The wife argues that the lottery winnings that her mother shared with her were not marital property because they were a gift. Whether a particular asset is marital or separate property is a question of law that a trial court must initially address to ascertain the marital estate.
What does the law say?
The Domestic Relations Law defines marital property as all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action, regardless of the form in which title is held and shall not include separate property (Domestic Relations Law § 236[B] [1][c]). Separate property, which is not subject to equitable distribution (see Domestic Relations Law § 236[B][5][b]), includes property acquired by bequest, devise, or descent, or gift from a party other than the spouse (Domestic Relations Law § 236[B][1][d][1]). Property acquired during marriage is presumed to be marital unless the presumption is rebutted by the party asserting the separate property claim.
What happened in this case?
It is undisputed that the wife’s mother purchased a scratch-off lottery ticket that won a grand prize of $7.5 million. Documentary evidence and testimony credited by Supreme Court established that the mother shared her winnings with her five children, with each of the six individuals receiving an equal pretax share of $1.25 million. State Gaming Commission documents show that all six were considered winners, a giant check for publicity purposes listed all six names as winners, all six appeared at a public event at which the giant check was presented to them, each received a separate certificate of payment, an IRS form W–2G was issued by the Gaming Commission to each winner indicating that $1.25 million in gambling winnings was paid and the amount of taxes withheld, and equal direct deposit payments of the after-tax amount were issued to all six winners simultaneously.
How their taxes were filed decided the case
The wife’s mother did not file any gift tax returns related to the lottery winnings received by her children. The husband and the wife claimed the $1.25 million as income on their 2014 joint federal and state income tax returns, specifically denoting that it was gambling winnings. The Internal Revenue Code specifies that, for income tax purposes, gross income does not include the value of property acquired by gift (26 USC § 102[a]). Courts cannot, as a matter of policy, permit parties to assert positions in legal proceedings that are contrary to declarations made under the penalty of perjury on income tax returns. By claiming the lottery winnings as income on their joint tax returns, the husband and the wife necessarily represented that such winnings were not a gift. Therefore, Supreme Court properly determined that the lottery winnings were not a gift to the wife, so they were not her separate property but were marital property subject to equitable distribution.
Hughes v. Hughes , – NYS3d –, 2021 WL 4896914 (3 rd Dep’t. 2021)
