It may sound ironic, but earning millions of dollars or having celebrity status is no guarantee against the risk of indebtedness. Musicians, movie stars, models, athletes, and business executives across different industries have overspent, mortgaged and whittled away millions of dollars. How is it possible for any millionaire to end up spending more than they have earned and be unable to pay their debts? The answer may be in the stories outlined below. Examining some of the reasons these celebrities went broke may help us learn from their mistakes.
Of the different types of celebrities, musicians are perhaps the most common group to incur more debt than they can repay and are therefore, more likely to seek bankruptcy protection. Often their youth (financially naive), lack of a financial savings plan, lots of wild spending, sometimes theft by others and sudden careers going bad, leave short lived careers with lots of debt. No songs are guaranteed to be hits even after many prior successes. Heavy metal singer and frequent drunk driver Vince Neil went bankrupt twice, and he was sued for unpaid legal bills in 2010. Rapper M.C. Hammer declared bankruptcy in 1996 after a net debt of $4.1 million. He has since left the field to become a minister. Wayne Newton was bankrupt in 1992 as a result of a $20 million debt he incurred over suing NBC for libel. He was later sued by the IRS in 2005 for $1.8 million in back taxes and penalties. American singer-songwriter, musician Willie Nelson went bankrupt in 1990 over a record IRS debt of $32 million, which was eventually negotiated down to $9 million. The IRS seized and sold Nelson’s Texas Ranch and possessions, but they were bought by Nelson’s friends and supporters who let him live in the home until he could repurchase them in 1993.
Michael Jackson had his unique challenges. The King of Pop purchased Neverland for $17 million in 1988 but defaulted on his $25 million dollar loan against it in 2007. The Ranch grounds contained a zoo, amusement park, movie theatre, railroad line, helicopter pads, and fire station, and cost $10 million a year to maintain. Jackson was also well known for his shopping sprees and flurries of legal actions against him. He sought bankruptcy protection in 2007.
Movie celebrities have had their share of setbacks, including Oscar winning comedy genius Robin Williams, who was on the verge of bankruptcy before his suicide death in 2014. Williams’ money woes were imbedded in his decision making and was overly generous to charities and friends, had two prior large divorce settlements, and, with a dip in his career, was spending beyond his incoming funds.
Other famous actors who filed for bankruptcy include Stephen Baldwin in 2009, when he had over $2.3 million in mortgage and tax debt. Sherman Hemsley also filed for bankruptcy in 1999 after being unable to repay a $1 million loan from a Las Vegas Investment Corporation as well as owing U.S. taxes. Former child actor, Gary Coleman, who was worth $7 million ten years prior to filing, declared bankruptcy in 1999 for $72,000 after a series of costly medical troubles and legal battles with his adoptive parents who he had entrusted to manage his finances. Actress and former model Kim Bassinger filed for bankruptcy in 1989 after being unable to pay $8.1 million in damages from withdrawing from a film called Boxing Helena.
Playboy model and 1993 Playmate of the Year, Anna Nicole Smith, declared bankruptcy in 1996. Smith owed $850,000 in legal fees she incurred to fight for a perceived estate settlement of $400 million after her 90 year-old husband died in 1995.
Professional athletes are often idolized for their abilities but they also are not immune to poor financial management or mismanaged funds. In fact, Sports Illustrated magazine reported a 2009 study showing that 60% of former NBA players go bankrupt within 5 years of retirement and 78% of former NFL players go bankrupt within 2 years of retirement. NFL quarterback Vince Young filed for bankruptcy in 2014 at age 30 after overspending and investing in private, liquid investments. NFL linebacker Lawrence Taylor declared bankruptcy in 2009 to avoid foreclosure on his home after the $10 million company he began late in his career went bust. Talyor was known in his NFL years for a life of alcoholism, drugs and prostitutes and he also pleaded guilty to falsifying a prior tax return.
World class boxer Mike Tyson earned over $400 million at the height of his career but overextended his spending by purchasing mansions, cars, Bengal tigers, wild living, and settling an expensive divorce. Of the $27 million debt, $17 million was owed in taxes, $750,000 was owed to seven law firms, and $300,000 was owed for limo services. Eight months before declaring bankruptcy in 2003, Tyson was seen purchasing a $174,000 gold chain with 80 carats in diamonds. He either had no concept of his incoming and outgoing funds or his money manager, if he had one, was obviously not helpful.
Business executives are also no strangers to debt. Donald Trump’s corporate entities filed for bankruptcy in 1991, 1992, 2004 and 2009, though he continues to have an estimated fortune greater than $2.7 billion because his personal finances were kept separate from his corporations. Late night television talk-show host Larry King declared bankruptcy in 1978 after his career took a dive following his arrest in 1971 for allegedly stealing $5,000 from his business partner. Walt Disney’s company Laugh-O-Gram Studios went bankrupt before the Magic Kingdom was built. Even Abraham Lincoln declared bankruptcy twice in his life after several failed businesses and personal loans from family and friends.
Although celebrities and millionaires encounter significant amounts of money, many lack the financial knowledge to manage these resources and they don’t have the best plan or haven’t been able to rely on their attorneys, accountants and insurance professionals hired to protect them. Many celebrities get caught up in a new materialism made possible by their wealth, expanding their lifestyles with their income, and committing to expensive homes, cars and other possessions and services which also incur ongoing maintenance costs including taxes. Without a plan of saving major portions of their income or wise investing, the expectation that money will continue to roll in, is often a false one. Celebrities also may share their fortunes with others who then may become similarly dependent on that income and more indebtedness is accumulated.
Often, the same stars (or their estates) who once brought in millions of dollars, have careers that end sooner than expected and tax debts they cannot afford to pay. Many celebrities also incur costly legal battles from staff, friends, family, or former spouses. In some cases, the root of the financial problems are business related instead of lifestyle choices, though often the cause is a combination of the two. Remarkably, some celebrities have made a major comeback after dealing with their indebtedness, which is perhaps how they became successful to begin with.
Let the experience of celebrities who deal with millions of dollars teach us a lesson about the need for financial literacy, the need to get and take the right professional advice, and take personal responsibility for our financial situation, regardless of our net worth. Most importantly, celebrity losses teach the need to value what you already have and live/plan as though your income source could stop coming in at any time. If you have questions about bankruptcy or need debt help in Edmonton, contact us at A. C. Waring & Associates. We can assess your situation to help you avoid bankruptcy where possible and can outline all your bankruptcy alternatives.