The Court of Appeal in Orange County Ruled That Husband Breached His Fiduciary Duty to Wife When He Made an Undisclosed and Unauthorized Contribution of Community Funds to a Self-Directed Trading Account

Spouses have a mutual fiduciary duty which includes the duty of disclosure. Where one spouse breaches that duty, the other spouse is entitled to damages resulting from the breach.

In this Orange County divorce, husband and wife were married for over 20 years and accumulated significant wealth.  Husband had semi-retired and took classes on options trading.  Wife and husband an account application, which required both to consent to any deposits.  Wife agreed that husband could deposit $2.5 million into a trading account.  Two years later, husband changed terms so he would not need wife’s consent to make deposits.  Husband deposited an additional $8.2 million and withdrew $3.8 million before losing almost all the money in the account.  The couple lived in separate residences when husband was forced to disclose the loss to the wife. To avoid further financial devastation, husband needed wife’s signature to sell some of community’s real property.

The divorce court found husband had breached his fiduciary duty to wife by failing to disclose the additional investments and awarded wife $1.9 million as her share of the community funds lost because of husband’s undisclosed and reckless trading. Husband’s divorce lawyer appealed asserting the divorce court’s holding would require constant updates on the status of the trading account, which would be needless and burdensome.

The Court of Appeal in Orange County upheld the divorce court.  Spouses owe each other a mutual fiduciary duty regarding community property and must make full disclosures of all important facts and information related to those assets. The duty of disclosure does not require a demand for information.  The Court of Appeal determined the divorce court could determine the point of breach of fiduciary duty and thus correctly decided the amount to award wife.

Wife’s divorce lawyer also appealed the divorce court’s decision asserting the date of breach should be determined when the account was at its highest value. The Court of Appeal in Orange County disagreed with this argument based on the legislative intent of statutes defining breach of fiduciary duty. The legislature stated that the likelihood of taking advantage of the limited opportunity for maximum gain would be “speculative at best.” The Court of Appeal in Orange County determined the proper remedy was half the value of the assets on the date husband made undisclosed investment.

In re Marriage of Kamgar (2017) 18 Cal. App. 5th 136