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. The 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 until the divorce has been finalized and the property is divided. Sections 721(b), 1100(e), and 2100(e) of the California Family Code set forth the rules and requirements.
Each spouse has these obligations, both during the marriage and until the property is distributed.
There is a lower burden of proof relative to proving a breach of fiduciary duty than exists in proving 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
"Magic Words Are Not Required"
Relatively recent California Court of Appeal cases, such as In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, highlight how seriously the family law courts take non-disclosure issues. Clients no longer have to request the specific documents, ask the exact questions, or use any “magic words” in order to obtain key information. Until the property has been finally 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 for a court to penalize a non-compliant spouse with 100% of the value of a non-disclosed asset in addition to sanctions (which, in the Feldman case, totaled $390,000). Courts may make this type of order when it deems it 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.
Duty: Disclose All Relevant Material Facts and Information