her and paid all costs - including her vehicle - for two years while she did not work. At the time she had a Chevy Tahoe (more expensive than my sports car!) She lives in my house and does not pay any bills, not even Internet or utilities. As a result I have saved very little.
You made a bad financial decision to buy a car costing about 3x or 4x the cost of a car that is just reliable transportation (costing even more once the cost of repairs etc are factored in) and you are trying to blame your low savings rate on your spouse?
I am defending myself from people such as yourself, who instead of answering my questions or concerns, attacked me directly without knowing the full story.

I have paid her Laywer Fees = $10,000
I have paid her Car Payments = $24,000
I incurred $20,000 in Credit Card Debt to support us both over those two years, all of which I paid back on my own by saving dilligently.
I have paid her Medical / Therapy = $15,000

It sucks that I can't get help on this Forum without being attacked directly and judged. I am a good person and I did more for her than most would. I sacrificed a lot, even dropped out of college to work full-time and held two full-time jobs at one time. I worked crazy hours. Thanks for your understanding. I greatly appreciate it.

Topic Author
smithbt2
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 12:10 pm

cochlearboy wrote:
Sun Aug 11, 2019 11:36 am
Regarding your questions:

1) I would max out both your IRA and your wife's IRA. At 28, your wife is badly behind on getting the ball rolling on her retirement. I know that 30% of gross pay that the above poster recommended may be too hard for your wife to meet. However, at minimum, she should be contributing 10% of every check. Living from paycheck to paycheck during your 20s, 30s and 40s is a surefire path to having no choice but to work during your 60s and 70s. For god's sake, please don't have children until you guys straighten out your finances.

2) nope. the settlement will count towards your married income. Married but filing separately would allow you to keep your Roth contributions. But, filing single - your wife will pay a bigger tax share. One thing that you may not be aware of is that you can re-characterize your roth IRA contributions to a traditional IRA. I would run the numbers and see whether re-characterizing your contributions is better.

3) I suspect so, but this depends on the wording of your attorney's engagement letter. look at what it says regarding the settlement amount.

4) Agreed, getting rid of that auto debt (esp. the 22% one - what was your wife thinking?!? thank god you have a head for finance on your shoulders). getting rid of PMI makes sense.

5) While sounding a little harsh, the above posters are correct that you are buying cars that are too big for your salaries. I know that the car makes you happy, but it is never ever wise to dig yourself into a big debt hole (esp over a depreciating asset like a car). Going forward, I strongly recommend that you never purchase cars (or boats) with debt. Always pay in cash. If you don't have enough cash to pay for a car, then either save more or choose a cheaper car.
Thank you for your feedback. I appreciate it!

aristotelian
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by aristotelian » Sun Aug 11, 2019 12:11 pm

You should be doing a Solo 401k instead of SEP. Then you could defer $19k plus 20% of net profits. I believe your wife could also do the same. Unfortunately you can't do SEP and Solo 401k at the be same time so you will have to wait until next year.

You should both have Roth IRAs. You appear to have some kind of weird accounting where she has no retirement accounts but there is no reason that should be the case as long as she has earned income.

Topic Author
smithbt2
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 12:15 pm

aristotelian wrote:
Sun Aug 11, 2019 12:11 pm
You should be doing a Solo 401k instead of SEP. Then you could defer $19k plus 20% of net profits. I believe your wife could also do the same. Unfortunately you can't do SEP and Solo 401k at the be same time so you will have to wait until next year.

You should both have Roth IRAs. You appear to have some kind of weird accounting where she has no retirement accounts but there is no reason that should be the case as long as she has earned income.
She lives for the day and does not care about retirement. It is something that bothers me. She use to be a cop and would have received a pension, but resigned and withdrew her contributions. Spent it all.

I have not contributed anything to my SEP this year. I will look into Solo 401(K).

Bacchus01
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Bacchus01 » Sun Aug 11, 2019 12:20 pm

Goal33 wrote:
Sun Aug 11, 2019 11:06 am
I don’t know but you’re making big car mistakes. This is coming from somebody who is not your typical anticar Boglehead.

Maybe keep the cars because you already made the mistake but definitely pay off the loans.
If OP can’t fix some of the basic behavior issues, then giving advice on the windfall is probably pointless.

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8foot7
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by 8foot7 » Sun Aug 11, 2019 12:21 pm

SpaghettiMonster wrote:
Sun Aug 11, 2019 11:35 am
The above responses are all very reasonable so I will not add to them. I will however say that what really struck me about this post is how much “my” and “her” there are and how very little “we” and “us” there are. She gets to live in your house and you pay all the bills except for her car. She doesn’t pay for utilities or internet - this sounds like you’re treating the financials more like a roommate situation rather than a married couple situation. This separation of responsibilities makes the statement that this settlement is “ours” rather than “hers” even more strange. As disconcerting as your financials may be, there may be other issues to address as well.
I tend to agree but to be fair many posters have also said “this is her money” and “no way she should pay for your car” and “she should fund her own IRA” so I don’t think we on the forum can have our cake and eat it too.

And frankly I can’t blame OP for wanting to direct the money strategically for them as a couple especially if he took on the burden of supporting her before in her time of need. I would probably have a big problem if I let my spouse ride from having a job in her twenties (not as a mom) and paid everything for her, including for her bad decisions, and then all of sudden when she got some money she started playing yours and mine.

OP: the 22% loan has to go now today right now click the button and it’s gone.
Last edited by 8foot7 on Sun Aug 11, 2019 12:26 pm, edited 1 time in total.

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Mlm
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Mlm » Sun Aug 11, 2019 12:22 pm

smithbt2 wrote:
Sun Aug 11, 2019 12:02 pm
I did more for her than most would.
I think you should tell that to your wife and then she can decide how she wants to spend her money going forward. Good Luck

Northern Flicker
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Northern Flicker » Sun Aug 11, 2019 12:31 pm

I am defending myself from people such as yourself, who instead of answering my questions or concerns, attacked me directly without knowing the full story.

I have paid her Laywer Fees = $10,000
I have paid her Car Payments = $24,000
I incurred $20,000 in Credit Card Debt to support us both over those two years, all of which I paid back on my own by saving dilligently.
I have paid her Medical / Therapy = $15,000
Even more reason not to pay for more car than you can afford.

aristotelian
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by aristotelian » Sun Aug 11, 2019 12:32 pm

smithbt2 wrote:
Sun Aug 11, 2019 12:15 pm
aristotelian wrote:
Sun Aug 11, 2019 12:11 pm
You should be doing a Solo 401k instead of SEP. Then you could defer $19k plus 20% of net profits. I believe your wife could also do the same. Unfortunately you can't do SEP and Solo 401k at the be same time so you will have to wait until next year.

You should both have Roth IRAs. You appear to have some kind of weird accounting where she has no retirement accounts but there is no reason that should be the case as long as she has earned income.
She lives for the day and does not care about retirement. It is something that bothers me. She use to be a cop and would have received a pension, but resigned and withdrew her contributions. Spent it all.

I have not contributed anything to my SEP this year. I will look into Solo 401(K).
She can spend the exact same amount and still have retirement accounts in her name that come from "your" income.

Regardless, are you OK with her attitude?

02nz
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by 02nz » Sun Aug 11, 2019 12:35 pm

smithbt2 wrote:
Sun Aug 11, 2019 12:02 pm
Northern Flicker wrote:
Sun Aug 11, 2019 11:44 am
I supported her and paid all costs - including her vehicle - for two years while she did not work. At the time she had a Chevy Tahoe (more expensive than my sports car!) She lives in my house and does not pay any bills, not even Internet or utilities. As a result I have saved very little.
You made a bad financial decision to buy a car costing about 3x or 4x the cost of a car that is just reliable transportation (costing even more once the cost of repairs etc are factored in) and you are trying to blame your low savings rate on your spouse?
I am defending myself from people such as yourself, who instead of answering my questions or concerns, attacked me directly without knowing the full story.

I have paid her Laywer Fees = $10,000
I have paid her Car Payments = $24,000
I incurred $20,000 in Credit Card Debt to support us both over those two years, all of which I paid back on my own by saving dilligently.
I have paid her Medical / Therapy = $15,000

It sucks that I can't get help on this Forum without being attacked directly and judged. I am a good person and I did more for her than most would. I sacrificed a lot, even dropped out of college to work full-time and held two full-time jobs at one time. I worked crazy hours. Thanks for your understanding. I greatly appreciate it.
Nobody is saying you're a bad person. But good people sometimes make bad financial decisions. You and your wife need to work as a team, and that will require changes on your part and hers. If you cannot both make those changes, that list above will only keep growing, to include - I'm being serious - divorce lawyers.

Oh, and "saving diligently" does not include taking on $50K of debt for a car that is not even used for commuting.
Last edited by 02nz on Sun Aug 11, 2019 12:36 pm, edited 1 time in total.

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smithbt2
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 12:36 pm

Northern Flicker wrote:
Sun Aug 11, 2019 12:31 pm
I am defending myself from people such as yourself, who instead of answering my questions or concerns, attacked me directly without knowing the full story.

I have paid her Laywer Fees = $10,000
I have paid her Car Payments = $24,000
I incurred $20,000 in Credit Card Debt to support us both over those two years, all of which I paid back on my own by saving dilligently.
I have paid her Medical / Therapy = $15,000
Even more reason not to pay for more car than you can afford.
I no longer have these expenses, plus I have a roommate who basically pays for my car payment. I do not take vacations. I do not eat out. I do not drink or go to bars. Instead I take my car out for drives as my means of entertainment and listen to music. This is what I enjoy doing and it makes me happy. If I can't do this or enjoy life at all, what's the point in working so hard?

Someone mentioned before repairs and maintenance. I do the work myself and I do not go to the dealer. I buy OEM or equivalent parts for a lot less. Plus if you know the Part # you get the parts cheaper from the dealer. I do not spend a ton of money on maintenance or repairs.

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smithbt2
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 12:44 pm

02nz wrote:
Sun Aug 11, 2019 12:35 pm
smithbt2 wrote:
Sun Aug 11, 2019 12:02 pm
Northern Flicker wrote:
Sun Aug 11, 2019 11:44 am
I supported her and paid all costs - including her vehicle - for two years while she did not work. At the time she had a Chevy Tahoe (more expensive than my sports car!) She lives in my house and does not pay any bills, not even Internet or utilities. As a result I have saved very little.
You made a bad financial decision to buy a car costing about 3x or 4x the cost of a car that is just reliable transportation (costing even more once the cost of repairs etc are factored in) and you are trying to blame your low savings rate on your spouse?
I am defending myself from people such as yourself, who instead of answering my questions or concerns, attacked me directly without knowing the full story.

I have paid her Laywer Fees = $10,000
I have paid her Car Payments = $24,000
I incurred $20,000 in Credit Card Debt to support us both over those two years, all of which I paid back on my own by saving dilligently.
I have paid her Medical / Therapy = $15,000

It sucks that I can't get help on this Forum without being attacked directly and judged. I am a good person and I did more for her than most would. I sacrificed a lot, even dropped out of college to work full-time and held two full-time jobs at one time. I worked crazy hours. Thanks for your understanding. I greatly appreciate it.
Nobody is saying you're a bad person. But good people sometimes make bad financial decisions. You and your wife need to work as a team, and that will require changes on your part and hers. If you cannot both make those changes, that list above will only keep growing, to include - I'm being serious - divorce lawyers.

Oh, and "saving diligently" does not include taking on $50K of debt for a car that is not even used for commuting.
I am still saving $2,500-3,000 per month right now... I think I am doing OK. I have automatic weekly transfers setup. I am 3 months ahead on my auto loan. My next mortgage is not due until Oct 1. I am better off than most people who live paycheck to paycheck, as I do not live paycheck to paycheck.
Last edited by smithbt2 on Sun Aug 11, 2019 12:45 pm, edited 1 time in total.

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Sandtrap
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Sandtrap » Sun Aug 11, 2019 12:44 pm

Back on track.

You have a good plan:

1) pay off both car loans
2) pay off student loan

225,000 - 47591 - 21000-4800 = 151609

less Mortgage payment: 45,900

= 105709 (balance)

Can you open a retirement account for your spouse?

3) balance in Emergency fund, High yield accounts, CD's, etc.

j
Last edited by Sandtrap on Sun Aug 11, 2019 12:50 pm, edited 2 times in total.
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mcraepat9
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by mcraepat9 » Sun Aug 11, 2019 12:45 pm

I’m not going to pile on - what’s done is done.

You should take the above advice, ignore the negativity/judgment, but realize that it comes from a core principle that bogleheads live by - you must live below your means. You need to start from a clean slate and figure out how to budget and live together as a team. Cars, which are depreciating assets, are usually one of the first places that attract attention because the delta between a reliable used car purchased for cash vs a $50k car financed with 20% interest can be substantial.

Bogleheads never give advice in isolation - that usually winds up being not constructive. Start your budget from scratch and figure out which expenses/assets are needs vs wants and go from there.
Last edited by mcraepat9 on Sun Aug 11, 2019 1:32 pm, edited 1 time in total.
Amateur investors are not cool-headed logicians.

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smithbt2
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 12:49 pm

Sandtrap wrote:
Sun Aug 11, 2019 12:44 pm
1 pay off both car loans
2 pay off student loan
3 balance in Emergency fund, High yield accounts, CD's, etc.

j
My worry right now is the market is so volatile. I personslly believe the market is overvalued and we are overdue for a pullback. While I do contribute to my accounts weekly and I am 10% YTD, I am reluctant to throw large sums of money into index funds right now. Bonds may collapse soon. I do not feel great about our current monetary policies and I would not be surprised to see negative interest rates in our future.

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scubadiver
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by scubadiver » Sun Aug 11, 2019 12:50 pm

smithbt2 wrote:
Sun Aug 11, 2019 10:47 am
My SEP IRA: $1,156.11
My Roth IRA: $9,199.98
My Rollover IRA: $7,909.76

I do not have a 401(k) Plan available to me at this time. Management and I are evaluating 401(k) Plan Options and I believe we will move forward with Employee Fiduciary in 2020 (low fees!).

My spouse does not have any money set aside for retirement at this time. :|
Your spouse has 18K set aside for retirement under your name as you indicate above, though I agree that as a family you have not been utilizing the available tax-advantage retirement space under her name.

The settlement you have received is a gift. I hope it didn't come at too much physical or emotional cost. You and your spouse need to sit down, talk through your financial and life priorities and develop a joint plan for your future. It probably wouldn't hurt if you ditched the sports car too, but first things first. In any event, on the backend of that discussion, your family shouldn't be carrying anymore car loan or student loan debt.

Good luck,
Scubadiver
Last edited by scubadiver on Sun Aug 11, 2019 1:19 pm, edited 2 times in total.

Topic Author
smithbt2
Posts: 38
Joined: Fri Oct 05, 2018 8:44 pm

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by smithbt2 » Sun Aug 11, 2019 12:51 pm

Sandtrap wrote:
Sun Aug 11, 2019 12:44 pm
1 pay off both car loans
2 pay off student loan
3 balance in Emergency fund, High yield accounts, CD's, etc.
225,000 - 47591 - 21000-4800 = 151609

less Mortgage payment: 45,900

= 105709 (balance)

Can you open a retirement account for your spouse?

j
Yes. I am going to help her open up a Traditional IRA through Fidelity. I have my accounts with Fidelity. Her employer offers a 401(K) Plan but the fees are outrageous. I actually told her not to contribute until they start matching 5%, which they do after a year of employment.

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Sandtrap
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Sandtrap » Sun Aug 11, 2019 12:51 pm

smithbt2 wrote:
Sun Aug 11, 2019 12:49 pm
Sandtrap wrote:
Sun Aug 11, 2019 12:44 pm
1 pay off both car loans
2 pay off student loan
3 balance in Emergency fund, High yield accounts, CD's, etc.

j
My worry right now is the market is so volatile. I personslly believe the market is overvalued and we are overdue for a pullback. While I do contribute to my accounts weekly and I am 10% YTD, I am reluctant to throw large sums of money into index funds right now. Bonds may collapse soon. I do not feel great about our current monetary policies and I would not be surprised to see negative interest rates in our future.
Yes.
Good point.
so. . .
Pay off debts as you have planned.
Balance in EF, high yield accounts, cd's, etc.

j
Wiki Bogleheads Wiki: Everything You Need to Know

NoFred
Posts: 41
Joined: Thu Jul 11, 2019 8:29 pm

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by NoFred » Sun Aug 11, 2019 1:00 pm

Sandtrap wrote:
Sun Aug 11, 2019 12:44 pm
Back on track.

You have a good plan:

1) pay off both car loans
2) pay off student loan

225,000 - 47591 - 21000-4800 = 151609

less Mortgage payment: 45,900

= 105709 (balance)

Can you open a retirement account for your spouse?

3) balance in Emergency fund, High yield accounts, CD's, etc.

j
I agree with paying off loans since they are out of hand. Not sure about paying down mortgage on his house with her money (based on OPs approach to accounting for his and hers.)

Good luck to both involved.
-NoFred

coffeeblack
Posts: 122
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by coffeeblack » Sun Aug 11, 2019 1:03 pm

smithbt2 wrote:
Sun Aug 11, 2019 12:02 pm
Northern Flicker wrote:
Sun Aug 11, 2019 11:44 am
I supported her and paid all costs - including her vehicle - for two years while she did not work. At the time she had a Chevy Tahoe (more expensive than my sports car!) She lives in my house and does not pay any bills, not even Internet or utilities. As a result I have saved very little.
You made a bad financial decision to buy a car costing about 3x or 4x the cost of a car that is just reliable transportation (costing even more once the cost of repairs etc are factored in) and you are trying to blame your low savings rate on your spouse?
I am defending myself from people such as yourself, who instead of answering my questions or concerns, attacked me directly without knowing the full story.

I have paid her Laywer Fees = $10,000
I have paid her Car Payments = $24,000
I incurred $20,000 in Credit Card Debt to support us both over those two years, all of which I paid back on my own by saving dilligently.
I have paid her Medical / Therapy = $15,000

It sucks that I can't get help on this Forum without being attacked directly and judged. I am a good person and I did more for her than most would. I sacrificed a lot, even dropped out of college to work full-time and held two full-time jobs at one time. I worked crazy hours. Thanks for your understanding. I greatly appreciate it.
You are right. You came in here to get financial advice. Financial advice can be given to you without the harsh criticism that has been given or at least the way it was given so harshly.

Here is what I would do from a financial standpoint.

Talk to your wife about finances. Come to an agreement about paying off debt and not going back into debt.
Pay off car loans. Both of them and if you have anything left over pay off enough of the house so you don't have to pay PMI.
If you can sell the cars and come out even, then do that and get less expensive cars that you pay for in cash.
If there is anything left over after car payment and PMI elimination, invest it in a taxable account.
From this point on share the cost of living. You are married and make more money so you will most likely pay more of the expenses.

24 and 28 years old is young and you can recover from a poor financial situation. So just get on with it and work on it.
Invest in 401K, Roth and taxable in that order and make it automatic so you don't have to think about it.

You are going to fine if you do that and stay on track. But you have to stay on track. You now have a golden opportunity to change your life for the better. I wish you the best.

HomeStretch
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by HomeStretch » Sun Aug 11, 2019 1:05 pm

Sorry if I missed this but to echo another post, is the settlement taxable? If so, what is the net amount after taxes?
Last edited by HomeStretch on Sun Aug 11, 2019 1:06 pm, edited 1 time in total.

EddyB
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by EddyB » Sun Aug 11, 2019 1:06 pm

Sandtrap wrote:
Sun Aug 11, 2019 12:51 pm
smithbt2 wrote:
Sun Aug 11, 2019 12:49 pm
Sandtrap wrote:
Sun Aug 11, 2019 12:44 pm
1 pay off both car loans
2 pay off student loan
3 balance in Emergency fund, High yield accounts, CD's, etc.

j
My worry right now is the market is so volatile. I personslly believe the market is overvalued and we are overdue for a pullback. While I do contribute to my accounts weekly and I am 10% YTD, I am reluctant to throw large sums of money into index funds right now. Bonds may collapse soon. I do not feel great about our current monetary policies and I would not be surprised to see negative interest rates in our future.
Yes.
Good point.
so. . .
Pay off debts as you have planned.
Balance in EF, high yield accounts, cd's, etc.

j
If you’re going to give credence to the crystal ball, why not just go all in and encourage the OP to use the windfall to make big short bets?

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dodecahedron
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by dodecahedron » Sun Aug 11, 2019 1:12 pm

tomd37 wrote:
Sun Aug 11, 2019 11:23 am
One big question comes to mind for which I do not have the answer - Is this settlement amount considered taxable income and can anyone cite an IRS publication reference :?:
This is a very complicated question and the answer depends on details that the OP should not be sharing in a public forum like this one.

There is some IRS guidance here:

https://www.irs.gov/pub/irs-pdf/p4345.pdf

If the proceeds of the settlement are taxable, there is also the related question of whether the attorney´s fees are deductible. Tax Cut and Jobs Act (TCJA) 2017 got rid of many deductions for personal attorney'fees but there are some exceptions. The attorney who handled the case for your wife ought to be able to refer you to a tax professional who can provide knowledgeable and up-to-date advice on this point.

Worst case for some legal settlements is that the entire $300K is taxable and no legal fees are deductible. The best case is that none of the $300K is taxable. There are various intermediate possibilities and many factors involved.

In short, the OP and spouse should be consulting a knowledgeable tax pro ASAP and certainly before spending or investing any of the proceeds in anything less than 100% safe and liquid. Don´t wait until next April 15 to have a potentially big and unpleasant tax bill surprise and no available funds to pay it. And do not rely on tax advice from this or any other public forum in a situation this complicated. The answers depend on details that should not be shared publicly because they could be identifying.

Cycle
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Location: Minneapolis

Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Cycle » Sun Aug 11, 2019 1:16 pm

If you are passionate about cars, consider going to car shows and rent some nice ones for road trips.

Consider waiting till you are FI before buying luxury goods. You could be FI in your early 30s if you have a high savings rate.

I'd just pay off your wife's car loan and student loan, get rid of the car that sits unused. We are a one car family, it enables our 65% net savings rate.

Top off your emergency fund, set aside 22k for this and next year's roths.

put the remaining balance in a 529 in your spouses name for kids future college, or just put it in a taxable VTWAX (total world).

Just some ideas, sounds like you have the ability to be a high saver.
Never look back unless you are planning to go that way

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MillennialFinance19
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by MillennialFinance19 » Sun Aug 11, 2019 1:28 pm

1) kill the student loan payment, both car loans, and escape PMI.

2) you speak about your wife like she’s a burden to you. Treat her like a team member and see if you can’t take on the world together.

3) I get liking cars. I plan on buying a Porsche 911 GT2 or GT3 RS one day. That one day I finally do... I’ll have a NW upward of $6m. You bought the car prematurely.

Good luck. I hope it all works out for you.

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Cobra Commander
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by Cobra Commander » Sun Aug 11, 2019 1:29 pm

Doesn't look like anyone asked but can you split up the settlement into two payments, half now and half in January 2020?

EDIT: I see you said received so presumably she already got the money. If so, disregard but pay off high interest auto loan asap.

scorcher31
Posts: 167
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Re: How should my Spouse and I handle a $300,000 Settlement?

Post by scorcher31 » Sun Aug 11, 2019 1:53 pm

As others have said the car loans are both too much. With that said I would personally pay off both car loans, student debt and if you can get the mortgage down to no PMI go for it. I would put another 20k in my savings for emergencies. I would use whatever is left to fund ira/401k and then taxable. Use this money to wipe the slate clean and you and your wife need to agree to never put yourselves in a situation where you have loans again (car or otherwise) except for your current mortgage. If you do the above you should be in excellent shape.

Make sure you take taxes into account as well. I guess if you aren't sure what you will owe I would stick to eliminating the loans and pmi. Then put everything else in a high yield online savings instead of investing untill you see what the taxes look like at the beginning of next year. Then follow the plan as above.
Last edited by scorcher31 on Sun Aug 11, 2019 2:03 pm, edited 2 times in total.

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