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What Happens If You Win the Lottery While Paying Child Support?
Everyone dreams of winning the lottery. But it's important for people going through a divorce to understand that lottery winnings can have a substantial impact on their child support obligations. This was illustrated by the case of the latest Powerball winner.
Pedro Quezada, a 44-year-old New Jersey resident, recently won a $338 million Powerball jackpot. Quezada chose a $221 million lump sum payment, of which he will bring home about $152 million after taxes. However, Quezada has five children and currently owes $29,000 in back child support.
Many people make the mistake of thinking a windfall like hitting the Powerball jackpot doesn't count as income for child support purposes because it's not earned in the traditional sense. However, several cases have established that lottery winnings do in fact count as income for determining child support even if the winnings are taken as a single lump sum payment.
You don't even need to win a multi-million dollar jackpot for your gambling earnings to affect your child support payments. The IRS receives reports of all lottery winnings of $600 or more after the cost of the ticket is deducted. This income must be reported on your federal income tax return.
Child Support Deducted from Lottery Winnings
Child support arrears are automatically deducted from lottery winnings once taxes and tax leins have been satisfied. Child support won't automatically be increased based on lottery winnings, however. The custodial parent would have to apply for a modification under the grounds of "changed circumstances." The judge would use the status principle when determining if child support should be raised. This is the belief that children are entitled to share in the increase in status of their noncustodial parent because they would have received this benefit if their parents had remained married.