6 Celebrity
Money Mistakes
Celebrities: they’re just like us! They navigate the grocery store, negotiate their children’s temper tantrums and even make mistakes with their finances. When a celebrity makes a money mistake, the effects are often costlier because of the large amount of money involved. Take a look at these cases of celebrity money mismanagement and learn from the mistakes of the rich and famous.
- Living Beyond Their Means.
To many people, the concept of money is difficult to grasp, especially when your paycheck is in the millions. With all that new money coming in, it’s easy to spend frivolously and assume the money will never stop coming in. But even celebrities need to worry about job security, and sometimes the money does stop coming in. Nicolas Cage is a good example of living beyond your means. Cage invested in real estate prior to the 2008 financial crisis, accumulating 15 homes that quickly depreciated. He also purchased a bevy of luxury cars, motorcycles, art and even a private island. His overspending came to a head when he was hit with a $13 million tax bill he couldn’t pay, and has since been working and selling assets to get back afloat.
MC Hammer is another celebrity guilty of getting too big for his britches, and his britches were pretty large to begin with. Hammer also spent lavishly, at one point having over 200 employees on his payroll, before filing for bankruptcy.
- Not Signing a Prenup.
Pre- and postnuptial agreements are a touchy subject for couples blinded by love, but the truth is that many marriages do end in divorce, especially celebrity marriages. When Paul McCartney penned “When I’m 64,” you can bet he didn’t imagine he’d be fighting a bitter court battle with his soon-to-be-ex-wife over their divorce settlement at the age of 64. Because he and Heather Mills didn’t have a prenuptial agreement, their battle raged on publicly until Mills was eventually awarded about $50 million.
Madonna suffered an even larger loss after her divorce from Guy Ritchie, to the tune of more than $75 million. Despite bringing the majority of their assets to the relationship, without a prenup she was legally not entitled to take it all with her.
- Forgetting About Their Will.
Heath Ledger created a will before he died, which is more than many people can say. However, at the time of his unexpected death in 2008, it hadn’t been updated to include his daughter Matilda or her mother, Michelle Williams. The will dictated that his property be left to his parents and sisters, who announced that they would take care of both Matilda and Williams, despite not being legally obligated to in the will.
Anna Nicole Smith made the same mistake of failing to update her will after a major life event. In her case, the major life event was the death of her son, to whom her estate was still bequeathed in her will at the time of her death. Her outdated will contributed to a lengthy legal battle for control of her estate and guardianship of her daughter, who was not included in the will.
- Ignoring the Tax Man.
Even celebrities have to pay taxes, but many of them don’t. Some merely don’t double check the work of their accountants or don’t know enough about their own finances to relay important information to their accountants. Others experience shock at how high their tax bills become once their paychecks balloon and can’t make the payment after they’ve spent all their earnings. Willie Nelson is one of most famous cases of tax evasion. Nelson discovered that he owed millions to the IRS after his accountants allegedly pushed illegal tax shelters on him. Because he couldn’t afford to pay the bill, Nelson auctioned off his belongings and even released an album titled “The IRS Tapes: Who'll Buy My Memories?” to raise money.
Wesley Snipes served three years in jail for tax evasion after he failed to report over $15 million in income. Snipes’s role was a little more pre-meditated, as he claimed taxation was unconstitutional and purposely chose not to file.
- Trusting Scammers.
Celebrities are frequent targets for scammers because they have money and often don’t know what to do with it. Kenneth Starr was a money manager to the stars, but instead of managing their money, he stole it. Starr managed money for celebrities such as Uma Thurman, Neil Simon, Lauren Bacall and others, eventually netting $30 million in stolen cash for himself. Thurman finally called him out, and Starr was put behind bars.
- Gambling.
Michael Jordan is a known gambler, and there are many stories about his risky gambles that read more like folktales. Jordan once allegedly lost $1 million on a single game of golf and has admitted to pushing the envelope when it comes to making bets. Though Michael Jordan doesn’t seem to be suffering in the financial arena (he’s still allegedly making $80 million each year), his compulsive gambling is a money mistake just waiting to happen. Charles Barkley is another professional athlete with a gambling problem, who reportedly has lost up to $10 million in gambling throughout the course of his life. However, as Barkley puts it, he doesn’t have a problem because he can afford to lose.
Celebrities can afford to lose a lot, whether through gambling, fraud or compulsive spending. But there is always a limit to how much you can afford to lose, and that limit is even lower for those without celebrity paychecks. Celebrities can usually bounce back from financial hardship because they’ve built a brand around their name, but the rest of us need to learn from their mistakes or we might not be so lucky.
* Investment Advisory Services are offered through Capitol Private Wealth Group, a registered investment adviser.*