Gambling may have disrupted your family to the point that you’re considering separation or divorce. Before you pursue legal separation or a divorce in Arizona, the following information may be helpful to you. Please note that this basic information does not replace the advice and representation from a competent, licensed attorney.
INTRODUCTION
COMMUNITY v SOLE AND SEPERATE PROPERTY
All property acquired by either husband or wife during the marriage is the community property of the husband and wife except for property that is:
- Acquired before the marriage or by gift, a bequest from a will or an inheritance or is a spouse's real and personal property owned by that spouse before marriage.
- Acquired after a petition has been served for divorce, legal separation or annulment if the petition for marriage, legal separation or annulment is granted.
In community property states, both parties are liable for debts incurred during the marriage. If a gambler has accumulated debt as a result of gambling, the non-gambling spouse is responsible for half of the debt, even though the spouse was unaware of the gambling and the subsequent debt.
When a couple is granted a divorce or legal separation, the judge can assign repayment of the debt to one or both parties. However, a creditor is not bound by terms of a divorce decree. Creditors’ only concerns are having the debt repaid; they aren’t concerned with who pays it or the circumstances surrounding the indebtedness.
Filing bankruptcy has become the ultimate bailout for some gamblers and fiscally irresponsible individuals. The judgments of bankruptcy court (federal) may nullify settlements made in divorce court (state). A debt originally assigned by an Arizona court to one of the parties (in this situation, the gambler), may be discharged by the bankruptcy court. Since that party (the gambler) is no longer obligated to pay the debt, the debt will undoubtedly remain unpaid by the gambler. A default situation has occurred, and a creditor can attach the debt to the other spouse. The nongambling spouse has no recourse except to pay or suffer financial or legal consequences.
TRADITIONAL v COVENANT MARRIAGE: DOES IT MAKE A DIFFERENCE?
Arizona has two types of marriage: traditional and covenant. Those individuals married prior to Aug 21, 1998, entered into a traditional or no fault marriage. Couples marrying after 1998 had/have the option of entering into a more restrictive form of marriage or covenant. In the no fault or traditional marriage, no provisions specifically address gambling issues. As valid grounds for divorce, the covenant marriage recognizes adultery, habitual alcohol and/or drug abuse, physical, sexual, and emotional abuse, domestic violence and imprisonment after a felony conviction. Like the traditional marriage, the covenant marriage has no provisions in the statutes that provide economic relief for the non-gambling spouse with regard to debt.
GETTING THE HELP YOU NEED
“Concept of Waste” and the Innocent Spouse Act may possibly offer relief for the non-gambling spouse. A possible defense that may be used by your attorney is the “concept of waste.” Under the “concept of waste,” the money lost (or wasted) on gambling is factored into the total amount of community indebtedness. Gambling debt theoretically becomes the sole responsibility of the gambler with the remainder of the community debt divided equally between both parties. “Waste” may be difficult to substantiate as the burden of proof is most often on the non-gambling spouse who is generally in the “dark” about the gambler’s financial situation.
The Internal Revenue Service (IRS) also addresses this issue through the Innocent Spouse Act. If there is an IRS audit and the discrepancy between actual income and reported income is uncovered, both parties are liable for the difference. A person can be relieved of the responsibility for paying tax, penalties, and interest if the gambling spouse did something wrong on the joint income tax return. Something “wrong” is defined as errors or understatement of tax. In the case of an understatement, two factors are considered. Did the non-gambling spouse receive any benefit from the gambler’s winnings or was there a divorce from or desertion by the gambling spouse? Gamblers become crafty in their attempt to protect their gambling. It is a fairly common practice for the gambling spouse to compile the joint income tax form and the non-gambling spouse simply signs without carefully scrutinizing the document.
It is easy for the gambler to “hide” winnings and losses. If a gambler wins a $1200+ jackpot, there are income tax implications. Winnings over $1200 (per game, ticket, race etc) are reported to the IRS. At the time of the win, the gambler receives the entire amount, and no money is withheld for taxes. Although the amount of the winnings is a matter of record, there are those gamblers who under-report to the detriment of self and the innocent spouse. Subsequent review of the tax return by IRS auditors may uncover the discrepancy between real and reported income. The couple are then liable for the difference in income plus penalties.
CHOOSING AN ATTORNEY
It is imperative that you seek an attorney who is not only knowledgeable about Arizona divorce statutes but is also aware of the impact of gambling on the family system. It is also important that you discuss the possibility of using “concept of waste” in your defense to attempt to get a more equitable settlement. As a consumer, you have the right to the best possible defense. Contact the Arizona State Bar Association or the Maricopa County Bar Association for a referral. Interview prospective attorneys. Find out if the attorney is a certified Family Law Specialist. Ask if she/he has worked with spouses of gamblers using “waste’ as a mitigating factor. Talk to people in the recovery community for referrals. Find out if the attorney is willing to communicate with your treatment team, and obtain a release to allow communication between your attorney and your therapist.
Ultimately, finding and following the advice of a competent attorney is your best recourse when gambling has forced you to choose between your marriage and your own emotional and financial wellbeing.
REFERENCES
- Arizona Revised States Title 25 Marital and Domestic Relations
- Divorce.Net
- Innocent Spouse Relief (And Separation of Liability and Equitable Relief)
- IRS publication 971 (Rev. June 2002)
- Department of the Treasury
- Arizona Council on Compulsive Gambling
©2006 Kathryn Elliott-Hudson, M.Ed., NCC, LISAC, NCGC-II. All rights reserved. No part of this article may be reproduced without the permission of the author.
