The week before last, while most of America was still digesting news of the Supreme Court’s decision on healthcare reform, morenews hit the wires. That’s right, Hollywood A-listers Tom Cruise and Katie Holmes, better known as “TomKat,” are calling it quits after nearly six years of marriage. Of course, Tom has been down this road twice before. But this split has already spawned far and away the biggest headlines, and tinseltown gossips are working overtime. How long has Katie planned her escape? What role does Cruise’s association with the controversial Church of Scientology really play? Were Tom’s lawyers really letting Katie “play the media” while they readied his reply?
News of the split came at nearly the same time as Forbes naming Cruise the world’s top-earning actor. His latest blockbuster, #4 in the Mission: Impossiblefranchise, pulled in a whopping $700 million, powering Cruise to a $75 million year. So naturally, we want to know what the divorce means for the IRS!
Divorce is usually pretty straightforward, at least from the taxman’s perspective. Property settlements between divorcing spouses are generally tax-free. Alimony or spousal support is usually deductible by the payor and taxable to the payee — which lets the divorcing couple shift the tax burden on that income from the higher-taxed “ex” to the lower-taxed ex. Child support is both nondeductible and nontaxable — it’s strictly an after-tax obligation. And legal fees are a nondeductible personal expense, except for amounts allocated to figuring alimony payments.
But celebrity divorces can be risky business. Sometimes it’s hard for outsiders to understand the stakes, which can be as different from ordinary splits as night and day. Katie hired a top gun New York attorney to represent her, one who knows all the right moves where celebrity divorce is concerned. You can be sure the tabloids were rooting for a war of the worlds — but we were just hoping daughter Suri, age 6, wouldn’t end up as collateral damage!
The Cruises had a prenup, of course. It reportedly gave Katie $3 million for each year of marriage, plus a 5,878 square foot house in Montecito, CA, where Oprah Winfrey, Kevin Costner, and Rob Lowe also have homes. And last year, Cruise deeded Holmes an apartment in Manhattan. We’re sure the firm that drafted TomKat’s prenup did a fine job. Of course, golfer Tiger Woods also had a prenup limiting wife Elin Nordegrin to $20 million — but she wound up walking away with five times that amount.
What sort of romantic prospects will the couple enjoy after the divorce? Well, Cruise should be fine. He’s already a legend — he can sit back with a cocktail and audition new starlets for the role of Wife #4. And as for Holmes, she’s still young, so we’re sure she can still attract at least a few good men who want to show her the color of their money.
So Hollywood is playing “Taps” for Tom and Katie’s storytale romance. It wasn’t endless love after all. Though the media had already shifted into over-drive, anticipating a public PR battle, the quick and confidential resolution makes it possible that the story may actually just fade into oblivion.
Now, if you look carefully at this email, you’ll find references to seventeen Tom Cruise movies. Can’t find ’em all? Give us a call. We’re experts at finding hidden opportunities, especially where it comes to taxes!
Peter J Tarantino CPA
Tarantino & Company, CPAs
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At Tarantino & Co, CPA also stands for Close Personal Attention ®
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