A Married Couple’s Fiduciary Duties Are Paramount In Divorce And Family Law Cases, What The Law Requires You Disclose.

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A Married Couple’s Fiduciary Duties Are Paramount In Divorce And Family Law Cases, What The Law Requires You Disclose.

Married couples have traditionally and historically been saddled with duties they owe each other. This is expected. After all, does it not all start with “Till death do us part.”?

Well, as we know all too well, divorce ends a marriage at times way before death ever has a chance. So, what happens to the duties a married couple owe each other? The answer is that they survive the marriage and have a very strong life during and even after a divorce is final.

California law imposes strict duties on spouses who decide to be divorced; among them duties of full and complete disclosure of facts. In truth, a married couple can hide much more from each other while they are married than when they intend to be divorce. Truth in deed shall set you free, or if you refuse, can hold you in contempt of court.

The rules governing the disclosures in a California divorce are mandatory and all persons involved in legal separation, divorce or even post judgment modifications related to a divorce, must observe complete honesty and full disclosures in the divorce process.

Generally, at all times, spouses in a marriage are legally bound to observe the general rules that govern all fiduciary relationships. A confidential relationship imposes certain duties on sometimes one party, and in case of a marriage on both sides, of the highest level of standard living up to showing a course of “good faith and fair dealing”. As I already noted, these positions of confidence, and duties associated, do not end when the marriage is ending, when the petition for a divorce is filed, or even after a final Judgment has been entered in the case; depending on the specific circumstances of each case, these duties may survive and carry on long after the former married couple think they have moved on.

Truth is, you cannot escape your past; you can only manage dealing with it.

The Applicable California Law

The following are only the major statutes encoded in California Family Code, and there are others which may either directly, or indirectly become material in process of a divorce depending on the specific facts or circumstances.

Family Code §§720-721:

720. Husband and wife contract toward each other obligations of mutual respect, fidelity, and support.

721. (a) Subject to subdivision (b), either husband or wife may enter into any transaction with the other, or with any other person, respecting property, which either might if unmarried.

(b) Except as provided in Sections 143, 144, 146, and 16040 of the Probate Code, in transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of non-marital business partners, as provided in Sections 15019, 15020, 15021, and 15022 of the Corporations Code, including the following:

(1) Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying.
(2) Rendering upon request, true and full information of all things affecting any transaction which concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions.
(3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property.

Family Code §1100(e):

The inter-spousal fiduciary duties defined in Family Code §721(b) continue until all assets and liabilities of the marriage are allocated and divided by agreement of the parties or order of a court. What you cannot agree upon, the court shall decide for you:

(e) Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.

Family Code §2102(a):

(a) From the date of separation to the date of the distribution of the community or quasi-community asset or liability in question, each party is subject to the standards provided in Section 721, as to all activities that affect the assets and liabilities of the other party, including, but not limited to, the following activities:

(1) The accurate and complete disclosure of all assets and liabilities in which the party has or may have an interest or obligation and all current earnings, accumulations, and expenses, including an immediate, full, and accurate update or augmentation to the extent there have been any material changes.

(2) The accurate and complete written disclosure of any investment opportunity, business opportunity, or other income-producing opportunity that presents itself after the date of separation, but that results from any investment, significant business activity outside the ordinary course of business, or other income-producing opportunity of either spouse from the date of marriage to the date of separation, inclusive. The written disclosure shall be made insufficient time for the other spouse to make an informed decision as to whether he or she desires to participate in the investment opportunity, business, or other potential income-producing opportunity, and for the court to resolve any dispute regarding the right of the other spouse to participate in the opportunity. In the event of nondisclosure of an investment opportunity, the division of any gain resulting from that opportunity is governed by the standard provided in Section 2556.

(3) The operation or management of a business or an interest in a business in which the community may have an interest.

(b) From the date that a valid, enforceable, and binding resolution of the disposition of the asset or liability in question is reached, until the asset or liability has actually been distributed, each party is subject to the standards provided in Section 721 as to all activities that affect the assets or liabilities of the other party. Once a particular asset or liability has been distributed, the duties and standards set forth in Section 721 shall end as to that asset or liability.

(c) From the date of separation to the date of a valid, enforceable, and binding resolution of all issues relating to child or spousal support and professional fees, each party is subject to the standards provided in Section 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 or expenses of the party.

Family Code §2102(b):

As to assets and liabilities, the fiduciary duties continue until the asset or liability has been divided between the parties. Thus, even if an asset is divided months or years after the end of the family law case, the parties continue to have the duty to fulfill their respective fiduciary duties with respect to that asset.

Family Code §2102(c):

From the date of separation to the date of a valid, enforceable, and binding resolution of all issues relating to child or spousal support and professional fees, each party is subject to the standards provided in Section 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 or expenses of the party.

Family Code §§ 2103:

In order to provide full and accurate disclosure of all assets and liabilities in which one or both parties may have an interest, each party to a proceeding for dissolution of the marriage or legal separation of the parties shall serve on the other party a preliminary declaration of disclosure under Section 2104 and a final declaration of disclosure under Section 2105, unless service of the final declaration of disclosure is waived pursuant to Section 2105 or 2110, and shall file proof of service of each with the court.

The sections following §2103, through §2107, expand and explain these disclosure requirements and issues; including remedies for non-compliance. You should review these other sections if you wish to be fully informed, but it would be too repetitious to re-print them here since they are so widely available from many other sources.

Bottom line on legally required disclosures in a divorce process amounts to this: The Court cannot file a judgment resolving the parties’ property rights until the declarations of disclosure have been exchanged. However, the final declarations of disclosure do not have to be exchanged if the parties have agreed in writing to dispense with that requirement. If a party has not complied with the requirements regarding preliminary and final declarations of disclosure, the aggrieved spouse can ask the judge to order the defaulting party to comply. In extreme cases the judge can impose the sanctions discussed below.

FACING THE CONSEQUENCES: FAILURE TO COMPLY WITH FIDUCIARY DUTIES DIVORCING COUPLS OWE EACH OTHER.

The court can order that you “Pay a hefty Fine!” Here is something to worry about…reprinted from California Appellate Report; read and heed the warning:

In Re Marriage of Feldman (Cal. Ct. App. – Aug. 7, 2007)

What happens when you repeatedly deceive your spouse about marital assets in the midst of your divorce proceeding? You get sanctioned. A lot. Even if you’re very, very rich.

This is a great story, and concerns the marriage of Aaron Feldman and Elena Feldman, which broke up after 34 years of marriage. Aaron Feldman is worth, according to the opinion, over $50 million. And the story of what he (allegedly) did during the divorce proceedings, and why he got sanctioned, gives some telling insight into how these things transpire, as well as what can go wrong.

What the opinion doesn’t at all mention, however, is that Aaron Feldman is actually pretty famous. At least down here in San Diego. Amongst other things, he’s the owner of Sunroad Enterprises, which is in a huge fight down here in San Diego over a building that they constructed near the flight path of an airport that was 20 feet too tall, resulting from (alleged) private meetings with the Mayor of San Diego, and that ultimately resulted in a very-high profile (and ongoing) fight with the City Attorney of San Diego. Moreover, some sources describe Aaron Feldman’s worth at over $300 million, rather than the $50 million described in the opinion, and the divorce fight has apparently already generated over $7 million in legal fees.

So a nice little fight involving one of the highest-profile people about whom you’ve probably heard nothing. [Edited]

Anyway, even though a $175,000 sanction is peanuts to a guy worth $50 (or $300) million, the lesson of the day is that judges don’t like it if you try to hide things from your spouse in a divorce proceeding. At all.

The court can also award all of an asset a spouse has not disclosed and hidden (not just ½) to the other party. In one case, (In re Marriage of Rossi (2001) 90 Cal.App.4th 34 , 108 Cal.Rptr.2d 270) the husband was an entire $3 million amount of winnings in California lottery. The wife hid this small fact from the husband while they were getting a divorce. Other punishments for non disclosure include:

Not allowing the offending party to present their case at all; order the violating party to pay the other party’s attorneys fees, court costs and litigation expenses. Void a court order or judgment (“setting aside”) if it was entered as a result of non-disclosure and breach of fiduciary duty.

Bottom line again? The truth shall set you free when it comes to disclosing facts in your divorce process. Anyone who ignores this shall do so at their own peril. In the heat of the divorce, remember you joined that “couple-hood” voluntarily. Do not blame anyone else; do not even blame yourself. Just obey the law and be done with it.

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