Tough Times Series: Beating the Odds: Protect Assets From a Gambling Problem

by Monica Steinisch

In a rough economy, betting on a horse or a round of blackjack might seem less risky than betting on your job or your retirement plan. As of August 2009, the unemployment rate in all 372 U.S. metropolitan areas was higher than it was a year earlier, the Dow stock market index was still nearly 4,500 points below its 2007 all-time high, and foreclosure filings were up nearly 18% from August 2008, with one in every 357 U.S. homes receiving a foreclosure filing in August. For some who've been on the losing end of the employment, investment, and housing crises, a jackpot could look like their last hope for staying afloat.

"Gambling has increased ... definitely," says Ara H., a Gamblers Anonymous (GA) member and spokesperson. "We don't keep stats, but I've seen a lot of newcomers in meetings over the last few months." Ara's theory is that laid-off workers are looking for a way to bring in extra money between jobs. But, he says, speaking from experience, they're "never gonna win."

That's because, despite the occasional jackpot, gamblers always lose over the long term. (It takes just one visit to the spectacular Las Vegas strip to see it's not the casinos that are losing.) That's not a problem for the vast majority of gamblers, who can walk away after losing a moderate amount of money. But for the more than six million problem gamblers who chase their losses—that's gamblers' lingo for continuing to play in the hopes of winning back all the money you've lost—the result can be financial and family ruin.

While getting a gambling addiction under control can be a years-long—even lifelong—effort, there are things the gambler and the nongamblers in his or her life can do before everything is lost. These strategies won't cure a gambler's addiction, but they can protect assets—an important part of building a brighter future for the gambler and his or her loved ones.

Odds stacked against gamblers' financial well-being

Dr. Tahira K. Hira, a doctor of economics at Iowa State University who studies the impact of gambling on family financial well-being, says that gambling can be much more damaging today because modern banking and credit conveniences have given gamblers the ability to lose greater amounts. Thirty years ago, the typical gambler could bet only the cash in his or her pockets, she says. Now, plastic—debit and credit cards—allows gamblers to bet everything they have, and more. Depending on your credit rating, you may have a card that makes tens of thousands of dollars available to you. Cards tied to a home equity line of credit (HELOC) could, quite literally, allow you to "bet the farm."

According to the National Council on Problem Gambling (NCPG) and the National Endowment for Financial Education (NEFE), joint producers of "Problem Gamblers and Their Finances: A Guide for Treatment Professionals," gamblers are more likely to fall deep into debt and file for bankruptcy, and to lose their homes and other personal property. Even less serious cases often result in overdrawn accounts, overdue bills, and an inability to achieve financial goals.

"I've heard some horrible, devastating stories where gamblers lost their savings, then used all their credit, and then turned to embezzlement," says Hira. "It's a very heartbreaking situation. You can gamble away your future."

To avoid that outcome, gamblers and their families and friends need to put up roadblocks.

Keep a lid on losses

It's often only when compulsive gamblers or loved ones suffer serious financial repercussions that they seek professional help for the addiction and begin the recovery process. At that time, it's necessary to also take steps to prevent further losses, for the sake of both the gambler and the family.

These are some key steps in the process of protecting assets:

• Restrict the gambler's access to money. "Cash is the gambler's drug of choice," says Ara, so restricting the amount of money the gambler can get his or her hands on is the first step. Easily accessible sources of gambling funds include paychecks and other income, a checking or savings account, ATM/debit cards, credit cards and lines of credit, and loans.

  Consider closing accounts and opening new ones in the name of the nongambling spouse or partner or another trusted person. Change PINs (personal identification numbers) on accounts that remain open.

  If the gambler needs a credit card for business or emergencies, he or she should open an individual account, and request the lowest credit limit that is adequate to meet needs. Calling 888-567-8688 will stop most unsolicited credit card offers.

  Check with the professionals at your credit union for information about credit union credit cards. These cards generally have lower interest rates and charge fewer and lower fees than other financial institutions.

  Regina K., executive secretary and spokesperson for Gam-Anon, a support group for spouses, partners, relatives, and friends of problem gamblers, recommends having the gambler's paycheck and any other regular payments deposited directly into an account he or she can't access. Otherwise, she says, "It's a race to the bank." (Social Security payments cannot be deposited into an account that doesn't have the recipient's name on it. So a possible alternative would be to do an electronic transfer from the gambler's account to a separate account on the day of the deposit.)

  Despite the occasional jackpot, gamblers always lose over the long term.

  Try to identify any other sources of possible gambling funds, such as tips, a tax refund, an insurance settlement, or a 401(k) loan, and divert them away from the gambler. Ara recalls one GA member who received cash tips each evening. He advised him to take the money to an all-night convenience store immediately after work and convert the cash to a cashier's check.

  Ask friends and family members not to lend money to the gambler.

• Protect valuables. To prevent the gambler from selling or pawning jewelry, collectibles, artwork, antiques, or other valuables, put these items into a safe deposit box or storage unit to which the gambler doesn't have access.

• Take assets out of the gambler's name. In very serious cases, many experts recommend transferring assets into the sole name of the nongambling spouse or partner, or a relative, friend, or trust. These could include everything from brokerage accounts and stocks to real estate and cash-value life insurance policies. In such cases, it's also necessary to make changes to any accounts on which the gambler is named custodian or trustee.

  "Whether the gambler is in recovery or not, he or she is always a compulsive gambler," says Regina. Therefore, there is always the risk that gambling could resume. This, says Regina, is why a permanent change in ownership of assets might be needed.

  The NCPG/NEFE guide points out that while many experts recommend the transfer of assets in certain cases, some feel this step is too drastic for most problem gamblers, and may even be "emotionally counterproductive."

• Shift control of bills and routine financial tasks to the nongambler. The nongambler should take over the daily management of the household finances—reviewing account statements, paying bills, balancing the checkbook, filing the tax returns, and so on. The gambler still can participate, but is no longer in a position to hide losses (or winnings) or skip tax, insurance, or other bill payments as a way to create gambling money.

  Whenever possible, make deposits, transfers, and bill payments automatic through your credit union or bank.

• Establish an allowance. Administer an allowance that the gambler agrees to live on. It should be high enough to meet the gambler's needs, but not so high that there is money left over to gamble.
  Gamblers are more likely to fall deep into debt and file for bankruptcy, and to lose their homes and other personal property.

  Ara says that, although it can be hard to give up financial control, an allowance has "really worked great" for him.

• Repay debts. Experts counsel gamblers and their families to try to avoid bankruptcy because the repayment process is a necessary part of the gambler's recovery.

  To aid the process, the gambler should order his or her credit reports. They will reveal creditors, debt balances, and payment status for all creditors who report to the credit bureaus—not bookies or friends. Everyone is entitled to a free report every 12 months from each of the three major credit reporting companies (Equifax, Experian, and TransUnion) at AnnualCreditReport.com or 877-322-8228. While it's generally not advisable for the average consumer to enroll in fee-based monthly credit report monitoring programs, it might make sense if you are concerned that the gambler still could be racking up debts.

  Be aware that gambling debts incurred on a joint credit card or loan are the responsibility of both accountholders, even if there eventually is a separation or divorce.

Qualified professionals protect assets and gambler's rights

You might be reluctant to spend money on an attorney or financial professional after you've already suffered gambling losses, but hiring the right professional to help you protect your assets and your rights could be money well spent.

These are some of the professionals you may need on your team.

Attorney—The gambler takes a big risk in transferring assets, says Regina. For example, if a couple transfers the family home into the husband's name because the wife is a gambler, what claim does she have to her share of the equity in case of a divorce? To make sure all transfers are done correctly and legally, Regina strongly encourages gamblers and their families to enlist the help of the appropriate professionals. A lawyer that specializes in estate planning will know how to protect the gambler's rights, avoid unnecessary taxes, prepare the required legal documents, set up a trust, and so on.

Tax accountant—A tax accountant may be needed if the gambler owes taxes because tax returns were not filed, winnings were not reported, or taxes due were not paid. A tax accountant also may be needed if the gambler has withdrawn money from tax-deferred retirement accounts prematurely, or to advise on the most tax-efficient ways to transfer assets. For example, sizable transfers to a nonspouse could generate a hefty gift tax.

Financial planner—A financial planner can recommend ways to improve your financial situation—from designing a budget and creating a strategy to repay debts to preserving assets and setting goals. He or she also can advise about insurance, investing, and other areas of personal finance.

Credit counselor—A credit counselor can help set priorities for your debts and create a repayment plan. Depending on the situation, a debt-management plan (DMP) administered by the counseling agency may be an option. In a DMP, you repay all or some of your debts by sending a single payment to the credit counseling agency, which distributes it among your creditors. Many creditors who participate agree to lower payments, reduce interest rates, waive fees, and re-age (bring current) accounts. Counseling is free or low cost. There is a DMP fee of $20 to $50 per month, though a reputable agency shouldn't deny you services if you can't afford to pay.

Ask at your credit union for credit counseling help.

The NCPG cautions that anyone who gambles can develop problems if they're not aware of the risks and don't gamble responsibly.

"Under the current [economic] circumstances, gambling is not the answer," says Hira. "If anything, it has the potential to make [your financial problems] worse." She encourages gamblers to trade in their gambling for a healthy activity, such as volunteering or exercise.

Published October 12, 2009

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