5 Common Financial Mistakes High-Net-Worth Individuals Make After an Accident

A Serious Injury Puts More Than Your Health at Risk—It Threatens Your Financial Legacy

After a catastrophic accident, the immediate priorities are clear: medical treatment, stability, and beginning the road to recovery. For successful professionals, business owners, and high-net-worth families in Colorado, the financial stakes are exceptionally high. The assets you’ve worked diligently to build can be exposed to significant risk from medical debt, a sudden loss of income, and poor financial decisions made under duress.

While a personal injury lawsuit is designed to recover what you’ve lost, critical financial errors made in the aftermath of an accident can undermine your long-term security. Protecting your wealth requires a coordinated legal and financial strategy.

This article outlines the five most common—and costly—financial mistakes that high-net-worth individuals make after a serious accident and provides clear guidance on how to avoid them.

Mistake #1: Underestimating Future Financial Needs

The most immediate mistake is focusing only on the bills you can see right now. High-net-worth individuals are accustomed to managing significant expenses, but the lifelong cost of a catastrophic injury is on a different scale entirely.

The Trap: You calculate immediate medical bills and a few months of lost income, assuming your recovery will be linear and your financial needs will stabilize.

The Reality: A severe injury often requires a lifetime of care. This includes:

• Future Surgeries and Treatments: Initial hospitalization is just the beginning.
• Ongoing Rehabilitation: Years of physical and occupational therapy.
• In-Home Care and Modifications: The cost of skilled nursing care or retrofitting a home.
• Inflation: The cost of medical care historically outpaces standard inflation.

How to Avoid It: Work with your legal team and financial experts to create a comprehensive life care plan. This detailed document, prepared by medical and financial professionals, projects the full scope of your future needs, ensuring you demand a settlement that truly covers your lifelong costs.

Mistake #2: Cashing Out Investments or Retirement Accounts Prematurely

When faced with mounting bills and a halt in income, it can be tempting to liquidate assets. Tapping into retirement accounts or selling off investments might seem like a quick solution, but it can cause irreparable financial damage.

The Trap: You sell stocks or withdraw from your 401(k) or IRA to cover immediate expenses.

The Reality: This approach triggers significant tax penalties and capital gains taxes. More importantly, it robs you of the future growth of those assets, permanently diminishing your net worth. It’s a short-term fix with devastating long-term consequences.

How to Avoid It: Explore all other liquidity options first. This can include portfolio loans, lines of credit, or other financing strategies designed to bridge the gap while your personal injury case is pending. A skilled attorney can sometimes secure advances from litigation funding companies, though these should be considered carefully.

Mistake #3: Accepting a Quick, Structured Settlement Without Proper Vetting

Insurance companies love to offer structured settlements, which pay out over time instead of in a lump sum. While they can be a useful tool, they are often designed to benefit the insurer.

The Trap: The insurance company offers a “guaranteed” monthly payment for life, which sounds secure and responsible.

The Reality: The underlying value of the annuity may be far less than what your case is truly worth. The rate of return could be unacceptably low, and the structure may be inflexible, preventing you from accessing funds for a major expense. You need to understand exactly “How Insurance Companies Determine Settlement Amounts.”

How to Avoid It: Never accept a structured settlement offer without having it thoroughly analyzed by both your attorney and an independent financial advisor. A lump-sum payment often provides far greater flexibility and control, allowing you to invest the proceeds as you see fit to meet your specific financial goals.

Mistake #4: Co-mingling Settlement Funds with Marital Assets

This is a subtle but critical error, particularly for those in high-net-worth marriages. In Colorado, a personal injury settlement is generally considered the separate property of the injured spouse.

The Trap: You deposit your settlement check into a joint checking or investment account.

The Reality: Once those funds are co-mingled with marital assets, they can become marital property. In the event of a future divorce, your ex-spouse could be legally entitled to a portion of the funds that were intended to cover your lifelong medical care and suffering.

How to Avoid It: Work with your attorney and wealth manager to establish a separate trust or account specifically for the settlement funds. This maintains their legal status as separate property and ensures they are protected for their intended purpose.

Mistake #5: Neglecting to Update Your Estate Plan

A catastrophic injury and a subsequent multi-million-dollar settlement are significant life events that dramatically alter your financial picture. An outdated estate plan can create a legal and financial nightmare for your loved ones.

The Trap: You assume your existing will or trust is sufficient to handle the new assets.

The Reality: A large settlement could have gift and estate tax implications you hadn’t planned for. Your existing documents may not provide the asset protection or specific instructions needed to manage the funds if you were to pass away.

How to Avoid It: Immediately after your case is resolved, meet with an estate planning attorney. You may need to create a special needs trust or other sophisticated legal instruments to protect the settlement funds, minimize tax liability, and ensure your assets are distributed according to your wishes.

The financial decisions you make now will impact your family for generations. Call Flanagan Law at 720-928-9178 to ensure your legal and financial strategies are perfectly aligned.

The Final Takeaway: Protect Your Recovery and Your Wealth

Recovering from a serious injury is your priority. Your legal team’s priority is to secure the compensation you deserve. But an equally important part of that process is making sound financial decisions that protect those hard-won funds. By avoiding these common mistakes, you can ensure that your settlement provides a lifetime of security for you and your family.