Fiduciary duties require each party to act with the utmost good faith toward the other in the disclosure of all relevant material facts and information regarding both community and separate property assets and debts. There may be harsh penalties for breaching these duties.
Divorcing parties should be prepared to make full and immediate financial disclosures to their spouses as required by their fiduciary duties to one another. Fiduciary duties require each party to act with the utmost good faith toward the other. Both spouses to a marriage are bound by fiduciary duties to one another during marriage and until the divorce has been finalized and the property is divided and distributed. Sections 721(b), 1100(e), and 2100(e) Family Code set forth the rules and requirements in this area.
Each spouse has these obligations, both during the marriage and until the property is divided and distributed.
There is a lower burden of proof relative to proving a breach of fiduciary duty than exists in proving misappropriation. In other words, it is easier to prove a breach of a fiduciary duty than a misappropriation.
Each party has the following duties:
- To make full disclosure to the other spouse of all material facts and information relative to the existence, characterization, value of assets and amount of debt in which the marital community has or may have an interest and/or liability and to make full disclosure relative to separate property assets and debts
- To provide equal access to all information, records and books that pertain to the value and character of assets in which the marital community has or may have an interest, as well as debts for which the marital community is or may be liable
- To act with fiduciary responsibility in all transactions regarding the management and control of community property
Possible breaches of fiduciary duty during the marriage may include:
- gifts to a girlfriend, boyfriend, or a third party
- purchases of illegal drugs
- intentional or grossly negligent mismanagement of community assets
However, not all things that may initially look like breaches of a fiduciary duty during the marriage actually are, such as:
- legal gambling losses
- failed investments or business endeavors
- merely negligent management of community assets
- exorbitant expenditures on personal items
Relatively recent California Court of Appeal cases, such as IRMO Feldman, highlight how seriously the family law courts take non-disclosure issues. Parties are not required to request the specific documents, ask the exact questions, or use any “magic words” in order to have a right to receive key information. Until the property has been fully divided between the parties, spouses are obligated to make full and accurate disclosures to one another regarding the existence, characterization and value of community property assets and debts. Failure to do so opens the door to allow a court to penalize a non-compliant spouse with a penalty up to 100% of the value of a non-disclosed asset in addition to sanctions (which, in IRMO Feldman, totaled $390,000). A Court may make this type of order when it deems the order is necessary to motivate compliance with fiduciary duties and disclosure requirements. The size or dollar value of the undisclosed asset may not matter. What does matter is that both parties stand on a level playing field.