I let Andrew handle the money, because money is in his genes, not mine.
I’ve never been good with money, but then I’ve never had any money to practice with.
My parents paid for my undergraduate education, which cost them a fortune, but which allowed me to receive my Baccalaureate free from student loans.
Andrew is paying for my law school education, which has been costing him a fortune, but which will allow me to receive my Juris Doctor free from student loans.
Of course, the downside, for me, is that I have to be nice to Andrew since he’s footing the bill. I have to pretend that I like the atonal, modernist music with which he tortures me, I have to pretend that the Big Ten Conference is on a par with the vastly superior Big Twelve Conference, and I have to pretend that I like his cooking, including that shrimp-tomato-rice dish Andrew’s father warned me about.
To be serious, we have a gentlemen’s agreement about my law school expenses. If things do not work out between us, I will pay Andrew back my law school tuition over a ten year period of time, with that obligation ending ten years after I graduate from law school.
In any case, I never worry about money as long as I have food on the table and a warm place to sleep. I leave all such worries to Andrew.
We never spend money. We don’t spend a dime on ourselves. We are not wasteful, we never buy foolish or frivolous things, we are not interested in technological gewgaws. We live very simply.
That will not change—even though $412,000 in option profits was assigned (and actually turned over) to me in December and January.
I take no credit for this maneuver, and I take no credit for my good fortune. The windfall was thrown into my lap.
Simply put, when oil was $160 a barrel in July, Andrew’s father and Andrew’s brother had Andrew and me buy six aggressive option contracts, effectively betting that the price of oil would decline sharply from then-current levels.
We were not alone. Hundreds of thousands of other Americans did the same thing at the same time.
Everyone who did so made out like bandits.
Our options were not naked options—at risk, and only at risk, was the tiny amount of money we put forward to buy the option contracts, which cost us a relative pittance—and the purpose of the options was to hit a home run or lose the entire (but insignificant) premiums paid. Nothing in-between was ever contemplated.
We did hit a home run. In fact, we hit six home runs, one for each of the option contracts we bought.
By September, the price of crude was dropping like a stone, and we knew that we had hit pay dirt—but that was only the beginning of the oil price collapse. The price of crude continued to slide, dramatically, until December. It was a staggering, brutal decline, but for Andrew and me it was a beautiful decline.
Our problem was taxes. Our gains would be short-term gains, half of which would be taxed at Andrew’s highest marginal rate. Further, an enormous amount of tax-planning had already been done for Andrew for 2008, tax-planning that did not take into account the prospect of an options payload at year-end.
The solution: the original option premiums were gifted to me, and I, in turn, immediately gifted one-third of the premiums to my sister and another one-third to my brother. All of this was accomplished by early October, more than eleven weeks before we started closing out the option contracts. It involved mountains of paperwork shipped back and forth, overnight express, between Minnesota, New York, Boston, Tennessee and Oklahoma.
Three of the option contracts were closed out in December and the other three option contracts were closed out in January. (Of course, this was done so as to spread reportable gains over two tax years.)
The proceeds from the option contracts are now held jointly by me, my sister and my brother. We will, of course, have to pay taxes on the gains, but all three of us are currently full-time students, without additional taxable income. We will never be in lower tax brackets than we are right now.
The money will be used to pay for education expenses. After taxes, my share will more than cover my final two years of law school tuition. After taxes, my sister’s share will cover most of her expenses for her next three years at Vanderbilt. After taxes, my brother’s share will cover much of the cost for his approaching four years at Southern Methodist.
Most of all, this windfall is a giant break for my parents, who otherwise would be footing the bill at two very costly universities beginning next year. A burden has been lifted from their shoulders.
Andrew gets to participate in the windfall, too, since a significant portion of his salary will no longer have to go toward paying my law school tuition. That money can now be devoted to atonal, modernist music scores, scores Andrew can use to torture me.
As for me, I’ve never had $412,000 in a checking account before.
I guess I’ll have to continue to be nice to Andrew, much as it hurts me.