Winning The Lotto Can Be Bad News If You're Not Divorced Yet

When Holly Lahti of Rathdrum, Idaho learned that she won $190 million in the Mega Millions Lottery in January 2011, it should have been the happiest day of her life.  Under normal circumstances, TV viewers all over the country could expect to see Lahti, smiling and posing with a giant check.  Instead, Ms. Lahti’s joyous win is plagued by a looming court battle with her long-estranged husband.  Although separated for a number of years, the couple is not divorced, and, under Idaho law, Lahti’s husband may be entitled to a portion of her winnings.

In California, income (including lottery winnings)a earned by a person after the date of separation is his or her separate property.  But how does one determine what that date is?  California Courts define separation as “that condition when spouses have come to a parting of the ways with no present intention of resuming marital relations. The fact that husband and wife live in separate residences is not determinative, althought it is usually considered an important factor. The question is whether the parties' conduct evidences a complete and final break in the marital relationship”. 

Determining what constitutes a complete and final break is often a complicated task. Since intentions are, by definition, subjective, courts examine whether the parties' conduct, objectively, reflects that the marriage is over.

For instance, imagine that a spouse moves out of the family home, and lives with a new significant other for the next four years.  Many of us would consider this to be a complete and final break-up of the marriage.  Not so, said the California Court of Appeal in In re Marriage of Baragry (1977) 73 Cal.App.3d 444. 

From 1971 to 1975, Mr. Baragry thought he had the best of both worlds.  He lived with his 28-year-old girlfriend, but continued to have dinner at his former home (with his children and his wife of 20 years) several times a week.  He took his wife to social and professional events, and gave her Christmas, birthday, and anniversary cards.  In 1975, Mr. Baragry filed for divorce and claimed that the substantial sum of money he earned after 1971 was his separate property. The Court disagreed, and ruled that the marriage remained intact until 1975.  The Court may have been persuaded by the fact that Mr. Baragry continued to bring his laundry for his wife to wash and iron twice a month during the entire 4-year period that he claimed they were “separated”.

The moral of this story is that establishing the legal date of separation can be a complicated factual determination, and one may or may not be considered “separated”, regardless of one’s living arrangements.  If Holly Lahti lived in California, this may have made the difference between enjoying a $190 million prize and engaging in a protracted legal battle with an estranged husband.

Check out our blog next month for another fascinating lottery story, and find out why a certain Mrs. Rossi had to give up not half, but all of her lottery winnings!

Marina Ayzenstein
Marina is an Associate Attorney with Richard Ross Associates.