We just saw an article published in Marketwatch (a Dow Jones electronic publication) where an executive confesses to have $100,000 in gambling debt on credit cards his spouse knows nothing about. Suffice to say there is no happy answer to his inquiry about how to relate this unfortunate news.

            The truth is that lots of people are getting themselves into trouble these days. Blame what you will, we are seeing a trend where even well educated and affluent people are becoming substance addicted or finding relief in games of chance. It turns out that even though educated and affluent people are “supposed to know better” and already have lots of resources, those resources just aren’t satisfying.

            Are you married or in a relationship with such a person? Typically when lawyers meet with potential clients in this situation, the initial meeting begins with the client saying that “Something seems off.” It’s erratic behavior, secretiveness or unexplained absences. Our problem is that lawyers are not clairvoyants. But sometimes the problem is closer to the surface than we think.

            Our example relates to hidden gambling debt. And this being tax season, gaming institutions have a legal responsibility to inform both the IRS and its taxpayers how much those taxpayers made while betting on cards, dice, Kansas City Chiefs or whether Pete Rose gets into Baseball’s Hall of Fame. It comes in a form devised by the IRS called W-2G but issued by the casino or sports bookmaker. Box 1 tells us the reported federal winnings. The oddity is that while gaming losses are an offset to gaming winnings, the form doesn’t set forth the losses. That comes in a separate piece of information sent by the outfit that paid the winnings.

            Until a few years ago there was a ceremony in almost every American household called the Signing of the Return. Mom and Pop would gather around the dining room table and cast eyes upon IRS Form 1040. They would sign the return either weeping over what was owed or with tears of joy for the expected refund. But they would at least have a chance to see the return.

            Today electronic filing is ubiquitous. Last year the only form that my spouse and I signed was one telling the accountants they could file on our behalf. Yes, we did have access to the information but for many of us, tax returns have become a labyrinth of uncertainties despite Congress’ claims to have made the tax code simple.

            If you have concerns about gambling in your household you need to take a look at the draft or final return and see what’s on line 21 of the Form 1040 (winnings) and line 27 of Schedule A to the same return (losses). The net of those is taxable income. But bear in mind that there are times when line 27 will vastly eclipse line 21 because the losses are huge. Losses are not deductible; they’re just losses reflecting a leak in the financial ship you and your spouse pilot together.

            Too many people let one spouse just “take care” of the taxes. That is a mistake because if you don’t look at the return you don’t really know where you stand with Uncle Sam or even if your loving spouse has corresponded with Uncle in recent years by actually filing a return. Without getting too deep in the weeds we have had cases where there were millions in income but no corresponding return was filed; just tax extensions and estimated payments.

            The second issue does not bear directly on tax matters. It is credit card use. We see lots of people with massive credit card debt even though they earn a fortune. Sometimes that is because they need things that are entertaining. Sometimes they have addictions. Under a statute called the Fair Credit Reporting Act, each year the law allows us to get a free credit report. It doesn’t include your credit score (how credit worthy you are), but it does have a complete and sometimes frightening list of what credit cards and loans you have and what you owe. The Federal Trade Commission has a site for this. https://consumer.ftc.gov/articles/free-credit-reports

But be careful, there are hundreds of websites that pretend to be the free service but actually want to rope you into buying credit monitoring services. The official one is AnnualCreditReport.com. (no spaces please). The place this gets “icky” is that it is technically an invasion of your spouse’s privacy to order a credit report other than your own. But our recommendation is to get yours and then ask your spouse to produce theirs. First, your own report may shock you to learn that your spouse is using your credit information to get credit in your name without your knowing it. Yes, that is fraud but talk to a lawyer before dialing 9-1-1.

            If your spouse says he or she won’t share his/her credit report, red lights should go off. Under the law in Pennsylvania and most states, if this debt accumulated during your marriage, a court may allocate responsibility to you to pay debt you didn’t even know about. It may not seem fair and how a court allocates marital debt is a fact driven matter. But we have seen a fair share of cases where the couple is motoring back and forth to Longport or San Marco in planes or Porsches funded solely by a couple dozen credit cards with $20,000 limits and $200 monthly minimums. You would think credit card lenders are smarter than that but that’s a poor assumption. Again, if your pleas to see your spouse’s credit report are ignored, it’s time to have a divorce consultation just to figure out what the risk is. It is likely that the lawyer isn’t going to have all the answers, but you need to start asking some hard questions or making some hard decisions. 

One last point, if you use an accountant, preparation service or computer program to do you taxes, it may be worthwhile to ask how the joint return looks if you filed married separate. For most married couples a joint return is the most “tax efficient” (lowest overall taxes) but accounting websites are reporting that where incomes are relatively equivalent or there are variations in deductions (e.g., one spouse has high medical expenses while the other doesn’t) the combined tax obligations may be less in a separate filing than a joint one.