In an Orange County Superior Court Divorce, Husband Breached His Fiduciary Duty to Wife When He Made Undisclosed, Unauthorized Transfers of Community Funds to a Self-Directed Trading Account
In this Orange County divorce, Husband and wife were married over 20 years and accumulated significant wealth. Husband ran several businesses over the course of the marriage, one of which was sold which allowed him not to work full time during the last ten years of the marriage. During his partial retirement, husband began researching and taking classes in options trading. Eventually, with wife’s consent, husband opened a self-directed trading account. Both parties signed the account application and both parties consent was required for any transfers or withdrawals. Wife agreed husband could deposit $2.5 million into the account, which at the time she believed was a “sliver” of their total net worth. Wife was not concerned about the funds used for husband’s new hobby as the sum was only 24% of the parties’ net worth and losing the sum would not affect their lifestyle.
Two years later, husband changed the terms of the account so he would no longer need wife’s signature to make withdrawals or transfers. Husband claimed he did so because wife was uninterested in the finances. However, wife claimed she never authorized husband to sign her name on the account.
Over the next year, husband deposited an additional $8.2 million of community funds into the investment account without telling wife. The account increased in value reaching a peak balance of $16.3 million before dropping to $4.1 million within the course of a year. Husband withdrew $3.8 million out of the account before eventually losing everything but $409,500. Husband never told wife of the fluctuations in the account or the additional money put in to the account until after the money was gone. The couple had been living in separate Orange County residences when husband was forced to come clean to his wife. In order to avoid further financial devastation, husband needed wife’s signature for the sale of some of the community’s Orange County real property.
The Orange County Superior Court found husband had breached his fiduciary duty to wife by failing to disclose the series of investments which resulted in loss of their community property and awarded her $1.9 million as her share of the community funds lost as a result of husband’s undisclosed and reckless trading. Husband’s Orange County divorce attorney appealed asserting the divorce court’s ruling would require constant updates on the status of the trading account which would have been needless and burdensome.
The divorce court looked to the losses incurred by the community as a result of husband’s undisclosed decision to risk an additional $8.2 million as the point in which husband breached his fiduciary duty to wife. The divorce court did not consider the initial $2.5 million invested with consent of wife as a breach of fiduciary. Since husband withdrew $3.8 million before losing all but $409,500, the trial court determined the net loss to the community was $3.9 million and thus awarded wife half.
The Court of Appeal agreed with mother’s Orange County divorce attorney and found marital spouses owe each other a mutual fiduciary duty regarding community property which requires spouses to make full disclosures of all important facts and information related to those assets. The Court of Appeal disagreed with husband’s Orange County divorce lawyer further held the duty of disclosure does not require a demand for information since each spouse is to have equal management and control of community property. The Court of Appeal determined the divorce court could reasonably conclude the point of breach of fiduciary duty and thus correctly decided the amount to award wife.
Wife’s Orange County divorce attorney, Lonnie Seide, a partner in Minyard Morris, and Garrett Daily, also appealed the divorce court’s decision asserting the date of breach should be determined when the account was at its highest value, $16 million. The Court of Appeal rebutted this argument based on the legislative intent of statutes defining breach of fiduciary duty. The legislature identified that the likelihood of taking advantage of the limited opportunity for maximum gain would be “speculative at best.” The Court of Appeal determined the proper remedy was for half the value of the assets on the date husband made the undisclosed investment.
In re Marriage of Kamgar, 18 Cal. App. 5th 136 (2017)