Gambling and Divorce

Our society is filled with legal and non-legal opportunities to gamble for money ' casinos, sports betting, gambling clubs, etc. These activities obviously result in economic losses or gains which can negatively affect the assets, debts, cash flow expenditures and the lifestyle of a marriage. For the matrimonial practitioner, gambling raises a plethora of issues and considerations to address.

Equitable Distribution

In states that divide marital assets under an Equitable Distribution statute, all assets legally and beneficially acquired during the marriage are subject to equitable distribution. Accordingly, savings of the parties are subject to distribution. The question becomes: What happens if, instead of having savings, a party has significant gambling losses or debts as a result of gambling? Are these losses shared or are they one party's obligation? If it can be shown that this was a dissipation of assets and a squandering of marital money, then it is less likely that it would be subject to equitable distribution. On the other hand, if this was an ongoing known activity during the marriage, it could be argued that it was an agreed-upon risk of marital assets consented to by the non-gambling spouse.

Cases of this nature are fact-sensitive. As we know, that provides for a broad opportunity to present the client's case in the most favorable light. If that spouse knew of the gambling or trips to locations like Las Vegas or Atlantic City, did he or she acquiesce to the gambling? Was she supportive of it? Or did he oppose it?

Does it matter when a Complaint for Divorce was filed? After all, the party had the remedy of filing a Complaint for Divorce at any time to cut off the loss of marital monies. Further, if the non-gambling party did not know, should he have known as a result of the circumstances of the marriage? Does knowing or having the expectation that one would know give rise to a sharing of the losses? How many times have we practitioners heard judges say that it is unfair not to share in the losses because if there had been a savings or windfall, the party would have wanted to share?

The success of this argument depends on good lawyering, fact development and presentation. The “characterization of debts as 'marital or 'non-marital' is fact-sensitive and ' once made ' final.” Clark v. Clark, 324 N.J. Super. 587, 596 (Ch. Div. 1999) citing Mahoney v. Mahoney, 91 N.J. 488 (1982). However, it is important to consider the costs of addressing this issue and whether it will be considered a “wild goose chase” deferring of a fee assessment or a bona fide presentation of an issue worthy of attention. The careful practitioner will shape the argument to tilt in favor of a wise, thoughtful, legitimate request.

The New Jersey equitable distribution statute, N.J.S.A. 2A:34-23.1(i) requires courts to take into account the “contribution of each party to the acquisition, dissipation, preservation, depreciation, or appreciation in the amount or value of the marital property.”

Factors to Consider

Factors generally considered in determining whether there has been a dissipation are the proximity of the expenditure to the parties' separation; whether the expenditure was typical of those made by the parties prior to the breakdown of the marriage; whether the expenditure benefited the “joint” marital enterprise or was for the benefit of one spouse to the exclusion of the other; and the need for, and amount of, the expenditure. Kothari v. Kothari, 255 N.J. Super. 500, 507 (App. Div. 1992) citations omitted.

With regard to alimony, was there a historic and continuing contribution toward the ongoing expenses of the marriage? Did the gambling provide extra income? Did it affect the marital lifestyle? Comps can be a perk of the marriage as are “points” earned at casinos. Was the gambling party receiving benefits by way of hotels, restaurants and entertainment of all sorts? Is there any obligation to continue to maintain that lifestyle?

A litigant who is trying to reduce his alimony obligation will be hit hard by proof of gambling. At the least it demonstrates a flippant attitude with regard to the careful concerned management of money. Add to that, proof that the gambler spends money on lavish hotel suites, attends shows and dines at fine restaurants. This may have a chilling affect on the argument that the gambler is advancing to reduce his support.

What happens if the party was a card counter or other cheater, was caught and now has been barred from casinos? Does that constitute a change in circumstances?

How does an attorney discover the extent of the gambling problem? You can subpoena the casinos for the records. If you represent the non-gambler, a less expensive method of obtaining this information is to request that the gambler sign authorizations permitting the gathering of discovery from in and out of state casinos. For the cost of mailing a letter, you can send the authorization to all casinos the gambler may have frequented. Ask not only about the gambling, but ask the hotel to provide documentation with regard to stays at the hotel, restaurant dining and other comps. If the gambler is flying somewhere to gamble, can you get the proof of the airline flights? Was the gambler going alone or was he or she taking a third party or the spouse?

Is there anything that can be done when the gambling spouse is gambling outside the country? Is the gambler going to a casino that also does business in the United States? If so, you can subpoena those records or obtain them by way of authorization by contacting the local entity. Were there deposits made into accounts after somebody went to a foreign country? Were there purchases made or money spent without a source?

It will probably be necessary to engage a forensic accountant to review all relevant documents and to quantify the economic impact of the gambling on the finances of the marriage.

What are the tax consequences of gambling? Gambling losses can be used on income taxes as an offset against winnings.

Does Sheridan v. Sheridan, 247 N.J. Super. 552 (Ch. Div. 1990) come into play if the earnings are not reported on the tax returns? This may be a scenario if the party gambles outside of legalized casinos, such as at high-stakes poker games or gambling clubs, similar to those frequented by Matt Damon, John Malkovich and Edward Norton in the movie “Rounders.”

The Internet

What about gambling on the Internet? Are there records that are available? Ask the court to compel the production of the records or for the utilization of a forensics company. You do not want to be in a situation where you tell your client to search the spouse's private communications on the Internet and potentially expose your own client to criminal charges. A computer expert may be needed to examine the gambling spouse's computer. Again, if this is illegal activity, it may raise Sheridan issues ' potentially for both parties if the non-gambling spouse knew of the gambling or benefited from increased marital lifestyle due to winnings. Sheridan v. Sheridan, 247 N.J. Super. 552 (Ch. Div. 1990).

Cash

With regard to cash from gambling, how do you prove it exists? The bank is obligated to report to the Internal Revenue Service if more than $10,000 cash is deposited into an account. If the cash is in a safe deposit box that your client has access to, count the cash and take pictures of it. Have witnesses observe the money. Take the money and put it some place for safekeeping.

Does the person gamble with anyone? Get the names of those persons with whom the party gambles and use them as a pressure point. Serve and notice them for depositions.

The gambling spouse may take the position that money lost due to gambling or existing gambling losses are a result of that party's “disease of gambling” and that such an illness or addiction should not be held against him. Conversely, if the law does not consider a child's abuse or one's addiction to alcohol or controlled dangerous substances to be a “severe mental or physical incapacity” as a basis to oppose an emancipation request, perhaps the non-gambling spouse should not have to suffer due to the actions of the gambling spouse. See N.J.S.A. 2A:34-23 (a).

In the Courts

In New Jersey, a spouse's gambling losses incurred prior to the filing of a divorce complaint is not a novel issue. In a trial court decision, Middlesex County Judge Glenn Berman held that, while it is a fact-sensitive issue, the gambling losses incurred by the husband were in the nature of a dissipation of assets and not a marital debt. Siegel v. Siegel, 241 N.J. Super 12 (Ch. Div. 1990). Judge Berman advises that when the gambling occurred, the wife in the case had already hired an attorney who had sent a letter to the husband. The husband incurred the losses before the Complaint for Divorce was filed when he was with his girlfriend, not his wife. A representative from Bally's Casino testified as to the amount of the debt. Notably, the court in Siegel found that the husband had not shown that the wife actually knew of the gambling losses; it also questioned the realty of the losses. Arguably, the result would have been different if the wife was aware of the debts or allowed them to be incurred.

The New Jersey Appellate division has considered arguments that dissipation must take place after the filing of a divorce complaint, and has rejected such arguments. Kothari v. Kothari, 255 N.J. Super. 50 (App. Div. 1992). “The power to order equitable distribution does not depend on the 'existence' of marital property on the filing date of the divorce complaint. Where property has been dissipated during the marriage, the asset subject to distribution may take the form of a cash indebtedness to be imposed by the court upon one spouse in favor of the other.” Id. at 510. Although it is not a case dealing with gambling debts, Clark v. Clark, 324 N.J. Super. 5887 (Ch. Div. 1999), dealt with a unique situation where one party was found guilty of driving while intoxicated during the marriage and was subject to Division of Motor Vehicle surcharges. The party incurring the surcharges maintained that it was a marital debt subject to equitable distribution.

The trial court found that the husband was not liable for the surcharges incurred by the wife for a number of detailed reasons, including the fact that there was no basis to impute the liability for the surcharge to the husband as a third party as it relates to the wife and the Division of Motor Vehicles; there was no information to support an argument that the husband knew of his wife's intention to operate the vehicle while under the influence or that he knew of her propensity to do so; driving a car under the influence was not related to the marital enterprise, and the fact that a debt incurred prior to the filing of a divorce complaint does not automatically render it a marital obligation.

Conclusion

Accordingly, where there is the existence of gambling, there are significant issues to be addressed on both sides. Since the courts have made it clear that such issues are very fact-sensitive, it is incumbent on the practitioner to gather as many documented facts as possible to support his/her position during the discovery process and then to use the law to craft arguments that are beneficial to his/her client's position so as to extract a monetary gain or defend against demands for credits. Some gambling can be quite extensive and the discovery process complex. Be sure to allow adequate time to address this issue. The receipt and review of gambling records can be more exciting than going through ordinary discovery. The complexion of an entire case can be changed with records showing significant gambling. One of the more interesting roles of the matrimonial attorney is that of discovery sleuth. When this issue is flushed out the results can be significant.

To those representing the gambler who has lost money, the task for counsel is to demonstrate that this was a marital endeavor; that it was known or should have been known to both parties. Therefore, the negative ramifications should be shared by the parties.

If the client is concerned about possible Sheridan issues, perhaps consideration should be given to referring the matter to mediation/arbitration. This will eliminate the obvious concerns and potentially give the parties the opportunity to resolve their differences more expeditiously and be less costly.

Lynne Strober, a member of this newsletter's Board of Editors, is a Partner at Mandelbaum Salsburg in West Orange NJ. She specializes in Family Law and co-chairs the firm's Family Law Department.

Our society is filled with legal and non-legal opportunities to gamble for money ' casinos, sports betting, gambling clubs, etc. These activities obviously result in economic losses or gains which can negatively affect the assets, debts, cash flow expenditures and the lifestyle of a marriage. For the matrimonial practitioner, gambling raises a plethora of issues and considerations to address.

Equitable Distribution

In states that divide marital assets under an Equitable Distribution statute, all assets legally and beneficially acquired during the marriage are subject to equitable distribution. Accordingly, savings of the parties are subject to distribution. The question becomes: What happens if, instead of having savings, a party has significant gambling losses or debts as a result of gambling? Are these losses shared or are they one party's obligation? If it can be shown that this was a dissipation of assets and a squandering of marital money, then it is less likely that it would be subject to equitable distribution. On the other hand, if this was an ongoing known activity during the marriage, it could be argued that it was an agreed-upon risk of marital assets consented to by the non-gambling spouse.

Cases of this nature are fact-sensitive. As we know, that provides for a broad opportunity to present the client's case in the most favorable light. If that spouse knew of the gambling or trips to locations like Las Vegas or Atlantic City, did he or she acquiesce to the gambling? Was she supportive of it? Or did he oppose it?

Does it matter when a Complaint for Divorce was filed? After all, the party had the remedy of filing a Complaint for Divorce at any time to cut off the loss of marital monies. Further, if the non-gambling party did not know, should he have known as a result of the circumstances of the marriage? Does knowing or having the expectation that one would know give rise to a sharing of the losses? How many times have we practitioners heard judges say that it is unfair not to share in the losses because if there had been a savings or windfall, the party would have wanted to share?

The success of this argument depends on good lawyering, fact development and presentation. The “characterization of debts as 'marital or 'non-marital' is fact-sensitive and ' once made ' final.” Clark v. Clark , 324 N.J. Super. 587, 596 (Ch. Div. 1999) citing Mahoney v. Mahoney , 91 N.J. 488 (1982). However, it is important to consider the costs of addressing this issue and whether it will be considered a “wild goose chase” deferring of a fee assessment or a bona fide presentation of an issue worthy of attention. The careful practitioner will shape the argument to tilt in favor of a wise, thoughtful, legitimate request.

The New Jersey equitable distribution statute, N.J.S.A. 2A:34-23.1(i) requires courts to take into account the “contribution of each party to the acquisition, dissipation, preservation, depreciation, or appreciation in the amount or value of the marital property.”

Factors to Consider

Factors generally considered in determining whether there has been a dissipation are the proximity of the expenditure to the parties' separation; whether the expenditure was typical of those made by the parties prior to the breakdown of the marriage; whether the expenditure benefited the “joint” marital enterprise or was for the benefit of one spouse to the exclusion of the other; and the need for, and amount of, the expenditure. Kothari v. Kothari , 255 N.J. Super. 500, 507 (App. Div. 1992) citations omitted.

With regard to alimony, was there a historic and continuing contribution toward the ongoing expenses of the marriage? Did the gambling provide extra income? Did it affect the marital lifestyle? Comps can be a perk of the marriage as are “points” earned at casinos. Was the gambling party receiving benefits by way of hotels, restaurants and entertainment of all sorts? Is there any obligation to continue to maintain that lifestyle?

A litigant who is trying to reduce his alimony obligation will be hit hard by proof of gambling. At the least it demonstrates a flippant attitude with regard to the careful concerned management of money. Add to that, proof that the gambler spends money on lavish hotel suites, attends shows and dines at fine restaurants. This may have a chilling affect on the argument that the gambler is advancing to reduce his support.

What happens if the party was a card counter or other cheater, was caught and now has been barred from casinos? Does that constitute a change in circumstances?

How does an attorney discover the extent of the gambling problem? You can subpoena the casinos for the records. If you represent the non-gambler, a less expensive method of obtaining this information is to request that the gambler sign authorizations permitting the gathering of discovery from in and out of state casinos. For the cost of mailing a letter, you can send the authorization to all casinos the gambler may have frequented. Ask not only about the gambling, but ask the hotel to provide documentation with regard to stays at the hotel, restaurant dining and other comps. If the gambler is flying somewhere to gamble, can you get the proof of the airline flights? Was the gambler going alone or was he or she taking a third party or the spouse?

Is there anything that can be done when the gambling spouse is gambling outside the country? Is the gambler going to a casino that also does business in the United States? If so, you can subpoena those records or obtain them by way of authorization by contacting the local entity. Were there deposits made into accounts after somebody went to a foreign country? Were there purchases made or money spent without a source?

It will probably be necessary to engage a forensic accountant to review all relevant documents and to quantify the economic impact of the gambling on the finances of the marriage.

What are the tax consequences of gambling? Gambling losses can be used on income taxes as an offset against winnings.

Does Sheridan v. Sheridan , 247 N.J. Super. 552 (Ch. Div. 1990) come into play if the earnings are not reported on the tax returns? This may be a scenario if the party gambles outside of legalized casinos, such as at high-stakes poker games or gambling clubs, similar to those frequented by Matt Damon, John Malkovich and Edward Norton in the movie “Rounders.”

The Internet

What about gambling on the Internet? Are there records that are available? Ask the court to compel the production of the records or for the utilization of a forensics company. You do not want to be in a situation where you tell your client to search the spouse's private communications on the Internet and potentially expose your own client to criminal charges. A computer expert may be needed to examine the gambling spouse's computer. Again, if this is illegal activity, it may raise Sheridan issues ' potentially for both parties if the non-gambling spouse knew of the gambling or benefited from increased marital lifestyle due to winnings. Sheridan v. Sheridan , 247 N.J. Super. 552 (Ch. Div. 1990).

Cash

With regard to cash from gambling, how do you prove it exists? The bank is obligated to report to the Internal Revenue Service if more than $10,000 cash is deposited into an account. If the cash is in a safe deposit box that your client has access to, count the cash and take pictures of it. Have witnesses observe the money. Take the money and put it some place for safekeeping.

Does the person gamble with anyone? Get the names of those persons with whom the party gambles and use them as a pressure point. Serve and notice them for depositions.

The gambling spouse may take the position that money lost due to gambling or existing gambling losses are a result of that party's “disease of gambling” and that such an illness or addiction should not be held against him. Conversely, if the law does not consider a child's abuse or one's addiction to alcohol or controlled dangerous substances to be a “severe mental or physical incapacity” as a basis to oppose an emancipation request, perhaps the non-gambling spouse should not have to suffer due to the actions of the gambling spouse. See N.J.S.A. 2A:34-23 (a).

In the Courts

In New Jersey, a spouse's gambling losses incurred prior to the filing of a divorce complaint is not a novel issue. In a trial court decision, Middlesex County Judge Glenn Berman held that, while it is a fact-sensitive issue, the gambling losses incurred by the husband were in the nature of a dissipation of assets and not a marital debt. Siegel v. Siegel, 241 N.J. Super 12 (Ch. Div. 1990). Judge Berman advises that when the gambling occurred, the wife in the case had already hired an attorney who had sent a letter to the husband. The husband incurred the losses before the Complaint for Divorce was filed when he was with his girlfriend, not his wife. A representative from Bally's Casino testified as to the amount of the debt. Notably, the court in Siegel found that the husband had not shown that the wife actually knew of the gambling losses; it also questioned the realty of the losses. Arguably, the result would have been different if the wife was aware of the debts or allowed them to be incurred.

The New Jersey Appellate division has considered arguments that dissipation must take place after the filing of a divorce complaint, and has rejected such arguments. Kothari v. Kothari , 255 N.J. Super. 50 (App. Div. 1992). “The power to order equitable distribution does not depend on the 'existence' of marital property on the filing date of the divorce complaint. Where property has been dissipated during the marriage, the asset subject to distribution may take the form of a cash indebtedness to be imposed by the court upon one spouse in favor of the other.” Id. at 510. Although it is not a case dealing with gambling debts, Clark v. Clark , 324 N.J. Super. 5887 (Ch. Div. 1999), dealt with a unique situation where one party was found guilty of driving while intoxicated during the marriage and was subject to Division of Motor Vehicle surcharges. The party incurring the surcharges maintained that it was a marital debt subject to equitable distribution.

The trial court found that the husband was not liable for the surcharges incurred by the wife for a number of detailed reasons, including the fact that there was no basis to impute the liability for the surcharge to the husband as a third party as it relates to the wife and the Division of Motor Vehicles; there was no information to support an argument that the husband knew of his wife's intention to operate the vehicle while under the influence or that he knew of her propensity to do so; driving a car under the influence was not related to the marital enterprise, and the fact that a debt incurred prior to the filing of a divorce complaint does not automatically render it a marital obligation.

Conclusion

Accordingly, where there is the existence of gambling, there are significant issues to be addressed on both sides. Since the courts have made it clear that such issues are very fact-sensitive, it is incumbent on the practitioner to gather as many documented facts as possible to support his/her position during the discovery process and then to use the law to craft arguments that are beneficial to his/her client's position so as to extract a monetary gain or defend against demands for credits. Some gambling can be quite extensive and the discovery process complex. Be sure to allow adequate time to address this issue. The receipt and review of gambling records can be more exciting than going through ordinary discovery. The complexion of an entire case can be changed with records showing significant gambling. One of the more interesting roles of the matrimonial attorney is that of discovery sleuth. When this issue is flushed out the results can be significant.

To those representing the gambler who has lost money, the task for counsel is to demonstrate that this was a marital endeavor; that it was known or should have been known to both parties. Therefore, the negative ramifications should be shared by the parties.

If the client is concerned about possible Sheridan issues, perhaps consideration should be given to referring the matter to mediation/arbitration. This will eliminate the obvious concerns and potentially give the parties the opportunity to resolve their differences more expeditiously and be less costly.

Lynne Strober, a member of this newsletter's Board of Editors, is a Partner at Mandelbaum Salsburg in West Orange NJ. She specializes in Family Law and co-chairs the firm's Family Law Department.