The Preliminary Declaration of Disclosure
I've recently blogged the importance of complying with
Family Code section 2103 and
section 2104, which obligate both parties to a pending dissolution, legal separation,
or annulment proceeding to exchange a preliminary declaration of disclosure
using Judicial Council Forms
FL-140 (the Declaration of Disclosure cover sheet for either the preliminary
and final disclosures),
FL-141 (Declaration Regarding Service) and
FL-142 (Schedule of Assets and Debts). The only document that is supposed to
be filed with the Court is the FL-141.
The exchange of Preliminary Declarations of Disclosure (PDDs) is intended
ensure a "full and accurate disclosure of all assets and liabilities
in which one or both parties may have an interest." Exchange is a
prerequisite to successfully meeting one's fiduciary obligations.
Effective January 1, 2013, this exchange must occur within 60 days of
the appearance of each party. FC section 2104(f).
No case can be settled and a marital termination agreement or stipulated
judgment cannot be accepted by the court clerk for filing or transmittal
to a judge for signature unless both parties have exchanged their PDD's.
There is a
single exception where the other party does not appear in the action where the case is
resolved by way of a "default judgment."
Family Code section 2110. This is common in amicable divorces where a settlement agreement is executed
and submitted to the Court, but the responding party chooses not to pay
the first-appearance filing fees that amount to almost $500 and so does
not file a Response.
In contested cases, when either wants to move the case to a trial status
so that it can finally be adjudicated, in many venues a settlement conference
or trial date will not be set by the court unless both parties have each
complied with the preliminary declaration exchange and have first filed
proof of that with the court.
However, beyond simply concluding your case, there are other extremely
important consequences for failing to do your half of the heavy lifting
in terms of identifying and attempting to value all community and separate
property assets by way of PDD. I find that many family law litigants resent
the work that completing these documents entails, and yet there is no
way around it.
Inadequate or inaccurate disclosure declarations can create grounds for
the other party to attempt months or even years later to
set aside a judgment or settlement agreement. They can form the basis for breach of fiduciary duty claims under
Family Code section 1101 for monetary sanctions that can arise many months and sometimes even years
later. The PDD is a critical document that must not be treated casually.
The Final Declaration of Disclosure
A preliminary declaration of disclosure is just that - preliminary. Parties
are not required to attach supporting documentation to the PDD, but at
my office we always do submit the backup for reasons discussed next.
There is a greater obligation that is addressed by what is called the Final
Declaration of Disclosure. This is a second disclosure that is required
in all dissolution or similar proceedings, assuming it is not waived by
either party (not a good idea).
Where the case winds its way to trial on any aspect, the Final Declaration
cannot be waived and it must be served prior to trial.
Family Code section 2105 governs what it must contain and when it can be avoided. Assuming that
a party elected not to attach backup to their PDD, compliance with the
FDD obligation tends to feel more burdensome; even if a party did attach
documents to their PDD, they have to bring current all of the information
regarding community and separate property not just as of the date of separation
or at the time the PDD was filed, but also up to the date on which the
FDD is prepared.
Based upon an Second District appellate decision issued March 3, 2011 entitled
Marriage of Fong, other consequences for disclosure noncompliance are now apparent. The
Fongs are one of those unfortunate couples where one or both parties seem
conflicted enough that they will litigate on for more years then they
Family Code section 2107 authorizes courts to award monetary sanctions for failing to comply with
any of the disclosure obligations. It is often used in conjunction with
a request for attorney fee sanctions under
Family Code section 271. Also, failure to comply with the rules is a basis for mandatory set aside
of any settlement agreement or judgment - even a judgment after a litigated
trial (subdivision (d) states "[e]xcept as otherwise provided in
this subdivision, if a court enters a judgment when the parties have failed
to comply with all disclosure requirements of this chapter, the court
shall set aside the judgment. The failure to comply with the disclosure
requirements does not constitute harmless error.")
Application of Marriage of Fong
In the Fong case the trial court hit the husband with $200,000 in non attorney
fee sanctions under section 2107(c) for "breach of fiduciary duties"
relating to nondisclosures in the property declarations, among other things,
and heaped on an additional $100,000 in fees and costs per section 271
because it concluded that his side engaged in discovery gamesmanship.
Wife had contended that Husband had failed to comply with his statutory
disclosure obligations regarding his assets, that he failed to respond
to formal discovery, and that at trial he surprised her with documents
he'd failed to earlier provide despite requests for them. Husband's
alleged behavior is not unusual in high conflict divorce litigation, and
so it is important that an aggrieved party, possibly like the Wife in
this case, have a meaningful remedy.
Unfortunately, Wife had waited three years from the date the action was
filed to serve her own Preliminary Declaration of Disclosure. At the time
of the sanctions award against the Husband (seven years after the case
began), she still had not served her FDD. Lawyers for "out-spouses"
sometimes delay completing the FDD because they fear that they lack sufficient
information to do them properly and so are reluctant to have those documents
held against their clients as "judicial admissions" (statements
under oath in the pleadingS) until later - i.e.,
after they've first gotten the disclosures from the "in-spouse"
who probably controls all the information.
In the first reported California appellate decision squarely construing
compliance with FC section 2105 together with 2107 sanction's requests,
the Second District reversed the trial court's award under section
2107 in favor of Wife. I can only guess that Wife's efforts cost she
and her attorneys between $500,000 and $1,000,000 in attorney fees, but
as a result of the decision not only was she shut out of her recovery
against Husband she had to eat all of her own fees.
The appellate court did uphold the sanctions award per Family Code section
271 for the $100,000.
The Court determined that Wife's failure to have first served her
Final Declaration of Disclosure
before seeking sanctions, on the theory that he was himself out of compliance,
deprived her of the right to complain. It interpreted section 2107(a)
as permitting only a "complying party" to seek the sanction
remedies. By the time of a trial on a motion for a sanctions for alleged
disclosure misconduct, a party is not in compliance IF she has only served
their PDD but not her FDD and therefore is not entitled to maintain a
This case reminds lawyers and parties that the California disclosure statutes
mean what they say. It provides useful guidance to attorneys representing
the disadvantaged spouse in terms of what they must do in getting their
ducks in a row before going off half-cocked. Both sides in a California
family law case have equal burdens to meet their fiduciary duties. Please
take them seriously.
Here is a link to
Marriage of Fong for those who wish to read the decision itself.
Thurman W. Arnold III, CFLS