Winning the lottery is such an exciting prospect that most winners’ first thoughts are probably focused on all the amazing things they’re going to do with their prize. While winning might seem like a fantasy, there are many real-world technicalities that go along with the dream. In this article, we’ll focus on one of the biggest questions many lottery hopefuls have: can lottery winnings be split?
Can Lottery Winnings Be Split?
Yes, lottery winnings can be split. While that may sound like a straightforward answer, it is not as simple as all that. The more complicated answer is that there are a couple different ways that lottery winnings can be split, and they all depend on the circumstances under which the lucky player won their fortune.
The first way that lottery winnings are typically split is when there are multiple winning tickets sold, resulting in multiple winners. In this situation, the prize is split evenly amongst the winners and the responsibility for divvying up the prize falls on the lotto organisation. While typically straightforward—especially for the winner, who has no responsibility for splitting the prize other than claiming it—this scenario can be slightly complicated if an instance should arise where one or more of the co-winners do not come forward to claim their prize within the allotted time. However, in most cases, the unclaimed prize will go back into the lotto fund and will not be given to the known co-winner(s).
The second way of splitting a lottery prize is a little more complicated, and comes about when two or more people have purchased the winning ticket together. In this case, the responsibility for splitting the prize falls on the people claiming it, as they would be claiming it on behalf of a lotto pool, and not on the lotto organisation. Unfortunately, this process has not always been easy for lottery winners in the past.
A lottery pool is simply a group of two or more people who decide to pool their money and purchase lottery tickets together and split the winnings. This could be as simple as a person and a few friends, family members, or co-workers each contributing a few dollars toward a weekly pool. There are also more formal pools, typically called lotto syndicates, organised by online lottery websites or official lottery retailers, which allow strangers to form a lottery pool. Lottery pools are a great option for players, as they can greatly increase the odds of winning by purchasing more tickets while keeping the individual cost low.
While the concept may sound very straightforward, there are a few ways that lottery pools can get complicated—especially when it comes to winning large amounts of money. The biggest complication is when one or more members get greedy, as there have been many examples of members suing each other over conflicts including who the actual participants were, whether the proper numbers were played, whether or not the winning ticket was purchased privately or for the pool, and more. There have also been cases of lottery pool members keeping the money intended for the pool for themselves and never buying the tickets.
Lottery pools can also get complicated when it comes to the technicalities of claiming the prize. For example, some states in the U.S. stipulate that only one person can claim a prize per ticket, as is the case in Washington, while others allow multiple members to make the claim, as is the case in North Carolina and New York. The matter of a single claimant is further complicated when it comes to taxes. If there is a single person claiming the prize on behalf of the pool, that person will have to assume all of the income tax liability. Splitting the prize amongst the pool members as a gift could then result in further taxation for each member. However, there are some easy workarounds for this problem.
The best thing to do when claiming a large prize on behalf of a lottery pool is to form a legal entity. This could take the form of a trust, a corporation, a limited liability company, or a partnership. Once the lottery group becomes a legal entity, the entity can claim the prize as a single ticket holder and then split it between all of the members. This also solves the tax issue, as members will no longer be subject to the gift tax and because individual partners in the legal entity will be taxed at a lower income tax bracket.
The best way to avoid complications—both personal and tax-related—is to read our guide to lottery pools and then form a legal entity before winning. If you have a casual or informal arrangement with friends, family, or co-workers where you regularly buy lottery tickets together, at the very least you should put your agreement in writing. However, the best-case scenario would be to write up a contract with guidelines as to how the lottery pool will function while also creating a legal entity. For best results, consult an attorney who is familiar with your country’s lottery regulations and tax laws.
Playing the lottery is a fun and exciting pastime, and it can be even more enjoyable when you share the experience with friends, family, or co-workers. However, sometimes the dream of becoming a lottery winner can turn into a nightmare when personal relationships are put to the side in favour of greed and dishonesty. The best way to ensure a complication-free win that will result in all members splitting the lottery winnings equally is to form a legal entity—sooner rather than later.
