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EQUITABLE DISTRIBUTION OF LOTTERY WINNINGS
© 1999 National Legal Research Group, Inc.
A recent news story has brought the issue of a divorce court's division of lottery winnings into the fore. In California, a wife won the lottery. Fearful that she would have to share any of the winnings with her husband, she immediately filed for divorce.
During the divorce proceedings, however, the wife never disclosed that she had a winning lottery ticket. The court consequently divided the parties' assets without reference to the lottery winnings. After the divorce was final, the wife claimed her winnings. Upon learning of the wife's windfall, the husband moved to set aside the decree of divorce. The trial court granted the husband's motion on the basis of the wife's fraud and thereupon awarded 100% of the winnings to the husband. The wife plans on appealing the decision.
The trial court was probably within its discretion to award the husband 100% of the lottery winnings, based on the wife's behavior.
See Sands v. Sands, 442 Mich. 30, 497 N.W.2d 493 (1993) (assets dissipated with fraudulent intent should be awarded 100% to the innocent spouse). Had the wife not chosen to fraudulently conceal her lottery winnings, however, the court would have been faced with an even more difficult decision: how to divide the lottery winnings between the husband and the wife.
LOTTERY TICKET PURCHASED DURING MARRIAGE, PRIOR TO SEPARATION
There is little doubt that if a lottery ticket is purchased during the marriage, prior to separation, the lottery winnings are classified as "marital property" in equitable distribution dual classification states and as "community property" in community property states. In re Mahaffey, 206 Ill. App. 3d 859, 564 N.E.2d 1300 (1990); In re Marriage of Swartz, 512 N.W.2d 825 (Iowa Ct. App. 1993); DeVane v. DeVane, 260 N.J. Super. 501, 616 A.2d 1350 (Ch. Div. 1992) (appeal on classification issue only; remand for determination of division); Smith v. Smith, 162 A.D.2d 346, 557 N.Y.S.2d 22 (1990); Ullah v. Ullah, 161 A.D.2d 699, 555 N.Y.S.2d 834 (1990); Burden v. Burden, 1987 WL 18222 (Ohio Ct. App. Oct. 7, 1987); Nuhfer v. Nuhfer, 410 Pa. Super. 380, 599 A.2d 1348 (1991); see also In re Fordu, 209 B.R. 854 (B.A.P. 6th Cir. 1997) (lottery ticket purchased during marriage and prior to separation was marital property). In these cases, the court declined to speculate that the ticket might have been purchased with a dollar found on the sidewalk while walking the dog or was otherwise purchased with a nonmarital dollar.
The same rule holds true where one of the spouses purchases a lottery ticket during the marriage with a third party, such as a relative or co-workers. Campbell v. Campbell, 213 A.D.2d 1027, 624 N.Y.S.2d 493 (1995); Weinig v. Weinig, 674 N.E.2d 991 (Ind. Ct.
App. 1996) (rejecting husband's argument that lottery proceeds from husband's mother was gift to husband, and instead finding that husband and his mother had a contract to share winnings).
In the vast majority of cases, the court divided the lottery proceeds equally, rejecting the argument occasionally raised that the person who had purchased the ticket made an "extraordinary contribution" warranting an unequal division. In re Mahaffey, 206 Ill. App. 3d 859, 564 N.E.2d 1300 (1990); In re Marriage of Swartz, 512 N.W.2d 825 (Iowa Ct. App. 1993); Smith v. Smith, 162 A.D.2d 346, 557 N.Y.S.2d 22 (1990); Ullah v. Ullah, 161 A.D.2d 699, 555 N.Y.S.2d 834 (1990); DeVane v. DeVane, 280 N.J. Super. 488, 655 A.2d 970 (App. Div. 1995). Of particular significance in these cases, perhaps leading to an informal presumption that lottery proceeds won prior to separation should be split 50/50, is the fact that the couples had jointly enjoyed the fruits of the lottery winnings prior to their separation.
While there appears to be an informal presumption of a 50/50 split, the rule is certainly not hard and fast. In Weinig v. Weinig, 674 N.E.2d 991 (Ind. Ct. App. 1996), the court awarded the wife 40% of the winnings and the husband 60% of the winnings, based primarily on the fact that the parties were married only 14 months.
LOTTERY TICKET PURCHASED DURING MARRIAGE, AFTER SEPARATION, PRIOR TO DIVORCE
Lottery tickets purchased during the marriage, after separation, but prior to the divorce are also classified as "marital property" in equitable distribution dual classification states and as "community property" in community property states, where the date of classification is the date of trial or the date of divorce. E.g., In re Marriage of Palacios, 275 Ill. App. 3d 561, 656 N.E.2d 107 (1995). Where the date of classification of community or marital property is the date of separation, then the lottery winnings won after separation are nonmarital property. Brown v. Barham, 242 Cal. App. 2d 696, 51 Cal. Rptr. 718 (1966); Barnes v. Barnes, 1987 WL 19578 (Ohio Ct. App. Nov. 6, 1987) (lottery proceeds were separate property when ticket was purchased after date of separation); Pletz v. Pletz, 71 Wash. App. 699, 861 P.2d 1080 (1993) (lottery ticket purchased after date of classification was husband's separate property).
Unlike a seemingly automatic 50/50 division in the preseparation winning cases discussed above, however, the courts are more than willing to divide lottery proceeds that are won after separation in a manner other than 50/50.
The most dramatic example of this principle is Alston v. Alston, 331 Md. 496, 629 A.2d 70 (1993). In that case, the husband won the lottery a few days before the decree was to become final, after evidence had closed. The court held that the winnings were indeed marital property but that the husband was entitled to 100% of the winnings because the husband had made every effort to acquire the winnings.
The same result was reached in Holliday v. Holliday, 139 N.H. 213, 651 A.2d 12 (1994). In that case, the husband won the New Hampshire lottery three years after the parties separated. The court held that the lottery winnings were marital property but declined to award any to the wife. The court considered the facts that the parties had been together for five years, that they had no children, and that it was the husband who had purchased the lottery ticket. That lottery proceeds won after the date of separation need to be divided equally was also stated in Giha v. Giha, 609 A.2d 945 (R.I. 1992). In that case, the husband won the lottery one year after the parties separated. The trial court held that the husband's lottery winnings were his separate property. The appellate court reversed and remanded the case back to the trial court for division of the proceeds. The appellate court was careful to point out, however:
Our decision here does not entitle the wife to any portion of the lottery prize. On remand the Family Court will consider the factors contained in 15-5-16.1 and determine what, if any, equitable rights the wife has in the lottery prize. We hold only that the trial justice erred in failing to conclude that the lottery prize was a marital asset and whether the wife was entitled to a portion thereof.
Id. at 949 (emphasis added); see also Heslop v.
Moore, 716 So. 2d 276 (Fla. Dist. Ct. App. 1998) (wife won lottery five years after parties separated; although proceeds were marital property, husband's interests in proceeds were so "minimal" that it was error to subject the proceeds to a restraining order preventing the wife from using funds).
Similarly, in Giedinghagen v. Giedinghagen, 712 S.W.2d 711 (Mo. Ct.
App. 1986), the appellate court reversed the trial court's classification of the lottery winnings as the wife's separate property. Upon remanding the case back to the trial court, the appellate court stated:
We do not hold nor intimate that husband here is entitled to any portion of the proceeds of the lottery winnings. The court is to make a just distribution of the marital property, and in doing so may take into account the contribution of each spouse to the acquisition of the property as well as other considerations.
Sec. 452.330.1. We hold only that the trial court erred in determining as a matter of law that the lottery winnings were the separate property of the wife.
Id. at 714 (first emphasis added). It would appear that when a lottery ticket is purchased after the date of separation but before the date of classification the court is much more willing to divide the proceeds unequally, based on all of the factors found in the state's equitable distribution statute.
One case, however, has not followed this pattern. In In re Marriage of Morris, 266 Ill. App. 3d 277, 640 N.E.2d 344 (1994), the parties were married in 1967 and separated in 1969. In 1991, after the parties had been separated for 22 years, the husband won the Illinois lottery with his sister. The trial court awarded the husband 100% of the winnings, and the wife appealed. The appellate court agreed with the wife and held that because the parties were actually married for 24 years the wife was entitled to share in the lottery winnings. To hold otherwise, the court held, would be tantamount to holding that parties do not acquire marital property after the date of separation, which is contrary to the statute and which would recognize "common law divorce." The dissent would have affirmed the trial court, stating that the "shared enterprise" theory of the dissolution statute would be turned on its head if the wife were to share in the lottery winnings.
Setting aside the Morris case, it appears that the longer the parties have been separated, and the closer they are to a divorce, then the more likely the court is to make an unequal division. For example, suppose a husband and wife decide to separate on January 1. That same day, the husband moves into his new apartment. On the way to his new apartment, he stops off at the local convenience store and buys a quart of milk, a dozen eggs, and a lottery ticket.
It is the winning ticket. In this case, the court should make an equal division, other factors being equal. If, however, the parties had been separated for 10 years, and the final decree of divorce was imminent, and then the husband won the lottery, the division would be much more unequal.
LOTTERY TICKETS PURCHASED AFTER DIVORCE
Of course, lottery tickets purchased with nonmarital funds are not marital property. If a spouse wins the lottery after the divorce, however, the winnings may be considered "income" for purposes of alimony and child support. County of Contra Costa v. Lemon, 205 Cal. App. 3d 683, 252 Cal. Rptr. 455 (1988); In re Marriage of McCord, 910 P.2d 85 (Colo. Ct. App. 1995); In re Marriage of Boyden, 164 Ill. App. 3d 385, 517 N.E.2d 1144 (1987); Green v. Scott, 687 So. 2d 655 (La. Ct. App. 1997); Darden v. Darden, 66 N.C. App. 432, 311 S.E.2d 600 (1984); Pratt v. McCullough, 100 Ohio App. 3d 479, 654 N.E.2d 372 (1995); Moore v. Youngquist, 1991 WL 57982 (Tenn. Ct. App. Apr. 19, 1999); Gerrits v. Gerrits, 167 Wis. 2d 429, 482 N.W.2d 134 (Ct. App. 1992); Underkofler v. Underkofler, 834 P.2d 1140 (Wyo. 1992).
LOTTERY TICKETS PURCHASED BEFORE MARRIAGE
A lottery ticket purchased prior to the marriage would necessarily be separate property in dual classification and community property states. During the marriage, however, it is certainly possible that the proceeds, as received, could transmute into marital property as a result of transmutation by commingling or transmutation by gift.
For example, if lottery proceeds are placed into a joint checking account and are used for marital purposes, and the lottery proceeds cannot be reasonably traced and identified in the joint checking account, then an argument certainly can be made that the lottery funds are marital property. See, e.g., Baird v. Baird, 696 So. 2d 844 (Fla. Dist. Ct. App. 1997) (stock commingled in jointly held account, used as security for marital debt, and portions spent for marital purposes; stock transmuted); Ryan v. Ryan, 283 N.J. Super.
21, 660 A.2d 1269 (Ch. Div. 1993) (where marital and separate funds mixed in joint banking account, separate funds transmuted into marital property; court stressed lack of continuous intent by owner of separate property to preserve separate funds); Holterman v. Holterman, 127 N.C. App. 109, 488 S.E.2d 265 (1997) (regular commingling of funds, plus expenditure of some funds for marital purpose, transmuted separate funds).
The right to collect lottery winnings acquired during the marriage and before the date of classification, and, consequently, the lottery proceeds themselves, are marital property, regardless of when the funds are actually received. If the ticket is purchased prior to separation, there appears to be an informal presumption of a 50/50 split. If the ticket is purchased well after separation, and the date of classification is the date of trial, then it is likely the court will split the proceeds unevenly, all other factors being equal.
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