In a marriage in California, each spouse is held to a high standard and must avoid decisions that could hurt the other person. Many people wrongly assume that filing for a divorce eliminates your duty towards your spouse. Fiduciary duties often apply from the moment you enter into marriage until your divorce is finalized and all the property is divided. California Family Code 721 clearly defines fiduciary responsibilities, which include ethical, moral, and legal obligations to act in good faith.
The fiduciary duty in your marriage will take center stage when one person breaches it. Examples of a breach of fiduciary duty include failure to value assets correctly, mismanagement of marital assets, or hiding marital property. There are legal remedies that the law imposes for cases involving a breach of fiduciary duty.
The issues surrounding divorce are very complicated. Therefore, if you are in the middle of a divorce and feel your spouse has breached their fiduciary duty towards you, you must speak with a knowledgeable divorce attorney. At Los Angeles Divorce Lawyer, we have extensive knowledge and experience to help you navigate your divorce and ensure your best interests. We serve clients seeking guidance through divorce cases in Los Angeles, CA.
Spousal Fiduciary Relationship in California
In several ways, marriage is like a business partnership between two people. Therefore, the legislature has designed fiduciary duties for husband and wife to follow throughout the marriage and during divorce proceedings. This fiduciary duty states that when a couple enters into a marriage, each spouse's financial decisions must be in the best interests of the other.
A marital relationship holds the highest level of a fiduciary, and taking advantage of your spouse may breach the fiduciary. Your fiduciary duty towards your spouse begins when you enter the union and lasts long after you file for divorce. A separation or filing for a divorce does not mean you stop acting in good faith towards your spouse.
For divorcing spouses, the final order of property and asset division signals the end of your fiduciary duty. After the division of property, each spouse receives their share of the property. Therefore, you have the right to act in your interests when selling or using your property share.
Fiduciary Duties that Apply in Divorce or Legal Separation Cases
The following sections of California family law address fiduciary relationships and duties owed by each spouse to the other during their marriage and before the finalization of divorce proceedings:
Family Code Section 721(b)
Under Section 721 of family law, a married couple is subject to rules that govern fiduciary relationships. These laws control the actions of individuals in confidential relationships. A confidential relationship, in this case, is the highest level of fair dealing and good faith. Your duty level towards your partner is almost similar to what non-marital business partners owe each other.
The fiduciary duty for spouses under this section requires spouses to act as follows:
- Provide each other with access to books on transactions for inspection or copying
- Render correct information about anything that affects or concerns the community property. However, this does not require any spouse to keep records of the dealings regarding community property transactions.
- Holding a spouse as the trustee for profit or benefits accrued from transactions involving community property
Family Code Section 1100
Family Code 1100 addresses the control and management of community property until the assets are divided. Under this family law section, either spouse can manage or control personal and community property. However, even with power over this property, it is unlawful to give or dispose of it without the other spouse’s consent. An exception to this law is when one spouse gives informed consent for the other spouse to give marital property to family or friends.
Under section 1100(d), a party that operates a community business is the primary manager and can make crucial decisions. However, they must provide a notice to the other party informing them about the specific operation.
If your spouse manages the business and makes decisions that are not in your best interests, you can bring an action for the appointment of a receiver of similar relief. Often, companies require extensive knowledge and experience. Therefore, the court could hesitate to appoint a third-party receiver.
The law provides remedies for a spouse who suffers from the other spouse’s failure to manage the business. If you can prove that your spouse’s decision on the company was meant to harm you, the court can award you damages for attorney fees. When the court decides on property division in a divorce, your liability under section 1100 of California family laws is terminated.
Family Code Section 1100
Family Code 1101 sets forth the punishments a spouse must suffer for breaching their duty as indicated under section 721. The law states that you can sue your spouse for making decisions that cause financial impairment during your marriage or in the middle of a divorce.
When one spouse claims a breach of fiduciary obligations, the court can order that the other spouse provide documentation to support the claim in property accounting. This allows the court to ascertain or invalidate the claims. Part three of this section gives the family court the power to order one spouse to add the other spouse's name to a community property deed.
If you believe your spouse has breached their duty towards you, you have up to three years to bring the claim. However, this limitation will not apply when the spouse in breach dies during the separation or divorce.
In cases where a spouse fails to consent to a decision you want to make regarding community property, you can ask the court to remove the consent requirement. However, you must prove that:
- The transaction you to make it in the community’s best interests
- The other party cannot offer consent owing to mental incapacitation or prolonged absence
Family Code Section 2100
Section 2100 of the family code indicates the purpose of setting fiduciary and disclosure laws for married couples. Additionally, this section sets forth the following reasons for the seriousness of the enforcement of fiduciary duty:
- Protect community property from unlawful sale or transfer
- Ensure sufficient and fair spousal and child support payments
- Achieve an equitable community property division
- Protect one spouse from exploitation by the other
Family Code Section 2102(a)
This section dresses how long the fiduciary duty lasts. Each party in a marriage is subject to the standards addressed in section 721 on all activities that affect assets and liability in marriage and divorce. Your fiduciary duty towards your spouse lasts throughout your marriage and after separation up to when community property is distributed.
Family Code Section 2102(b)
For duties related to liabilities and assets, your fiduciary duties will continue until these assets are divided between the divorcing parties. In cases where assets are split months after your family court case ends, you must continue to make decisions that are in your spouse’s best interests.
Family Code Section 2102(c)
This section provides that each party provides accurate information for easy and fair allocation of child support and alimony. Enforcement of section 2102(c) requires full disclosure of material facts that could affect the child's ability to award support. Spousal support is a significant point of conflict in many divorce cases. Mostly, the court will order the parent who spends less time with the children to pay support. Therefore, as a paying parent, changing your financial circumstances will affect these payments.
Family Code Sections 2103-2105
California family law establishes rules that govern fiduciary duty in divorce by mandating the spouses to exchange declarations of disclosure, including:
- Detailed information on assets
- Report developments that affect marital debts
- Complete a declaration of income and expenses
Until you have signed your declarations, the court cannot handle issues of a fiduciary breach in your divorce. If one spouse fails to file the necessary documents for deceleration, the other party can petition the court for the defaulting party to comply.
Breach of Fiduciary Duty
If a spouse breaches their fiduciary-y duty, the penalties vary depending on the severity of the breach. A breach of this duty can result in monetary sanctions if a spouse hides or destroys marital assets without the knowledge of the other. The legal repercussions of this breach will depend on the property's value or the damage done. The breach of fiduciary duty comes up in a divorce through the following actions:
- Selling assets without your spouse’s consent. The assets addressed in this case can be real or personal property. Before the division of your marital property, a decision to sell the property must be made by both spouses.
- Fraudulent transfer of assets to another person before receiving their fair market value. Such a breach occurs when a person decides to transfer an asset to a friend or family member to conceal it from their spouse.
- Gifting of marital property. Gifting property without your spouse’s consent is similar to fraud.
- Concealing an asset. Holding or concealing assets occurs when a spouse takes formal property ownership and fails to notify the other spouse of the assets' existence
You can enter into transactions with your spouse during your marriage that may constitute a breach of fiduciary duty. For example, when one spouse tricks the other into signing away their rights to property or signing a transfer of full property ownership, they can face punishment for breach of different fiduciary laws.
In California divorce cases, a breach of fiduciary duty is not limited to property. A spouse who takes a loan against marital property without the other party’s consent is considered to have violated the fiduciary duty.
Mandatory Disclosure of Information in Divorce Proceedings
Throughout the legal separation or marriage dissolution process, you have the responsibility to disclose material information to your soon-to-be ex-spouse. Therefore, when you make a significant step or change in your financial life, you must notify your spouse to avoid a breach of your duties. Actions like failing to notify your spouse that you have changed employment could negatively affect you during the divorce finalization process. Material information you must disclose includes:
- Change in employment status. If you change your job or receive salary increments, commissions, or bonuses, you must let your spouse know, even if they do not ask about the information.
- Offers to purchase a marital business or lawsuits involving a community business. In a divorce, there are personal and community assets. Community assets are ties that you acquire during the marriage If your spouse runs a community business, they must inform you about any significant decisions they intend to make regarding the business.
- Intent to sell jointly owned property
- Changes in investment or retirement plans
- Offers to purchase vehicle collections, art, and other investments
The Significance of a Breach of Fiduciary Duty in Divorce
According to family law, a breach of fiduciary duties will qualify as a tort case. Identifying instances of the breach, such as concealing marital property or using marital assets to pay personal loans, is essential, especially in marriages headed to divorce or in the middle of divorce proceedings. Dividing assets acquired during a marriage is a common conflict in a divorce. One of the spouses can assert the breach during the divorce petition, which can affect the outcome of property division orders.
If the divorce court determines that your spouse attempted to defraud you, you could have the upper hand in the financial outcome of the divorce. In addition to fraud, personal decisions or conduct could qualify as a breach of fiduciary duty. However, most couples will have major breaches involving assets and property.
A breach of fiduciary duty is not always intentional. Unfortunately, the court's punishment for this breach is significant regardless of the circumstances. Some of the common repercussions for breach of fiduciary duty in California divorce cases include:
- Fifty percent of the assets, other court costs, and attorney fees. If your spouse violates fiduciary duty, you stand to receive up to 50% of all your marital assets. The party in violation must also pay the other spouse's attorney fees and court costs. The court values your assets at the highest amount at the time of the violation when determining your award. The court imposes this action if the breach of duty is accidental.
- More than fifty percent of the asset value. In cases where your spouse breaches their fiduciary duty through malice, fraud, or oppression, you may be entitled to more than 50% of the total asset value. For the asset involved in the breach, you stand to receive compensation for its full value. California law defines oppression as a behavior that is unjust and cruel towards another individual.
- Prevents the non-complaining spouse from presenting evidence of omitted assets in their court case
- Set aside any judgment the court ordered while relying on non-disclosure or omission of information. If the family court made an order on property division unfavorable to one spouse, this decision was overturned after finding evidence of a breach of duty.
Protecting yourself from a Breach of Fiduciary Duties
Breaching your fiduciary duties towards your spouse could negatively impact the outcome of your divorce. Therefore, you must take the following steps to ensure that you do not violate disclosure rules:
- Familiarize yourself with the laws of fiduciary duty rules before you begin the divorce process
- Do not ignore your duty to disclose material information to your spouse even before they request the information
- Carefully read the standard orders indicated in the family court summons. These orders restrain you from borrowing community property and disposing or transferring property without the other party’s consent.
- If the other spouse is entitled to child support or alimony, ensure that you disclose an increment or decrease in income.
- Make copies of documents that affect your income or assets. This allows you to easily present them when the court needs to verify your allegations of a breach of fiduciary duty.
Find a Los Angeles Divorce Lawyer Near Me
Having fiduciary duties means you are responsible for acting in your spouse's best interests. Once the divorce papers are filed, you might assume you do not owe your soon-to-be ex-spouse anything. However, any step you take before a final property division order could have severe legal repercussions. If you are in the middle of a divorce, you can protect your rights by understanding what the law says about your fiduciary duty. If you learn of your spouse’s attempts to defraud you by hiding marital property or wasting marital resources, you will need the guidance of a divorce lawyer.
At Los Angeles Divorce Lawyer, we are experienced in handling high conflict and complex divorce cases involving breach of fiduciary claims. Our skilled attorneys will help you understand your fiduciary duties and provide you with much-needed legal assistance if you believe your spouse has breached their duty toward you. If you wish to protect your rights as you navigate your divorce proceedings in Los Angeles, CA, you will need our legal expertise. Contact us today at 310-695-5212 and allow us to guide you through these challenging times.