Straight Outta Spousal Maintenance

Ambitious musicians have always looked for ways to monetize their name and fame. Sometimes the results fall short of a mic drop — usually half-baked restaurant “concepts.” (Remember Kenny Rogers Roasters?) But today’s artists — especially in the rap community — can be just as talented at entrepreneurship as making music. Sean Carter used to sling dope in Brooklyn’s Marcy Houses, and now he’s the billionaire Jay-Z. Sneaker king Kanye West is worth $3 billion, minus the $7 million he just blew on his presidential run. (Glad he’s not squandering his riches.)
Andre Young, better known as Dr. Dre, launched his career with World Class Wreckin’ Cru and N.W.A. He’s worked with nearly every name in rap and counts Snoop Dogg and Eminem among his proteges. But his real legacy may come from his business and philanthropy. He launched his headphones brand, Beats by Dr Dre, in 2008, and sold it to Apple for $3 billion just six years later, making him “the richest man in hip hop.” Now he’s making different headlines as he and his wife Nicole split after 24 years.
Nicole has fled the couple’s 43,000 square foot Brentwood mansion to hide out in their Malibu Beach house, where she claims he’s cut off her American Express. (The couple has three other houses in LA alone.) Now she’s asking for temporary spousal support in the amount of of $1,936,399 per month. Her budget should look familiar to anyone who’s struggled to get back on their feet through the heartbreak of divorce:

  •  $10,000 for laundry and dry cleaning,
  •  $135,000 for clothes (which explains the dry-cleaning bill),
  • $60,000 for education, including tuition and living expenses (she’s going to get educated or die trying)
  •  $900,000 for entertainment (if she’s not hiring Cirque du Soleil to play in her bathroom, she’s missing the boat)
  •  $125,000 for charitable contributions (the couple has given tens of millions to his high school and the University of Southern California),
  • $100,000 for mortgage payments (that’s enough for a $20 million crib), and
  •  $20,000 for telephone, cell phone, and email (last time we checked, Gmail was still free).

Here’s where the taxes come in. Spousal support used to be deductible to the payor and taxable to the payee. The goal, of course, was to leverage payments by shifting the tax burden from the higher-bracket payer to the lower-bracket payee. But the Tax Cuts and Jobs Act of 2017 axed that rule. (While we’re on the topic, the same law also eliminated the deduction for California state and local taxes over $10,000, which probably cost Dre hundreds of thousands more every year.)
As for Nicole, mortgage interest is deductible, but only on $750,000 of principal, which should limit her write-off to about $3,500/month. Cash donations are deductible up to 100% of adjusted gross income in 2020, assuming she has $125,000/month of income to offset. If not, she can carry the excess forward for up to five years.
We realize you’d probably be fine even with chopping a couple of zeroes off Nicole’s budget. But if you’re asking for everything, like she is, you’d want all the tax breaks, too. Now you’re singing our tune. Call us now and let us produce a plan that beats the IRS like a drum!

 

Sponsored by:

Sign Up Now!

Get instant access to Edward’s chapter of the book UNcommon and discover the 1/10th of the 1% rule and integrated wealth planning!