19 Sep 2024Hooray, you’ve won the lottery! Now you can pursue your dreams. But beware, there are legal and emotional pitfalls with a sudden windfall such as a lottery win, large inheritance, compensation payment or redundancy payout which could turn that dream into a nightmare.
Unexpected windfall can lead to emotional and behavioural problems
There is even a name for the psychological condition that often accompanies an unexpected windfall – Sudden Wealth Syndrome.
Research by American scholars found that lottery winners were more likely to file for bankruptcy than the average in the population. (Please see The Ticket to Easy Street? The Financial Consequences of Winning the Lottery, Review of Economics and Statistics, May 2008.)
The stress and pressure of an unexpected financial windfall can lead to emotional problems and behavioural changes. Sudden good fortune can make you feel guilty, isolated from friends and family, paranoid about people wanting your money, and besieged by those who want a share.
Seek professional advice after receiving a windfall
To avoid falling into this psychological pit, it would be best to get immediate advice on how to protect your windfall and how to fulfil what you want to do with it.
The first thing to do when you find out you suddenly have a fortune is to take a deep breath, stop and think what to do next. Don’t run around shouting to everyone how much you have won.
It’s fine if you want to buy a flashy car, yacht, new house or a ritzy holiday. You could pay off family and friends’ debts. It’s your money. But then it is gone. It will last much longer if you invest the money and live off the income it generates.
Get expert financial advice on how best to invest for your circumstances. The windfall itself is not taxable, but its earnings are.
Protecting a windfall from family breakups
If you want to look after children or grandchildren, it may be best to form a family trust that will release the money in the future for specific things like school fees or a home deposit. Get legal advice on how to do that.
Under the Family Law Act 1975, for those who are in a marriage or de facto relationship, a lottery win, or any unexpected windfall such as an inheritance payment would be considered a contribution by both parties to the household and would be joint property in a final property settlement.
If you are separated or separating when you receive a windfall, get advice from a family lawyer to see whether it will be part of the final property settlement.
Family Court’s approach to windfall gains when dividing assets
Judgements in the Family Court show the judges can weigh other considerations, such as who made contributions to the household income and welfare, as well as the needs and welfare of the other party.
In the 1995 case of Zyk v Zyk, the husband won the lottery as part of a syndicate he was in before and during the marriage. When they separated the court ruled there had been a joint effort in their finances, so the lottery win had to be shared.
In another case, the couple kept their finances separate during their time together. The husband won $622,842 in lotto with a ticket he bought and kept the winnings in his own account. The judge ruled he could keep the money, as the winnings were not part of a joint endeavour. (Please see Elford & Elford [2016] FamCAFC 45.)
In a 2000 case the couple had been separated for 18 months when the husband won $5 million in lotto. The court considered the wife’s contribution to the home during the 12 year marriage and awarded her $750,000 from the winnings. (Please see Farmer and Bramley [2000] FamCA 1615.)
These cases demonstrate the court can consider the contribution of each person to the relationship or household, as well as who bought the winning ticket.
