Winning the lottery can be an incredibly life-changing event. Many people dream of the day they hit those lucky numbers and get to claim a jackpot prize. However, for married couples or those in committed relationships, a lottery windfall can also surface lots of questions around how the money should be handled. In particular, one of the biggest questions that arises is whether you have to split lottery winnings with your spouse.
Quick Answer
The quick answer is that in most cases, lottery winnings do legally have to be split between spouses. This is because marital property laws in most states dictate that any assets or windfalls acquired during a marriage are considered jointly owned by both spouses, regardless of whose name is actually on them. There are some exceptions, but in general, courts will consider lottery winnings to be marital property that is subject to division if a couple splits up.
Lottery Winnings as Marital Property
To understand why lottery winnings are considered marital property, it helps to first understand some basics around marital property laws. In all community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), and some equitable distribution states, marital property is defined as any assets or income acquired or earned during a marriage by either spouse. This is considered distinct from separate property, which is property owned by a spouse prior to the marriage or acquired by gift or inheritance during the marriage.
The key factor that makes lottery winnings marital property is the timing – prizes are won during the marriage. Since the winning ticket was purchased with marital funds and acquired while the couple was married, it falls into marital property by default in most cases.
Some key factors to understand around marital property laws:
- Applies to any assets acquired during the marriage – income, investments, real estate, vehicles, other windfalls like inheritances, and lottery winnings
- Ownership doesn’t matter – assets can be marital property even if only under one spouse’s name
- Applies in all community property states, some equitable distribution states
- Does not apply in about 10 equitable distribution states that still use old “title” rules
So because lottery prizes are considered marital property in most states, the default is that they are meant to be split equally in a divorce. Unless there is a very good argument for why one spouse should get more of the winnings, courts will divide lottery winnings right down the middle.
Why Lottery Winnings Get Split
There are a few key reasons why lottery prizes typically get divided between spouses in a divorce:
- Joint marital finances: In most marriages, spouses combine finances and jointly fund expenses from pooled accounts. Purchasing lottery tickets typically comes from a joint bank account that both spouses contribute to.
- Marriage is an economic partnership: Modern marriage is viewed as an economic partnership. Courts aim to split all marital assets equitably as compensation for each spouse’s contributions during the marriage, financial and non-financial.
- Prevents unfair outcomes: If one spouse was allowed to keep a windfall like lottery winnings for themselves, it could leave the other spouse destitute after a long marriage.
In light of these principles, courts take the view that it would simply be unfair for one spouse to walk away with the entire jackpot, especially if marital funds were used to purchase the ticket. The winnings are therefore divided as marital property.
When Lottery Winnings May Not Be Split
While lottery prizes are considered marital property in most cases, there are some scenarios where the winnings either do not need to be split, or may be divided unequally:
1. Prenuptial agreement says otherwise
A prenuptial agreement (or postnuptial agreement) is a contract signed before marriage that overrides state laws and allows a couple to define their own financial rights and obligations. These agreements can dictate what happens to assets like lottery winnings in a divorce.
For example, a prenup could state that any windfalls acquired by one spouse during the marriage, like inheritances or lottery prizes, remain that spouse’s separate property. So with a prenup, lottery winnings may legally not need to be split.
2. Ticket was purchased with separate property
In some cases, a spouse might purchase a lottery ticket using funds that are deemed their own separate property, such as an inheritance or money they owned before marriage. If this can be proven, and the winnings can be traced back to the separate property source, the prize money may be considered separate as well.
However, commingling separate and marital funds can make tracing difficult. If separate and marital funds are mixed, it becomes very tough to link the ticket purchase to separate property.
3. Only one name is on the ticket
In a handful of states that still follow “title” rules for property division, if only one spouse’s name is listed on the winning lottery ticket, they may have a good argument that the prize belongs to them alone. However, they would need to show the ticket was purchased with their separate property.
In all other equitable distribution states, having one name on the ticket does not matter since marital property does not need to be jointly titled.
4. Temporary separation at time of winning
If spouses are separated, living apart, and essentially functioning as single people at the time one of them wins the lottery, there may be a case that the prize money is not technically marital property. However, the short-term separation would need to be provable.
5. Unequal division arguments
There are some cases where one spouse may argue they deserve more than 50% of lottery winnings in a divorce:
- They paid for all lottery tickets from their own separate property
- The winning ticket was gifted only to them
- Their spouse did not contribute to marriage or finances
While arguments for an unequal split can sometimes succeed, they face an uphill legal battle. More often, lottery prizes are simply divided equally.
What About Future Lottery Payments?
For jackpots that are paid out over many years in annuity payments, rather than as a lump sum, there are a couple possibilities around how these future payments can be divided:
- Calculate total future value, split current cash value equally – This is the most common approach. The total future value of the prize is calculated, and then the current cash value is split.
- Split each future annual payment – The court can order each annual annuity check be split, and paid 50/50 to each spouse annually. This keeps future payments joint.
- Split specific number of future payments – For example, splitting the first 10 annual payments between spouses, after which all remaining payments go to the spouse who originally won.
No matter how future payments are split, they are still considered marital property subject to division in most cases.
Impact of Different State Laws
How lottery prizes are divided does come down to each state’s specific marital property laws:
Community property states
Lottery winnings are automatically considered community property that must be split 50/50.
Equitable distribution states
Most, but not all, treat lottery prizes as marital property to be divided equitably (often 50/50).
“Title” theory states
In the minority of states following old “title” rules, the spouse whose name is on the ticket has a stronger argument that the lottery prize is theirs alone. However, it is still not guaranteed.
Common law property states
Lottery winnings are marital property subject to equitable split, except in Mississippi which follows “title” theory.
So in all but a handful of U.S. states, the default is that substantial lottery prizes won during a marriage will end up divided between the spouses if they split up. But for anyone worried about protecting future windfalls, a properly drafted prenuptial agreement can change the default outcome.
Getting Legal Advice
Because lottery rules vary by state and each couple’s situation is different, it is always advisable to speak to a local family law attorney when faced with dividing any substantial marital asset in a divorce, especially lottery prizes. An attorney can help:
- Review how state laws treat lottery winnings
- Calculate any future payments that need dividing
- Make arguments for an unequal distribution if warranted
- Draft any orders or agreements to divide lottery winnings
Having a lawyer ensure winnings are properly split can prevent future disputes.
Tax Considerations
With large lottery prizes, there are also important tax considerations that come into play around the timing of receiving payments and splitting ownership.
Some key tax impacts to understand:
- Whoever claims the prize owes tax on the full amount. With jackpots over $5,000, 25% federal tax withholding applies. State taxes also apply.
- Splitting ownership or payments before completing tax forms can potentially lower overall taxes paid.
- But transfers to spouses done as part of divorce proceedings are tax-free.
- So from a tax perspective, it likely makes sense to split ownership only after finalizing the divorce.
Completing “gift acceptance” forms before divorce could create a tax bill. Delaying formal split until after divorce gives a tax-free transfer.
A tax professional should be involved to ensure the most tax-efficient approach when splitting lottery prizes in a divorce. Taxes should not drive the ownership transfer decision, but do need consideration.
Impact on Alimony
Another consideration around substantial lottery winnings is the impact on alimony or spousal support in a divorce case. Some key points:
- A large new asset can affect arguments around one spouse’s need for support.
- Lottery winnings are typically considered income for calculating support.
- Winning spouse may need to share winnings to prevent unfair impact on amount of alimony owed.
So essentially, the spouse owing support cannot necessarily keep the entire prize to themselves without sharing – support obligations must be considered.
Should You Split Before Claiming?
Because lottery prizes are presumed marital property that courts will divide, some spouses consider splitting ownership or transferring tickets to their spouse before officially claiming winnings.
This can sometimes be motivated by:
- Wanting to gift winnings to spouse
- Thinking it gets assets out of their name
- Trying to shield winnings in case of divorce
However, formally splitting ownership prior to divorce rarely achieves the desired result. It also risks:
- Creating tax complications
- Failing to remove assets from marital estate
- Loss of leverage in negotiating divorce settlement
So for most spouses winning a jackpot, the best approach is continuing to own the lottery prize individually until a divorce is finalized. At that point, winnings can be properly divided based on the court order.
Protecting Future Windfalls
For those worried about protecting any substantial windfalls or inheritances from their spouse in case of divorce, the best tool is a prenuptial or postnuptial agreement.
These contracts allow you to override state marital property rules, and spell out specific terms for dividing assets acquired during your marriage. Prenups are the only reliable way to shield future lottery prizes and other windfalls like inheritances from being marital property.
Some of the options a prenup can include for separate property treatment of windfalls include:
- Designating certain future assets like inheritances or lottery prizes as separate property
- Allowing each spouse to keep assets acquired in their individual name
- Putting separate property definitions and tracking requirements in place
- Waiving or limiting any claims to increases in separate property value
For those concerned about protecting their assets in a marriage, talking to an attorney about drafting effective prenuptial agreement is a proactive step to take.
Get Solid Legal Advice
Winning a major lottery prize can be a wonderful stroke of luck. But for married couples, substantial windfalls also raise tricky questions around ownership rights and division of marital assets if the relationship eventually falls apart.
To ensure lottery prizes are handled properly, and taxes and divorce laws in your state are complied with, it is wise to consult with attorneys experienced in family law and asset division when claiming substantial prizes. They can advise you on the laws in your jurisdiction and steps to take.
With proper guidance, you can hopefully enjoy your lucky jackpot without creating major relationship conflicts or legal issues over how the winnings will eventually be split. Discussing options in advance, and having contractual agreements like prenups in place, can also help avoid future conflicts if sharing a windfall becomes necessary.
Conclusion
In summary, the starting presumption is that lottery prizes won during a marriage are considered marital property that will get divided equally between spouses in a divorce. The exception is if you have a prenuptial agreement stating otherwise, or live in a few limited states where “title” principles may allow one spouse to make a claim to the winnings.
Otherwise, lottery jackpots typically have to be split, just like any other assets acquired over the course of a marriage. So while winning is great luck, don’t let the joy of a big lottery prize trigger a marital dispute. Seek legal advice up front to protect your windfall and avoid future conflicts.
