Apr 08, 2019
Getting a payment in compensation for a personal injury sounds like a golden opportunity to emerge from what may have been a challenging moment or period in your life. The money should cover your rehabilitation costs and leave you with some funds to live the way you want to, right?
Not so fast.
Managing your personal injury payout is extremely important. Unwisely spending your compensation won’t benefit you, at all. It’s mandatory to get financial advice about managing your compensation long before you see a single dollar, with good reason.
If you’re in line to receive a payment for workers compensation or due to experiencing some other injury, here are seven critical areas that an expert financial adviser will help you with.
Change of Wealth Strategy
You should already have had some sort of plan in place for managing and growing your wealth. For many Australians, a wealth strategy includes managing their super, eliminating debt and investing wisely in line with your future goals.
But after an accident that impacts your earning abilities, your wealth strategy is going to significantly change for better or for worse.
A financial adviser will professionally assess your situation, work with you on any changes to your financial goals, let you know the best way forward. The bigger the payout, the more important this is.
Change in Your Work
Any sort of serious injury will mean time lost from work. Your accident may have even left you with a disability or other limitations, and this can force a change in career. When you get compensation for your injury, you will have to wisely allocate the funds into a reasonable budget that covers your daily living expenses and debts. You may even have to use a portion of the money to fund a career pivot by taking classes or training for a job that you can handle after recovering.
Consulting an experienced financial adviser will ensure that you draft the best plan for maximising your income stream to the best of your abilities.
Medical and Rehabilitation Expenses
Compensation for your accident doesn’t just pay for your initial care, it should also go towards any continued expenses that may be required as part of your rehabilitation. For example, some injuries may have more serious repercussions as well as ‘wear and tear’ that show up years after the incident. Or you may need ongoing therapy to restore body function and range of motion. A financial expert will help you budget for your medical needs now and into the future.
Changes in Lifestyle
Over time, complications from your injury could make the way you live more expensive. You might have to make some major changes to your home by installing ramps and railings, altering your bathroom or toilet, widening doorways, changing flooring and so on. If such renovations aren’t practical, then you may have to move to a new location altogether. Your preferred mode of transportation will likely change, too.
Such changes aren’t cheap and you need professional help in managing your injury payout to ensure you can afford them.
Debt Elimination or Management
If you weren’t on top of your debt before, then having a medical injury may only compound your problem. With the help of an experienced financial adviser, you can put some of the funds from your compensation towards eradicating debt and simplifying your financials.
Tax Implications of Personal Injury Payout
The good news is that redemption payments are usually not taxable, but every individual’s situation is unique given the immense variety of factors that influence tax responsibilities. Working with your accountant in conjunction with your financial adviser will ensure you don’t get blindsided by unexpected tax obligations.
What if you were already receiving Centrelink payments at the time of your accident? Centrelink may want to recover some of the costs they covered during the period after your accident and before you receive a reimbursement. You might simply have your Centrelink payments paused temporarily. Centrelink has the right to request back whatever costs they feel are due, so consulting with a financial adviser will help you get an idea of how your payment schedule may be affected.
Written by Ben Calder, Private Client Adviser at Calder Wealth Management.
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