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TheStreet Open House

5 Tips For Protecting Your Windfalls





In the fourth season of Arrested Development, the audience discovers the troubled Bluth family received a government stimulus bailout during the recession. Rather than using the “stimmy” to fix their troubling real estate family business operation, they used the money to buy 4,000 acres of worthless land in - well, I won't spoil it.

There's just something about money landing in one's lap that inspires cloudy thinking and poor decision-making. The cause-and-effect relationship between windfalls and mistakes with money exists beyond fictional television comedy, too.

People love reading and hearing stories about how the suddenly-wealthy often find themselves in financial trouble. If the story of a wealthy family that lost everything isn't appealing, there's always the story of poor families that are provided with an unusual opportunity who later squander their fortune. The most common is the prototypical lottery winner with no money-handling experience living on the street just a few years after taking winnings as a lump sum.

It would be easy to judge these poor folks. “If only they a better financial education or a more positive experience managing money in the first place,” one might say, “they'd be better prepared for dealing with a windfall.” It's a universal problem, too, affecting people who normally wouldn't be playing the lottery. Smart business leaders are just as likely to make mistakes. A recent story about the founder of a major technology business provides more anecdotal evidence for this type of occurrence.

CNET  featured a story about Harvey Minor, the founder of CNET and an investor in other tech-related companies. He sold CNET for a consideration of $1.8 billion. This is a guy who ran a major business; he should be fairly savvy about making financial decisions. Maybe it was his confidence that ruined him; several years later after the windfall, he's declaring bankruptcy.

Declaring bankruptcy isn't always such a bad thing from a business perspective. If the drawbacks like trashing your credit aren't important, it's an effective way to getting out of paying many of your debts. The stigma for bankruptcy is still well-deserved, and in this case, Harvey Minor even released a public statement when filing his bankruptcy, lamenting his mistakes.

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