Fiduciary Duties During a California Divorce

Fiduciary Duties Owed Between California Spouses

Under California law, spouses owe each other certain duties, known as “fiduciary duties.”  These duties begin at the date of the marriage and continue after separation, all the way through completion of the dissolution and the distribution of community property.  This includes the following obligations:

• Disclosure of Material Facts and Information. Each spouse must disclose to the other all material facts and information about community assets and debts, including assets and debts in which the community “may” have an interest or be liable.
• Access to Books and Records. Each spouse has an equal right to access information and records about community assets and debts, such as community bank statements, credit card statements, and other important financial documents for the community.

Disclosure Duties During Dissolution Case

California imposes special disclosure duties on divorcing spouses, to ensure that each spouse has complete and accurate information and to protect the fairness of the dissolution process.  These disclosure duties include:

• Disclosure of Assets and Liabilities. Each spouse is required to disclose all assets and debts, including both community and separate property, to the other. An experienced Irvine family law attorney can help you avoid disclosure errors that can negatively impact your case, and help ensure that your spouse fulfills his or her disclosure duties.
• Disclosure of Income and Expenses. Each spouse must disclose current income and expenses. In cases involving business income, rental property income, stock options or restricted stock, or other complex income sources, you should consult with an experienced family law attorney to ensure that income for both parties is not understated or overstated.
• Duty to Update. Each spouse has an affirmative duty to update the other of any material changes after disclosure. Whether a change is “material” depends on the facts and circumstances.  An experienced family law attorney can provide guidance.
• Disclosure of Income-Producing Opportunities. In some circumstances, spouses are required to disclose investment and business opportunities to the other spouse in writing. If an income-producing opportunity arises after separation, you should consult with a qualified dissolution attorney before acting on the opportunity.

Breaches of Fiduciary Duties

A violation of fiduciary duties can have significant consequences, including:

• The non-breaching spouse may be awarded an interest in undisclosed or improperly transferred assets, even if the breach was inadvertent. The court can even award 100% of such assets to the non-breaching spouse upon a showing of “oppression, fraud, or malice.”
• The breaching spouse may be required to pay the other spouse’s attorney’s fees as a sanction. The court can also order additional monetary sanctions in an amount “sufficient to deter further sanctionable conduct,” even if the breach caused no harm.
• The court may set aside (cancel) transactions made in breach of fiduciary duties and/or set aside any court orders that were made without consideration of undisclosed asset(s) or income.

Perhaps most significant, a breach of fiduciary duties or disclosure duties can result in a loss of credibility with the court, which could result in the judicial officer making adverse rulings against the breaching spouse on other issues.

Contact our Orange County Marriage Dissolution Lawyers for More Information

Fiduciary duty issues, especially in anticipation of and during the dissolution process, can be nuanced and complex.  Even inadvertent breaches can significantly impact your divorce case.  You should consult with a qualified dissolution attorney to guide you through the process.  To get started, please contact our Orange County dissolution lawyers by calling us at 949-474-0800. Our office is conveniently located in Irvine.

Frequently Asked Questions

What fiduciary duty do spouses owe each other in California?

A duty of the highest good faith and fair dealing in the management and control of community property, comparable to the duty between business partners. It includes granting access to books and records concerning community transactions, accounting for and holding as a trustee any community benefit derived from a transaction without the other spouse’s consent, and obtaining consent before certain dispositions. The duty exists throughout the marriage, not merely once a case is filed, and it continues until the community assets are actually divided.

Does the duty end when the spouses separate?

No, and this is where the most costly mistakes occur. The fiduciary duty continues after separation as to community assets not yet divided, so a spouse who controls a business, an account, or a property remains accountable for how it is managed while the case is pending. Post-separation earnings are generally separate, but the management of community assets is not, and decisions made during the case can be examined afterward for whether they benefited the community or only the managing spouse.

What are the consequences of breaching the duty?

A remedy scaled to the conduct. A breach ordinarily entitles the wronged spouse to an award of fifty percent of the undisclosed or improperly transferred asset, or its value, plus attorney fees and costs. Where the breach involves fraud, oppression, or malice, the court can award one hundred percent of the asset to the wronged spouse. Because the fee exposure attaches on top of the asset itself, a breach frequently costs several times what the concealment would have gained.

What conduct commonly amounts to a breach?

Failing to disclose an asset, account, or entity on the declarations of disclosure. Transferring community property to a relative or affiliated entity without consent. Taking business opportunities that belonged to the community. Depleting accounts on post-separation personal spending. Refusing to provide access to business records the other spouse is entitled to see. Encumbering community property without consent. Each of these is discoverable through ordinary financial reconstruction, which is why the duty is enforced more often than parties expect.