We've covered this story a bit in the past, but it's coming up again (I heard it talked about recently on NPR). It's a classic case of someone making a boatload of money, spending it all and then some, and having tough financial times as a result. The details from NPR:
A New York-based company that loaned $24 million to photographer Annie Leibovitz is now suing her, claiming she has failed to pay the associated fees.
"She has a contract with Vanity Fair that's worth supposedly tens of millions of dollars during the course of her lifetime."
So, she has a very high income, but is in the process of defaulting on a $24 million loan. How did this happen?
Details are a bit sketchy, but here's what the NY Times has said:
Friends and colleagues said that despite her many successes, Ms. Leibovitz has been shadowed by a long history of less than careful financial dealings. Public records show that in the last two years, Ms. Leibovitz has faced tax liens of $1.4 million and two lawsuits claiming that she has not paid more than $700,000 in bills for photography services.
It's not clear what's exactly going on (for instance, she's disputing the lawsuit) but here's what appears to be the case to me:
1. She makes a ton of money every year. No one is questioning this fact.
2. In addition, she has a very valuable asset in all the photos she's taken in the past.
3. She appears to live a modest lifestyle personally.
4. Where she's not great is managing her business finances. They appear to be out of control on several fronts.
5. As such, she's had to borrow against her biggest asset to free up cash.
6. Since then, she's kept up the bad habits and has gotten into worse trouble.
7. Now there's nowhere else to turn other than possibly outright sale of her photo library.
8. Even then, if she keeps burning through cash at the rate she is, she'll be bankrupt sometime soon.
In the end, no matter what the reasons, the points remain that:
1. She has a high income and big assets.
2. She's spending all her income plus some, which is forcing her to take on debt.
3. As a result, she's going backwards financially.
The reason I bring up this story is because I often hear the comment that spending less than you earn is both 1. too simplistic and 2. not the key to financial health (they say making more money is.) While the concept may be simple, it's also a powerful one and is the foundation to solid finances IMO. If a person can not spend less than they earn, no matter what their income, they'll be going backwards financially. But if someone can spend less than they earn -- especially if they have a low income -- then they can REALLY grow their net worth as they keep spending in check while concentrating on growing their income. This is why I list spending less than you earn as priority #1, and making more money as financial priority #2.
From what I read, when Annie's life partner died, she was required to pay estate taxes on all the property, because they were not able to be married and the assets did not transfer over with no penalty. She tried to keep the properties instead of selling them off (dump financial move), and I think that is what has gotten her into her most recent financial trouble. This is one reason why I support gay marriage. Its not fair that homosexuals don't have the same rights as heterosexuals.
Posted by: Emily | August 24, 2009 at 04:04 PM
Emily --
I had heard that as well, but couldn't put it together from these pieces. Certainly the Times would have said this if it was true, right?
Posted by: FMF | August 24, 2009 at 04:16 PM
Owning three townhomes in Greenwich Village and a home in Rhinebeck seems a bit extravagant considering the purchase price, renovations and carrying costs of all that real estate. I wonder if that lifestyle is considered modest when compared to Michael Jackson? It certainly isn't modest compared to mine.
Posted by: lurker carl | August 24, 2009 at 04:37 PM
I read it in another article, but found this one:
http://www.queerty.com/photographer-annie-leibovitz-is-certainly-paying-the-death-tax-for-lover-susan-sontags-estate-20090306/
I am not sure how public their relationship was, and of course, its all hearsay but it makes sense as to why she is in such great debt.
Posted by: Emily | August 24, 2009 at 04:41 PM
Emily --
It still doesn't answer the question about why the Times didn't mention it. Do they think it's not true?
If you read the piece you link to, it doesn't really say that's the reason she's in tough shape. They couch their post with terms like "might explain" and "it's entirely feasible" -- versus saying this is the reason for the problem.
And even if it is, why didn't someone with millions plan for it? Seems like it would have been a no-brainer to do so.
Posted by: FMF | August 24, 2009 at 04:47 PM
I can't speak to Ms. Leibovitz's personal situation, but the death tax sucks for everyone who's accumulated any amount of wealth. Governments tax you when you earn it and then tax you again on what they missed the first around after you die. Unlike farmers and small business owners who get hit with this a lot and can't sell off part of a farm or business, you'd think some of Sontag's less important assets could be sold off to cover the tax bill. It also seems like Sontag could have done some better estate planning to lessen the tax burden.
Posted by: The Biz of Life | August 24, 2009 at 06:18 PM
When you read all the various articles, the death tax issue does not seem to be the real problem. If it was, the way to handle it is to sell portions of the inherited property to pay the tax bill.
There are several articles about the cost issues related to her rehab work in Greenwich Village. Beyond that, it seems that there are overall budgeting issues with respect to her work. Here is an article that covers that:
http://www.breitbart.com/article.php?id=CNG.2f54f844fc040f6daba9c6b086caf08f.21&show_article=1
Note the quote at the very end:
"The weekly New York Magazine published a lengthy article recounting her perfectionism at work and her lavish personal taste, including an apartment on the banks of the Seine in Paris to please her lover, writer Susan Sontag, who died in 2004.
Anna Wintour, the equally famous editor of Vogue magazine, said in a documentary that Leibovitz was priceless.
"Budget is not something that enters into her consciousness, but it is worth it because at the end of the day, she gives you an image that nobody else can," said Wintour. "
Posted by: JimL | August 24, 2009 at 06:50 PM
I think the talk about the estate tax gets away from the main point of this post. It is true that no matter how much you make you must live below your means. Look at how many athletes file bankruptcy. It can happen to anyone. I have seen teachers with more money than doctors due to their lifestyle and commitment to savings.Ki
Posted by: Kirk Kinder | August 24, 2009 at 09:13 PM
FMF,
Spend less than you earn is the simple mantra. How come our gov't can't get this concept down?
Shouldn't a principle that is good for the individual be good for gov't as well?
-Mike
Posted by: Mike Hunt | August 24, 2009 at 09:28 PM
this just goes to show that making a lot of cash is not the end of financial problems but the beginning of others(what to doe with all the cash)
some of this stories of financial failings help the rest of us aspiring for fortunes to keep priorities in order and to increase our education on money. i recently read a post om mr mcafee(founder of the software giant). he is almost running broke after burning through almost $100 million. sad huh??
Posted by: kenyantykoon | August 25, 2009 at 05:08 AM
Mike --
Ha! You'd think so!
Posted by: FMF | August 25, 2009 at 07:34 AM
Emily --
I found this:
http://www.usnews.com/blogs/alpha-consumer/2009/08/25/annie-leibovitz-why-fame-and-debt-often-mix.html
Key quotes:
"Goldman discredits the idea that the so-called 'gay tax' left Leibovitz unable to inherit her partner Susan Sontag's estate without paying significant taxes. Most of Sontag's estate, he says, went to Sontag's son, not to Leibovitz.
Relying mainly on interviews with those who have worked with her, Goldman argues that the real cause of Leibovitz's debt is her tendency to spent outrageous amounts of money while on assignment, partly driven by her work ethic."
Posted by: FMF | August 26, 2009 at 09:05 AM