Fiduciary Duties Owed to Your Spouse Both Before and After Marriage.
A marriage is more than a romantic relationship between two people. According to the California Family Code, a marriage is also a financial partnership requiring each party to act in the “highest good faith” when it comes to handling the marital finances.
If one spouse takes an unfair advantage of the other during the marriage, there can be severe consequences in the event of a divorce. This post will highlight just some of the duties and possible consequences of violating the fiduciary duties imposed on a married couple both during and after marriage.
Both during and after the marriage, a general duty to act in the best interest of your spouse applies.
Fiduciary Duty Family Code (“FC”) §§ 721 and 1100:It is very important to understand that during your dissolution proceeding each spouse owes to the other a fiduciary duty, which is defined in FC §§ 721, 1100 and 2102. This means, among other things, that each spouse must act in the highest good faith and may never take any unfair advantage of the other.
For example, if during the marriage, Wife moves community property funds into a secret account and uses that account for personal gain, she likely has breached her fiduciary duty to her Husband to act in the highest good faith.
Upon divorce, the fiduciary duty also includes, but is not limited to, the duty to disclose “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”, as well as all material facts and information relating to the income and expenses of each party. Moreover, each spouse must “provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.”
It is not uncommon in a marriage for one party to have had been more in control of the finances. This person will usually be tasked with ensuring the spouse—who might know less about the marital finances—is provided with access to all the information necessary to access the marital estate.
Keep in mind that the material facts and information regarding the existence, characterization and valuation of assets and debts and income and expenses must be disclosed even if no request is made. Certain documentation need be given only upon request, although it is normally a better idea to provide certain documents to the other side even if they do not request it.
Fiduciary Duty Imposed by FC §2102: Family Code §2102 imposes a fiduciary duty, as defined in FC §721, upon both spouses as to assets and liabilities from the date of separation until the date the asset or liability in question is actually distributed and, as to support and professional fees, until a binding resolution is reached on these issues.
The duty set forth in FC §2102 is voluntary. This means that no request need be made by your spouse with respect to the duty set forth in FC §2102. So during your divorce, until you have a final order or Judgmentconcerning a certain asset, do not go selling off stock options or vehicles, or liquidating accounts, without permission and certainly not without disclosing information related to those assets.
Sanctions for Violation of FC §2102 – FC §2107 (c): Family Code §2107(c), states” If a party fails to comply with any provision of this chapter, the court shall, in addition to any other remedy provided by law, impose money sanctionsagainst the noncomplying party. Sanctions shall be in an amount sufficient to deter repetition of the conduct or comparable conduct, and shall include reasonable attorney’s fees, costs incurred, or both, unless the court finds that the noncomplying party acted with substantial justification or that other circumstances make the imposition of the sanction unjust. (Emphasis added).” This means that sanctions are essentially mandatory if the Court finds that a party has violated this duty.
In addition to the sanctions discussed above, FC §2122(f) provides that any settlement agreement which we enter into with your spouse may be set-aside (undone/cancelled) as a result of the failure to comply with all disclosure requirements. You do not want to enter into asettlement agreement only to have it set-aside because of “buyer’s remorse” and your failure to honor your fiduciary duty.
There are numerous other duties and remedies provided for by the Family Code that you should discuss with your attorney at the outset of your case.
Contact Hepner & Pagan, LLP for a free consultation,