Multi-generational transfers have been part of the family’s financial DNA for years. But shifting that much money out of the divorce settlement is harder than it looks.
Is it worth handing the IRS millions to even try to cut Bruce out of this picture?[/caption] When the divorce papers start circulating, many wealthy couples instinctively look around for ways to move “their” assets out of the way of the inevitable settlement, so it wouldn’t be surprising if Kris Kardashian Jenner has been pumping money into her daughter’s accounts. After all, Kris is the mastermind behind the latter-day Kardashian media empire. Now that she’s splitting from husband Bruce Jenner, she considers a big chunk of their fortune to be hers. The problem, of course, is that California is a community property state, so half of everything she earned over the last few fame-filled years technically belongs to Bruce.
Rumor has it she’s been caching millions of dollars with family members like daughter Kim in order to keep it out of the divorce court’s reach and maybe collect it later. If so, she’s not going to be able to hide a lot without trading a divorce loss today for a huge IRS bill down the road.
Hitting the gift tax limits
The red flag in the coverage surrounding the Kardashian-Jenner divorce is the sheer amount of wealth on the table. The couple may well be worth $175 million as reported here and there. But any money she distributes above $14,000 will force her lawyers to file a gift tax return. And as the “gifts” add up from year to year, every dollar above $5.25 million would blow out her lifetime gift limit, be counted against her estate when she dies and increase its ultimate tax liability. What this means is that if Kris handed Kim $25 million “to hold,” that money might theoretically be hidden from Bruce’s lawyers, but the transaction would ultimately cost her heirs close to $8 million at current tax rates. Locking in an $8 million loss for the next generation in order to preserve $12.5 million in the short term seems to fit her no-nonsense character. Unfortunately, if she wants that money back when the divorce is final, Kim would have to treat the return as a taxable gift and file the paperwork as well. Instead of keeping $12.5 million away from Bruce, future generations of Kardashians would end up a full $16 million poorer. Multiply by three daughters and a son, and Bruce might lose but the IRS would actually be the only clear long-term winner. Would the lawyers let Kris and the girls do that? For the Kardashians, cheating their heirs out of millions down the road in order to keep the money in the here and now is not outside the limits of credibility. After all, it’s ultimately a very small piece of their overall fortune – if of course the reports are to be believed. Every lawyer will be watching Meanwhile, the tax returns themselves would defeat the strategy. Asset transfers are closely watched in any high-profile divorce simply because attempts to move money out of marital property are so common. Every embittered spouse has at least had the idea. And every competent lawyer knows to check the tax returns for assets that mysteriously vanish from the couple’s books. Once the paper trail has been uncovered – and with gifts above the gift tax limits, there is always a paper trail – it is trivial to argue that the money should be figured back into the ultimate divorce decree. In that likely event, Kris can hide as much money as she wants in the kids’ accounts without reducing Bruce’s settlement by a single dollar. All she would be doing is blowing out the family’s estate tax bills for generations to come. Of course, these are celebrity problems. Most gifts to relatives or even unrelated parties do not trigger the annual gift tax return requirements and will never come to the attention of the IRS. Even on the Kardashian scale, keeping the total amount of transfers to all parties under $5.25 million would require the accountants to reveal every “gift” above $14,000, but would not turn into any gift tax down the road. In that scenario, at least Kris wouldn’t be robbing her own estate to spite her spouse. Either way, Bruce’s lawyers would know. The original celebrity Kardashian, the girls’ father and Kris’s first husband, was a high-powered lawyer. He knew how to shield assets from both the divorce court and the IRS. He set up trusts for his kids to pass on his money outside the estate tax limits. He went on unpaid vacation while settling his own divorce from Kris in order to argue convincingly that he had no income and had nothing to give his cheating wife – even if she deserved it. Would he be rolling over in his grave or laughing to hear that she’s now costing the family millions in order to squeeze her own divorce decree? It’s her money. She earned it and can spend it as wisely or as foolishly as she likes.
