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How Lottery Winnings Are Treated in a Divorce

If you live in Arizona, all of the money that either spouse makes or acquires during the course of their marriage is considered community property. This means that the money technically belongs equally to both spouses. Even if only one spouse worked and the other stayed home, they are both equally entitled to the community property. But, there are a lucky few (if you could call them that in this situation) who are wondering how lottery winnings are treated in a divorce.

What About Lottery Winnings?

In the state of Arizona, the rule about community property lasts until a dissolution decree is entered. This means that even after you are separated and until the final decree of dissolution is entered, it is considered community property.

What does this mean for lottery winnings? If you or your spouse win the lotto and you are still married—meaning the decree isn’t finalized—half of the winnings will belong to your spouse. Even if you were just one day from the final decree.

On the other hand, if the divorce decree is finalized and you go out and pick up a scratcher the next day and win $100,000, it’s all yours and your ex can’t do anything about it since it is considered separate property.

What Should You Do If You Win?

Let’s be honest. This is not something that most people are ever going to have to think about because they aren’t going to win the lottery while in the middle of a divorce. It does happen occasionally, though, so it’s important to know what to expect.

There are also those cases where someone wins the lottery and then decides they will file for divorce without telling their spouse about the win. They want to upgrade their life, spouse included.

If you win the lotto, and you are in the middle of a divorce, the last thing you want to do is try to hide the money. If it’s a substantial amount of winnings, it will be next to impossible to hide. When it’s found out that you were being dishonest with your finances, it will come back to bite you.

You can be sure that you will be found out eventually. If you suddenly come into a lot of money a month or a few months after the divorce, your spouse is going to wonder how it happened. Don’t try to hide it and don’t give the ticket to someone else to cash or hold for you until after the divorce.

The more effort you put into hiding the money the deeper the hold you will be digging for yourself.

Does it seem fair that you should have to pay the ex half of your winnings if you were almost through with the divorce? No, it doesn’t, but it’s the way the law works. Of course, if you were on the other side of the fence, you would be happy that it worked out this way.

The Addition of Lotto Winnings to the Divorce Could Change the Outcome

One of the other things that you want to keep in mind about winning a lot of money in the lottery is that it could change certain aspects of your divorce case.

For example, let’s say your spouse requested spousal support. Before the divorce is final, you win $3 million in the lotto and split it. Chances are good that you won’t have to pay support. This can be considered a benefit of how lottery winnings are treated in a divorce.

In some cases, it could end up helping to save the marriage. A primary reason that a lot of people end up getting divorced is because of money problems. Winning a lot of money in the lotto could help to pay down or eliminate the debt that has been causing a lot of stress for the couple. If money was the only reason or the main reason for the divorce, the couple might try to work things out.

Of course, this isn’t a guarantee, and it’s not always a good idea. Sometimes, divorce truly is the best option for a couple.

The Exceptions to the Rules About Community Property

The only exceptions to this rule would be for inherited property or gifts that are given to just one of the spouses. For example, let’s say that you were to inherit a house from your parents while you are married, or you were given $5,000 in inheritance or as a gift.

In those cases, the property and money would be considered separate property. This means you would not typically have to share it with your spouse.

Of course, there are also exceptions to the exceptions. If you were to use the money for the betterment of the community, added it to your joint accounts, and started paying the mortgage with it, or if you use community property to pay down or improve inherited property… things can get tricky.

Be Careful with Separate Property

Separate property is anything that you had before you got married—as well as inheritances and gifts, as mentioned. The “trickiness” touched on above often stems from what you do with the separate property. If you aren’t careful, it could be considered “commingled property”, which would then put it at risk when you are getting divorced.

This means that property that might have started out separate becomes community property because the community began to contribute to it in some way. Also, if you had an inherited home, which you then had to pay mortgage or insurance on with community funds, it could be considered commingled. Some or all of that asset would then be community property.

Get Some Help Navigating the Rules

Because the rules of community and separate property can get confusing, particularly when it comes to co-mingling or the timing of purchase, lotto wins, etc., it’s better to get some help from a professional.

You will want to speak with an attorney who can help you to untangle the property and explain to both parties how lottery winnings are treated in a divorce. Sometimes, you may even need to work with a forensic accountant to have a full understanding of what’s happened with certain separate funds or assets and how they have contributed or not contributed to community property.

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