Lottery, Gambling, Child Support & Alimony

Gambling & Lottery Winnings are Income for Child Support & Alimony

Gambling winnings, or “monetary prizes,” count as income for the purposes of determining maintenance (C.R.S. 14-10-114(8)(c)(1)(V)) and child support (C.R.S. 14-10-115(5)(a)(I)(V)).

The father in In re: Marriage of Bohn, 8 P.3d 539 (Colo. App. 2000) won $1.2m in the Colorado Lottery two years after divorce. The mother read about his good fortune in the newspaper, and filed a motion to modify child support in April of the same year. As is typical for large lump sums, the court counted the gross lottery winnings as income for the year, divided it by 12, and determined the father’s gross monthly income was $105K/mo from April, when the mother filed the motion, through the end of the calendar year.

Moreover, because the father had invested the earnings, the court imputed a $70,000 annual rate of return on the invested winnings for the following year. (It is typical to impute income to investments). The court rejected the father’s argument that this double-counted the winnings.

Because in Colorado child support and alimony are calculated based upon gross, pre-tax income, the court rejected the father’s argument that only the actual amount he received should count, and the mandatory amount withheld for taxes, which he never saw, should be excluded.

Gambling Winnings vs Salary

What happens if I quit my job after winning the lottery? The court will impute to you the income you were previously making. To most people, the temptation to quit the daily grind after winning a large lottery would be strong. And even understandable.

In In re: Marriage of McCord, 910 P.2d 85 (Colo. App. 1995), a father won $2m at the lottery, payable by annuity, and upon receiving the first $50,000 payment, quit his job as a construction worker to become “self-employed” as an investor to manage his winnings.

Father’s contention was that because the lottery winnings which already counted as income were greater than his prior earnings, those prior earnings should not be imputed to him. The Court rejected his arguments, and in a double-whammy, counted both his actual lottery income, plus his prior construction income, for purposes of determining child support.

Offset Gambling Winnings vs Losses?

Can I offset my winnings against other times when I’ve lost money? There is no clear case law in Colorado on this point. Normally, a court will not deduct gambling losses from a person’s income, however if the taxpayer is itemizing his/he deductions, the IRS will allow gambling losses to be offset winnings.

Common sense suggests that this too must be the case for child support and alimony. After all, if you play 5 hours of poker and are up $200 at the end of the night, your winnings are $200. No one would credibly argue that your “winnings” constitute the $1200 you made in the hands you won, without deducting the $1000 you lost in the other hands.

And as long as you keep a record of your net winnings/losses each time you gamble, presumably the same principle would apply to winnings between sessions - you net everything out at the end of the year, and it only counts as income if you have net positive winnings. While professional poker players may do this, it is hard to imagine the average person truly keeping track. Or the other party learning of casual and infrequent poker winnings either, for that matter.

Professional gamblers have presumably set up a business, and keep meticulous records of not only their winnings and losses, but also their expenses - trips to Las Vegas, accommodations, tournament entry fees, etc. And these earnings would then count as business earnings, rather than simply as a monetary prize.

Gambling Winnings Subject to Intercept to Pay Child Support Arrears

In addition to counting as income, if the gambling winnings are paid by the state lottery or a casino, they are subject to immediate garnishment (“intercept”) if the winner has unpaid child support.

Lottery winnings are intercepted before being paid to the obligor, pursuant to C.R.S. 26-13-118.

Gambling winnings paid by a casino are also subject to an intercept, C.R.S. 26-13-118.7. The casino is required to have internet access, and check the winner’s name against the Colorado GPI.

What winnings are subject to intercept for unpaid child support? per the State of Colorado Gambling Payment Intercept (GPI) FAQ:

“The Gambling Payment Intercept Act defines a payment as cash winnings from limited gaming payable by a licensee for which the licensee is required to file a form W2-G, or substantially equivalent form.

If the prize value, for example a Bad Beat prize, equals or exceeds $600 in cash, which triggers the issuance of a form 1099-MISC, a search of the registry is required prior to payout. In this instance the form 1099-MISC is considered to be equivalent to a form W-2G. The 1099-MISC may be issued at the end of the year; however, the search would occur at the time of the event prior to the payout.

A form 1099-MISC would not be equivalent to a W-2G when it is used for promotional non-cash prizes or the aggregate of cash winnings, totaling $600 or more over the year.”

When is a W-2G Required to Trigger the Child Support Intercept? A Form W-2G is required when a casino pays a person who wins at least:

• $1200 at bingo or slot machines
• $1500 from Keno
• $5000 from a poker tournament (a formal tourney, not regular cash games)
• $600 when the winnings are at least 300x the size of the original bet )this will include lottery tickets)
• An amount subject to federal withholdings

Can Child Support be Modified due to Gambling Winnings?

Child support is subject to modification when there has been a “substantial and continuing” change in circumstances, C.R.S. 14-10-122(1)(a), which results in at least a 10% change in support owing. C.R.S. 14-10-122(1)(b). For more information on the modification of child support in general, see the Child Support Modification & Termination article in the Colorado Family Law Guide.

If someone wins the lottery, that’s a large enough sum to affect child support, and support is subject to modification. In re: Marriage of Bohn, 8 P.3d 539 (Colo. App. 2000). Moreover, as happened in the Bohn case, a large lottery winner is often reported in the media, so the other parent may well hear of it and know to file a motion to modify support. So headlines like $5.3 Million Lottery Winner Hit for More Child Support are both very real, and well-grounded in the law.

But what about someone who won money behind the scenes? Most people’s winnings do not make the news, and the first the other parent learns of it is the following year then they exchange tax information for the prior year, and note that there is a W-2G included. But by then, it’s too late, since the winnings only count as income in the year received.

And what if the big win was late in the year? As the income is spread evenly among all 12 months in the year, a win in November or December would really be too late to justifying trying to modify support, except for whatever future earnings the person may make on the lottery prize.

From a practical perspective, most normal people do not win enough money, and win regularly enough, playing poker or slot machines for the winnings to really affect support by much. So even though the winnings legally count as income and can be used as a basis to modify support, from a purely practical perspective child support is rarely modified for casual gamblers.

Can Alimony be Modified due to Gambling Winnings?

Maybe. Unlike child support, which is always subject to modification, in order to have a predictable flow of income (or a predictable obligation), spouses in a divorce who agree to maintenance will often agree that it is non-modifiable. And that means non-modifiable for any reason, including winning the lottery!

However, if the maintenance was ordered by the Court, or the spouses agree to an amount but no not explicitly make it non-modifiable, then spousal support is subject to modification upon  “a showing of changed circumstances so substantial and continuing as to make the terms unfair.” C.R.S. 14-10-122(1)(a). For more information on the modification of maintenance in general, see the Maintenance Modification & Termination article in the Colorado Family Law Guide.

The same practical considerations which apply to child support also apply to alimony - most of the time, the other party will not learn of the winnings until it’s too late to modify. And unless the person won the lottery, even if invested normal gambling winnings will not produce that much income in subsequent years for imputing a reasonable rate of return.

However, if the alimony payee wins a multi-million dollar lottery, it is highly likely that he/she will no longer need alimony, and the payor can expect a modification or termination of the obligation. At least if the payor learns of it, and maintenance is modifiable.

And in theory, the same is true in reverse - an obligor who wins the lottery may see his/her spousal support obligation increase.

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