Money Mistakes of the Rich and Famous
byJul 4th 2008 10:30PM
Walk past a newsstand these days and you'll see dozens of glossy magazines with the faces of the rich and famous staring back at you. Glamour, fame, fortune! But behind the fancy clothes and re-touched photos, celebrities are just people who, like us regular Joes, make serious mistakes. No, not bad plastic surgery or making the Worst Dressed list, we're talking about making serious money mistakes.
Here are nine that have made headlines recently...
Money Mistake #1: Not Signing a Pre-nuptial Agreement
If the rampant rumors are true, Madonna and Guy Ritchie may be the latest celebrities calling it quits--and the latest to potentially end up in a nasty fight over money since the Material Girl apparently didn't have a prenuptial agreement. This puts Madonna's estimated $600 million fortune at risk. Remember, earlier this year another British court ordered Sir Paul to pay ex-Heather Mills a whopping $48.7 million, so this could cost Madonna dearly.
You don't need to be filthy rich to need a pre-nup. If you bring assets to your partnership that you want to be sure you keep 100% of if things don't work out, it's essential you work out a pre-nuptial agreement before you are married.
Money Mistake #2: Not keeping your will up to date.
Actor Heath Ledger's tragic death was compounded by the fact that neither his girlfriend, Michelle Williams, nor their daughter, Matilda, was included in his will. That wasn't a slight...Ledger just hadn't updated his will since 2003, well before either was in his life.
We all get busy, and visiting a lawyer to update your will isn't at the top of anyone's "fun" list, but it's one of the most important things you can do to protect your loved ones should something unexpected happen to you. Be sure you update your will to address any major life event, such as marriage, divorce or the birth of a child or grand-child.
Money Mistake #3: Losing a home to foreclosure
You've probably seen former Tonight Show host Ed McMahon in the headlines lately. In a sad turn of events, McMahon, once famous for knocking on people's door to make their dreams come true, is now facing the nightmare of losing his home to foreclosure.
Records show McMahon is $664,000 behind in payments on his Beverly Hills mansion. How could this happen? Simple: McMahon got caught by the housing bust just like so many other Americans. He bought a big house and took out a home equity loan when banks were saying "yes" to almost any request. Meanwhile, the value of his house went down with a very weak real estate the market, and he got behind in his payments.
Other celebs to lose their homes this year include queen of soul Aretha Franklin and disgraced baseballer Jose Canseco, who simply abandoned his $2.8 million pad -- just walked away and let the bank take it. (See a gallery of recent celebrity foreclosures here)
Money Mistake #4: Going Bankrupt
We know, we know, cry us a river, right? It's hard to muster much sympathy for celebrities who made a fortune and squandered it all, but the list of celebs forced to declare bankruptcy is surprisingly long. The newest member to join this unfortunate club is rapper MC Hammer, who burned through $30 million with his penchant for fancy cars, homes and a huge entourage. Other bankrupt celebs include boxer Mike Tyson, figure skating darling Dorothy Hamill and Debbie Reynolds.
Keep reading to learn about the two superstars who are in danger of adding their name to the list...
Money Mistake #5: Oops-I spent it all again
As if pop sensation Britney Spears didn't have enough problems, add spendthrift to the list. According to court papers from her recent custody battle, Britney doesn't save one penny of her $737,000 monthly income. She spends zero on education, savings or investing! ZERO.
Brit's been put on a strict budget now that her dad has taken charge of her affairs, but she's hardly the only superstar to spend frivolously and save almost nothing. Michael Jackson--once worth an estimated $500 million--has been in constant money trouble for years, almost losing his Neverland Ranch this year.
Save early, save often, and avoid the fate of celebs who put their financial future at risk with reckless spending.
Money Mistake #6: Trouble with the Tax Man
The IRS certainly isn't star-struck! Uncle Sam has no problem going after celebrities who try to cheat the tax man. Actor Wesley Snipes was convicted of failing to file a tax return and was sentenced to the three years in prison. Prosecutors say he failed to pay $15 million in taxes.
Look, none of us like paying taxes, but they are a fact of life whether you're an average Joe or a superstar. Take advantage of all the perfectly legal ways to make sure you pay your share and not one penny more. But don't think you can pull one over on the IRS, or you might find yourself in a jail cell conversation with Snipes and Survivor winner Richard Hatch (who's doing 4 years for failing to pay taxes on his $1 million winnings!).
Money Mistake #7: Falling for Investing Scams
Every year millions of people are hurt by investing scams. And stars aren't immune. In recent court papers, talk show legend Larry King admitted he got swindled by an insurance scheme. An unscrupulous insurance agent convinced him to get involved in a series of complex life insurance transactions that involved flipping policies for profit.
Many a star has been taken because they trusted the wrong people. But, c'mon, a little common sense, please! If it sounds too good to be true, it probably is-or it's illegal! And remember, life insurance is there to protect your loved ones if something happens to you. It's NEVER an investment.
Money Mistake #8: Running up gambling debts.
Basketball great and TNT analyst Charles Barkley admitted this year that he has lost about $10 million gambling. Golfer John Daly claims to have lost an unbelievable $50 to 60 million. And basketball superstar Michael Jordan once lost $1 million just on a round of golf!
But it's not just famous athletes that put their finances, careers and families at risk because of a gambling addiction. As many as nine million Americans are problem gamblers. We're not saying it's bad to try your hand at the blackjack table or hit a slot machine or two for fun once in awhile, but never play with more than you can comfortably afford to lose.
Money Mistake #9: Passing money to irresponsible heirs.
You think you've been embarrassed by family members? Poor Barron Hilton, patriarch of the Hilton family--yes, those Hiltons--was so mortified by his granddaughter Paris Hilton's outrageous behavior, that he cut her out of his will. After watching her sully the Hilton name for the umpteenth time, he decided to take the $2.4 billion he earned from the sale of his remaining share of Hilton Hotels and give the money to charity instead. Wonder if Paris' partying and wild antics were worth the $60 million it cost her?
We can't help you make the cover of the latest gossip rag, but we can help make sure you don't repeat any of these celebrity money mistakes. Visit us at Dolans.com for tips on estate planning, proven debt management strategies and how to create a simple budget even Britney could follow.