California Family Code Section 2104 requires all divorcing couples to disclose to one another under penalty of perjury all of their income, assets, and liabilities within sixty days after filing a Petition or 60 days after filing a Response.
Sometimes, a spouse cannot resist the temptation to lie, cheat, or misrepresent their income and assets during a divorce, with the hopes of keeping a larger share of the assets and preventing their spouse from receiving a fair settlement. Married couples often do not realize they have legal obligations to one another, and married couples are governed by the same rules that apply to business partners. California Family Code § 721 spells out the fiduciary duties of spouses. There are many different situations where one spouse may breach their fiduciary duty, putting the other spouse at a disadvantage, and there are legal remedies available to the disadvantaged spouse.
What is a Fiduciary Duty?
In a marriage, spouses are considered fiduciaries to each other. This means they have a “duty of the highest good faith and fair dealing on each spouse and neither shall take any unfair advantage of the other.” This duty extends beyond simply disclosing income and assets. It includes:
- Full disclosure: Spouses must be completely transparent about their finances, including providing each spouse access at all times to inspect and verify community property income, assets, and debts.
- Good faith: Spouses should act in good faith during the divorce process, avoiding actions that hide or misrepresent their income and assets, or manipulate the community estate such that one spouse is disadvantaged
- Loyalty: Spouses should avoid actions that benefit themselves at the expense of the other spouse financially.
How Can a Spouse Breach Their Fiduciary Duty?
There are a variety of ways a spouse can breach their fiduciary duty during a divorce. Some common examples include:
- Hiding, understating, or undervaluing community property: Transferring real property, investments or assets to a third party, understating or undervaluing assets, or creating shell companies to conceal community interests and ownership can be considered breaches of fiduciary duty.
- Dissipating or disposing of community assets: Spending marital funds on unnecessary expenses, extramarital affairs, and disposing of community assets without your spouse’s knowledge and consent can be considered a breach of fiduciary duty.
- Refusing to allow your spouse access to financial records: Under California Family Code 271, each spouse must make all documents available for inspection and copying. Spouses cannot refuse a request to see any transaction that concerns community property. The code requires an accounting to the other spouse showing any benefit or profit from any transaction where one spouse acted alone and without the consent of the other. Refusing to allow your spouse access to financial information can be considered a breach of fiduciary duty.
- Giving away or selling marital assets without your spouse’s consent: Selling, gifting, or transferring and transmuting the character of property from community property to separate property in an attempt to defeat or reduce the amount the other spouse receives can be considered a breach of fiduciary duty.
- Overstating or taking on excessive debt: Failing to accurately list the value of separate and community liabilities, and incurring unnecessary debt right before or during the divorce can unfairly burden the other spouse financially and be considered a breach of fiduciary duty.
- Mismanaging marital funds: Making risky investments, day trading, gambling, or neglecting financial responsibilities to the community can constitute a breach of fiduciary duty.
What Can You Do if Your Spouse Breached Their Fiduciary Duty?
If you suspect your spouse is hiding assets, mismanaging funds, or otherwise breaching their fiduciary duty, it is crucial to consult with an experienced family law attorney. At Laughlin Legal, we can help you gather evidence and information to support your claims and fight for a fair division of assets. Here are some steps you can take:
- Gather financial documents: Collect bank statements, investment records, tax returns, and any other documents that can shed light on your marital finances.
- Work with a forensic accountant: A forensic accountant can help uncover hidden assets and trace suspicious financial activity.
- Document your spouse’s actions: Keep a record of any suspicious behavior, such as large cash withdrawals or unexplained transfers of assets.
Proving Breach of Fiduciary Duty
The burden of proof lies with the spouse alleging the breach of fiduciary duty. To succeed in a breach of fiduciary duty claim, you will need to demonstrate that your spouse:
- Had a duty to act in your best interests
- Breached that duty by engaging in specific wrongful conduct
- Caused you financial harm as a result of the breach
Potential Consequences of a Breach of Fiduciary Duty
If the court finds that your spouse breached their fiduciary duty, there can be several consequences, including:
- Reimbursement for hidden or dissipated assets
- Award of a greater share of marital assets
- Attorney fees and other litigation costs
Protecting Yourself During a Divorce
To minimize the risk of your spouse breaching their fiduciary duty, it is important to take proactive steps:
- Gather financial information early: Start collecting financial documents as soon as you consider divorce.
- Work with a qualified divorce attorney: An experienced attorney can guide you through the divorce process and protect your rights.
- Maintain separate finances: If possible, consider opening separate bank accounts to track your individual income and expenses.
Conclusion
Breach of fiduciary duty is a serious issue in California divorce cases. If you suspect your spouse is hiding assets or otherwise acting in bad faith, please do not hesitate to schedule a consultation with an attorney at Laughlin Legal. We have extensive experience and can help you navigate the complexities of divorce and ensure you receive a fair outcome.
