Receiving a Windfall During a Divorce

by May 10, 2022Divorce, Legal advice

Is there ever a bad time to win the lottery? Turns out the answer is yes, if you happen to be in the middle of a divorce. But lottery winnings aren’t the only big windfall you could receive during a divorce, and whether you have to split that money will depend on what type of windfall you receive.

Lottery Winnings

Bad news here… lottery winnings are considered marital assets if they are received prior to the date of the division of assets. There is a legal presumption that the date of division would be considered to be the first day of the final divorce trial, but the other party could rebut that if using that date would create an inequitable result.

How would the court determine that the presumed date of division could create an inequitable result? There are several factors that are at play:

  • The length of time the parties have been separated.
  • Whether the parties represented themselves as spouses (such as attending social events as a couple);
  • Whether there have been any formal financial arrangements (for example, spousal or child support); and
  • Whether both parties believed the marriage was over.

It’s important to note that certain counties may use local rules to determine the date of division. Butler County is one such county, which is why you want to work with a local divorce attorney who is familiar with the courts of surrounding counties. Either party can challenge the date the court selects, but it’s helpful to know up front how the court generally rules.

And don’t even think about waiting until after the divorce is final or the assets have been divided to claim lottery winnings if you’re holding onto a winning ticket hoping you won’t have to split it. That would be committing fraud on the court. At the final hearing, both parties must testify that they’ve disclosed all their assets and liabilities, so failing to disclose that you are holding on to a winning lottery ticket would give your ex-grounds to ask the court to set aside the decree and divide the hidden asset. In fact, you may very well be penalized for failing to disclose this. There’s a law that deals directly with hiding assets which authorizes the court to award the aggrieved party the majority of the asset!

Inheritance

A scenario that is far more likely than winning the lottery is collecting on an inheritance, and there’s good news in this arena. The inheritance belongs to whomever it is left to and is not a marital asset if it was only left to one party in the marriage.

It doesn’t matter if the inheritance was left to you specifically by name, or if it just referred to you as a child, grandchild, niece/nephew and so on. If the money is to be split amongst all the grandchildren, for example, it only includes the number of grandchildren, not their spouses. And once received, it remains your separate property as long as you don’t comingle it with marital funds before the divorce.

Company Bonuses

Do you work for a company that pays out large bonuses one time per year? Many companies pay their executives bonuses that could exceed $50,000, depending on the size of the company and the executive title. How is a large bonus factored into a divorce if it comes right before the trial?

If the bonus is received before the date of division of property, it’s considered a marital asset and it will be divided accordingly. If the bonus is received after the date of division, it’s not a marital asset any longer, but it can be considered in spousal and child support calculations. Different courts will handle bonus income differently.

If bonuses regularly factor into one party’s income, some courts will use the average income for the previous three years to calculate income for child and spousal support purposes. The problem with this approach is that it can create large monthly support payments that the obligated party can’t always afford, depending on the timing and size of the bonus. For example, if someone has a base salary of $30,000 but receives quarterly bonuses that average $30,000 per quarter, their annual income is $150,000, but their monthly income in months when they don’t receive a bonus might be only $2,500.

To solve this problem, some courts will order two-tier support. In a two-tier support order, there is one portion of support based upon the parties’ base salaries and a second portion based on bonus income. Using the figures above, perhaps the tier-one monthly spousal support would be $200 per month, but the person paying spousal support must also pay a percentage of bonus income when bonuses are received. This can get complicated quickly, both from an accounting standpoint and when one person has a lower base salary but ultimately makes more money after bonuses.

Get a Free Legal Consultation

If you’re facing divorce, you need to know your legal rights. Bring your questions to an experienced divorce attorney at Kirkland & Sommers who will be on your side and represent your interests to make sure you get a just settlement. There is no cost for an initial consultation, so come talk to us and find out why Kirkland & Sommers are the family law experts in the Dayton and Westchester area.