7 Rich Celebrities Who Went Broke

Have you ever looked at a magazine cover photo of a rich and famous person who makes millions per year and wondered what in the world they do with all that money? I have. I've also dreamed about what I would do if I had millions of dollars. (Ahem, pay off student loans.)

But the fact of the matter is that even the obscenely rich among us aren’t immune from financial problems. In some cases, they are more likely to have financial problems than those who make an average American income.

Harvey Warren, author of Drop Debt, Surviving Credit Card Hell Without Bankruptcy says, "a person with $250,000 worth of income and $250,000 worth of credit card debt is just as broke as a person with $40,000 worth of income and $40,000 worth of credit card debt."

"Easy come, easy go. Young people who never had to earn money don't appreciate the risk, sacrifice and tenacity that it represents," says Paula Pant, founder of AffordAnything.com.

An interesting New York Times article with former-boxer-turned-chef George Foreman, who very nearly went bankrupt in the 1980s after squandering millions of dollars, highlights this very problem. Mr. Foreman says that lots of wealthy people never grow up, so they spend themselves into huge debts while living a party life. The article notes that those who are least likely to spend themselves out of millions or billions are those who worked hard for their money, rather than inheriting it or earning it in a whirlwind of instant success.

"The trend to live lavishly happens when you want to be NOTICED by the world, there’s a cost associated with being adored by the media and that cost rises as others new celebrities enter the game. It’s becoming more of a trend for athletes than movie stars and lottery winners to go broke than ever before," says Xavier Epps, financial adviser at XNE Financial.

This is shown to be true by the many Hollywood stars who have gone broke over the years, despite living extravagant lifestyles funded by a seemingly endless pile of money. "The rich are often better at making money than managing their money," says Pablo Solomon, Artist & Designer.

Here are just seven rich celebrities who went broke:

1. Sherman Hemsley
   This actor, who played George Jefferson on The Jeffersons, apparently spent himself into a big hole, filing for bankruptcy in 1999 when he couldn’t pay a $1 million loan and taxes that he owed to the IRS. Hemsley eventually withdrew the suit and settled his debts out of court.

2. Wayne Newton
   Also known as Mr. Las Vegas, Wayne Newton filed for Chapter 11 bankruptcy in 1992. Newton incurred about $20 million in debt while suing NBC for libel when he filed bankruptcy. Six years later, Newton seemed to be back on firm financial footing when the IRS sued him for $1.8 million in back taxes and penalties and a Michigan airport tried to get him to pay $60,000 in storage fees from a plane he abandoned there.

3. Mike Tyson
   This heavyweight champion filed bankruptcy in 2003, despite earning over $300 million in the ring. Tyson is a classic case of a celebrity living beyond his means, having bought multiple mansions, cars, and even pet tigers.

4. Nicolas Cage
   One of the more recently broke celebrities on this list, Nicolas Cage had already paid the IRS $666,000 for personal expenses he had deducted from his taxes when the IRS came after him for $6.2 million worth of back taxes. Cage was forced to put up his Hollywood home (worth $35 million) and his New Orleans mansion (worth $3.5 million) for sale to try to dig out of his self-created financial hole.

5. Anna Nicole Smith
   This former Playboy Playmate of the Year and model lost $830,000 in a sexual harassment case in 1996, which brought her inheritance from J. Howard Marshall to an end in bankruptcy.

6. Kate Gosselin
   If the divorce of Jon and Kate Plus Eight star Kate Gosselin was a shocker, her subsequent financial issues were as well. In fact, messy divorces are one of the common events that get celebrities like Kate into financial trouble.

7. Courtney Love
   This celebrity seems to have always had money troubles, but they’ve really come to a head recently because she owes $350,000 to American Express. Though her daughter has a trust fund, Ms. Love can’t touch it, which leaves her seriously hurting financially.

What can you learn?

There’s plenty to learn from the list of celebrities who, at one time, made more money in a year than many of us will see over our lifetimes. For one thing, it’s always tempting to live beyond your means, and everyday people do it just as much – if not more than – celebrities. "Sadly, we have created a society where what people HAVE seems more important than who they ARE," says Ilene Davis, CFP and designer of the Not Just for Retirement Calculator.

In our recent survey, about 60% of respondents don’t pay off their credit cards each month, and a staggering amount of those surveyed use a credit card to pay for basic expenses like gas.

"What we can learn from the rich and famous today, is that lavish lifestyles can be short-lived if current earnings aren’t managed perpetually over their expected lifespan," shares Epps.

Even though you might only be talking about a few thousand dollars worth of debt, rather than a few million, it’s easy to let everyday expenses and luxury spending spiral out of control, ending in bankruptcy or other financial crises. So when you look at celebrities who once had it all, remember that financial issues can happen to anyone who doesn’t properly manage his or her money, and that good money management skills will go far to protect you from future financial problems.