Although most people can gamble on a recreational basis, millions suffer negative consequences in their lives from problem gambling. According to the National Council on Problem Gambling about two to three percent of adults experience gambling-related problems each year. These problem gamblers have an uncontrollable urge to gamble and cannot stop gambling despite the negative consequences that result from their gambling. These negative consequences are frequently financial problems that impact the gamblers personal life, family relations, educational endeavors and/or employment.
Sometimes the gambling and problems stemming from the gambling becomes so bad that the non-gambling spouse files for divorce. When this occurs, the non-gambling spouse usually reports that the gambling spouse gambled away a significant amount of community property assets and that there are outstanding gambling debts. However, the non-gambling spouse may not be liable for the outstanding gambling debts.
Generally, all assets and debts incurred during marriage are considered community property. Family Code §2625 makes an exception to the general rule stating that, “All separate debts, including those debts incurred by a spouse during marriage and before the date of separation that were not incurred for the benefit of the community, shall be confirmed without offset to the spouse who incurred the debt.”
This Family Code section provides the court with the ability to assign gambling debts to the gambling spouse. This is one of the few insteances where a court has the discretion to make an equitable division based on fault rather than an equal division of debt.
In the case In re Marriage of Cairo, Wife was able to prove that debt incurred during marriage on credit cards in Husband’s name was for Husband’s gambling. The Trial Court characterized the credit cards in Wife’s name as a community property obligation and the credit cards in Husband’s as his separate property obligation. The Court of Appeal affirmed relying on the predecessor to Family Code §2625, which also stated that debts not incurred for the benefit of the community can be assigned without offset to the spouse who incurred the debt.
On the other hand, if the gambling spouse wins big when gambling with community property assets, then those gambling proceeds could be considered community property assets and equally divided between the parties.
In the case In re Marriage of Shelton, after separation Husband gambled $10,000 of community property monies at a casino in Nevada, won $22,000 and bought Ferrari for $32,000. Husband claimed that $22,000 of the value of the car was his separate property. The Trial Court disagreed and characterized as the car as community property. The Court of Appeal affirmed holding that the character of the gambling proceeds follow the character of their source. In this case the source of the monies used to gamble were community property, therefore, the gambling winnings were also community property. The Court of Appeal rejected Husband’s argument that the winnings were his separate property post-separation earnings because gambling is primarily a game of chance where the skill component is small.
In the case In re Marriage of Wall, Wife used her post-separation earnings (or support payments) to buy an Irish Sweepstakes ticket and won $120,000. Although Husband claimed the winnings were community property, the Trial Court disagreed and awarded the winnings to Wife as her separate property. The Court of Appeal affirmed. Unlike the Shelton case, in this case the source of the monies used to buy the Sweepstakes ticket was Wife’s separate property. Therefore, the Sweepstakes winnings were also her separate property.
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