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Understanding What Underlies Family Code Section 721 | Fiduciary Duty Obligations Upon Marriage

Family Code Section 721 | The Starting Point for All Interspousal Fiduciary Duty Analysis in Divorce!

In financial transactions between spouses (so-called "interspousal transactions"), or with third parties where the interests of both spouses are impacted, spouses owe one another important statutory duties that create huge responsibilities and pitfalls for them. As between themselves, spouses are subject to the general rules governing fiduciary relationships which control and may limit the permissible actions of persons who occupy confidential relations with each other, in the same manner as obligations are owed as a matter of law between business partners. It is based upon financial rules, and nothing else.

Per section 721(b) "This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other."

The public policy recognition that people sometimes tend to abuse trust and take advantage of another person who relies or once relied upon them, is the reason why these laws exist. They combat the egoic and narcissistic tendency of humans to serve their own interests, above those of others, in legally protected relationships. The balance of power in intimate relationship is simply not arm's length, where it may be in outside transactions with relative strangers.

People in a "fiduciary relationship" are treated under the law as though they do not deal with each other on equal terms, because one person (typically the fiscal managing spouse) at least initially accepts the trust and confidence of the other. This puts one of the parties into a potentially superior financial position to exert influence over the dependent party, while the other trusts that both of them are on the same page and so are working to serve the common interest, now and in the future.

We all know what it looks like before the common interest is no longer perceived as common: one marital partner has managed the family unit, while the other was entrusted to manage the income stream and investments - this division of labor and focus is what makes marriages work. With mothers and wives historically more often than fathers and husbands managed the family, this places women at particular risk, but relationships come in all kinds of permutations. I have to mention that fiduciary duties don't mention children, and are entirely economic.

Perhaps that should change? Possibly the same recognition that is financial should be given to the values that people hold about their children, in terms of duty or more? The history of FD's claims has not valued human relationships - they've pointed elsewhere, so I get this would be a departure. But possibly it would not be beyond the pale to re-jigger it to value what isn't measured economically but is also prioritized emotionally, and in terms of consequences for not just us, but them?

Hah, too messy you say? But we are living in a Trumpian world where everything is being reconfigured. This might respect the playing field for both sides in the familial formula, with everything that really matters on the table.

Just sayin', if you grok what I mean.

I've been practicing family law for 35 years, and in those two generations our culture has radically changed. In my experience, it is not gender that controls who the bad or selfish actor might be in any given case; it is really power and property (or child relationship threads), and who is more butt-hurt, that threatens to corrupt us all. So often someone uses money and property (and/or children) to try to grind the other spouse into the dust, and it is the same for opposite gendered cases and same-sex relationships. Duh.


Being Practical, With What Is

Existing fiduciary duty rules, values, and consequences at their core deal with greed and reactivity and the FD rules attempt to even the money and property playing field, most often to ensure that the less empowered, whatever gendered, party can exercise informed consent in managing and planning their future financial affairs, and hopefully in settling their dissolution cases.

A presumption of undue influence arises whenever either party benefits from a transaction to the economic detriment of the other. One of the interesting things about this consequence is that parties may agree to a transaction that benefits one, for instance, in situations involving transmutations of separate property to community and fully intend that result at the time of the transaction but, once the relationship blows up, then seek to claim they were unduly influenced.

Fiduciary duty litigation is quite complex and requires a huge comprehension of the entire Family Code - rarely to be safely attempted without counsel that understands the terrain!

Read more about Family Code section 721 issues.

~ T. W. Arnold ~

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