Welcome to the second installment of this two-part blog series on the potentially devastating financial mistakes celebrities and the ultra wealthy make. In Part 1, we uncovered the following three mistakes:
- Living Beyond their Means
- Not Signing a Prenup
- Forgetting about Their Will
4. Wealth Management No-No’s: 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 the 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’ role was a little more pre-meditated, as he claimed taxation was unconstitutional and purposely chose not to file.
5. Wealth Management No-No’s: 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.
6. Wealth Management No-No’s: 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 our mistakes or we might not be so lucky.
If you have any questions at all or would like individualized investment advice from our Del Mar wealth manager, please contact John Lohrenz at:
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