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.
All persons involved in dissolution of marriage, legal separation or modification cases must be aware of the fiduciary duties that have been established in the law. These duties require each party to disclose information and documents that are material to the case—without being requested.
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.”
In California, Family Code section 721(b) highlights some of the disclosure responsibilities. But the list is not exhaustive. These duties in the management and control of community assets continue, “until such time as the assets and liabilities have been divided by the court.”
The parties are subject to the standards provided in 721 as to all issues relating to the support and fees, including immediate, full and accurate disclosure of all material facts and information regarding the income and expenses of the party “from the date of separation to the date of a valid, enforceable and binding resolution of all issues relating to child, spousal, and professional fees.”
To implement the rules establishing the fiduciary duties between spouses, the law requires parties to exchange their preliminary and final declarations of disclosure. These disclosures consist of the following: detailed schedules of assets and debts, reporting of any important developments that might affect the marital assets and debts, completed income and expense declarations on court-mandated forms.
The court cannot file a judgment resolving the parties’ property rights until the declarations of disclosure have been exchanged. However, the final declarations do not have to be exchanged if the parties have agreed in writing to dispense with that requirement.
A case on point 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.
The consequences of not complying with the legally imposed fiduciary duties can be severe. If a party is found to have violated his/her duties, the court can do any or all of the following: Impose monetary sanctions (In Marriage of Feldman), make the party pay the other party’s attorney’s fees, court costs, and other litigation expenses. The court further award all—not just half—of an asset a spouse has concealed to the other spouse (In Marriage of Rossi). Prevent the offending spouse from presenting his/her case in court or set aside a court order or judgment that was entered as the result of the party’s failure to comply.
The bottom line is that the days of “hide the ball” divorce litigation, where one or both of the spouses would conceal important information and documents from the other spouse, should be “a thing of the past.” Unfortunately, it is not. I am going to trial in February for a minimum of ten days and one of the biggest contested issues is whether the other party breached his fiduciary obligations or duties. If the trial court finds that he has, litigation fees, including but not limited to, attorney fees and costs and sanctions will be the remedy.
Thus, in light of the severe sanctions that I have outlined above, each spouse must actively engage in complete and ongoing disclosures at all times. Transparency and honesty are required in divorce proceedings and dishonesty means severe penalties. A qualified and experienced family attorney will be needed to navigate the complexities of these issues.
Call my office if you have any questions at 310-601-7144 or email me directly at [email protected]. For more articles, visit my website at attycastaneda.com. Stay safe everyone!