Congratulations! All of your numbers match up and you are the proud winner of a huge lottery prize! Time to start thinking about the cars, mansions, and vacations you will buy, right? Maybe not. As soon as word gets out about your newfound wealth, there are sure to be others to stake a claim.
Ex-Spouse. It’s fairly well-established that if you win the lottery while married, the winnings become joint property. Things get more cloudy, however, if there is a pre-nuptial or post-nuptial (yes, there is such a thing) agreement, or if the winning ticket is purchased after you’ve separated but before the divorce is final. Much of it depends on where you live, but the court can also take into consideration the circumstances surrounding the purchase of the ticket, the duration of the marriage, whether the marriage produced any children, and so on. Even if a court decides that your lottery winnings are all yours, your ex will likely want to revisit any child-support arrangements you might have.
IRS. Before you collect a penny of your winnings, the Feds will take their cut. If you’ve won more than $5,000, 28% is taken off the top and you will receive a Form W-2G to help you report your winnings on your tax return. If you opt for your winnings in an annuity, tax is withheld on the annuity payment each year.
State. If your state has an income tax, they will get a cut, too. Additionally, if you’ve racked up a tab for, say, delinquent child support or back taxes, you’ll have to settle up before you make that shopping list.
Everyone Else. Of course, you’ll get requests from every charity, would-be entrepreneur, relative, friend, ex-lover, and anyone else you’ve met for money. But be extra vigilant for underhanded attempts to get at your fortune. Watch out for bogus invoices from companies you’ve never heard of showing up in the mail. Collections agents may resurrect old or invalid debts and try to collect, even though they have no right to do so (they do this to people who haven’t won the lottery, too). Lots of lawyers and financial advisors will offer their services to you, but check references to make sure they’re competent and legit. And, unpleasant as it may be, think about your personal safety.
You. Plenty of lottery winners have overspent and gone broke. Think of yourself as your own worst enemy, especially if you’ve had money troubles in the past. Avoid major changes in lifestyle; a fleet of sailboats or several vacation homes might be fun to own, but the upkeep and taxes will drain your fortune, too. Get with that financial advisor you hired to set up a strict budget.
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