It is important to understand that when people live together, whether or not they are married, a “confidential relationship” arises between them. For married persons this relationship arises from a legally recognized nature of matrimony. For unmarried persons, certain important legal obligations are present but may be of lesser value. Nonetheless, due to the trust and confidential nature of the relationship, duty of loyalty, care and disclosure in transactions will be imposed.
Spousal duties have evolved over the years but management and control of assets and disclosure of such assets are well established. Family Code 721 is the starting point. Subsection (b) states, “This confidential relationship is a fiduciary relationship subject to the same rights and duties as non-marital business partners…” as set forth in the Corporations Code. It imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.”
Section 721 (b)(1) further entitles each spouse access to information about all things affecting any transaction which concerns the community property estate.” This duty arises by operation of law and no requests needs to be made of that status of property or assets. FC 2100 (c) makes this obligation clear that “each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the relevant underlying facts.”
An interesting and on point case is Marriage of Rossi. Ms. Rossi won $1,336,000 in a lottery pool and shortly thereafter filed for divorce. She never told her husband about her lottery winnings and failed to disclose the funds in any of her required disclosures. She even consulted with lottery officials how to conceal her winnings from her husband learning about the price. A judgment was entered in the divorce case without Mr. Rossi knowing about the winnings. Two years later, he inadvertently received a letter regarding the winnings. He filed a motion to set aside the divorce judgment and the court held that Ms. Rossi’s failure to disclose constituted fraud, oppression and malice and award him 100% of the winnings.
Another seminal case is Marriage of Feldman. This case focuses on the duty of disclosure during dissolution proceedings and confirms the consequences of breaching those duties. The trial court found that the husband established a “pattern” of financial non-disclosures and issued sanctions against him. The sanctions were set in an amount the court deemed sufficient to deter future noncompliance with the disclosure requirements.
Notably, unlike FC 271 which requires the court to consider the parties’ incomes, assets, and liabilities. FC 2107 addresses sanctions and attorney fees for violations for nondisclosure only require sanctions in an amount sufficient to deter bad behavior.
Transparency and honesty is required in divorce proceedings as to asset disclosures, “hiding the ball,” means severe penalties as these two seminal cases exemplify. Preliminary and final declaration of disclosures are exchanged prior to judgment and for some cases, discovery work will be required to get all critical information about the assets obtained during marriage and their valuation thereof.
A qualified and experienced family attorney will be needed to navigate the complexities of these issues.
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