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.
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) initially accepts the trust
and confidence of the other. This puts one of the parties into a potentially
superior 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 managing
the family, this places women at particular risk, but relationships come
in all kinds of permutations. 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, and
who is more butt-hurt, that threatens to corrupt us all. So often someone
uses money and property to try to grind the other spouse into the dust,
and it is the same for opposite gendered cases and same-sex relationships. Duh.
Fiduciary duty rules and consequences, at their core, deal with greed and
reactivity and the FD rules attempt to even the playing field, most often
to ensure that the less empowered, whatever gendered, party can exercise
informed consent in managing and planning their future affairs, and hopefully
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!
Michael Peterson and
Thurman Arnold are available to guide litigants, and their attorneys, including via
discreet Second Opinions. Otherwise, your FB Likes as you click out are valuable to us, because
we want to know what resonates for you!
~ T.W. Arnold ~
CALIFORNIA FAMILY CODE
RIGHTS AND OBLIGATIONS DURING MARRIAGE
RELATION OF HUSBAND AND WIFE AS FIDUCIARIES
Family Code Section 721
(a) Subject to subdivision (b), either husband or wife may enter into any
transaction with the other, or with any other person, respecting property,
which either might if unmarried.
(b) Except as provided in Sections 143, 144, 146, 16040, 16047, and 21385
of the Probate Code, in transactions between themselves, a husband and
wife are subject to the general rules governing fiduciary relationships
which control the actions of persons occupying confidential relations
with each other. 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. This confidential relationship
is a fiduciary relationship subject to the same rights and duties of nonmarital
business partners, as provided in Sections 16403, 16404, and 16503 of
the Corporations Code, including, but not limited to, the following:
(1) Providing each spouse access at all times to any books kept regarding
a transaction for the purposes of inspection and copying.
(2) Rendering upon request, true and full information of all things affecting
any transaction which concerns the community property. Nothing in this
section is intended to impose a duty for either spouse to keep detailed
books and records of community property transactions.
(3) Accounting to the spouse, and holding as a trustee, any benefit or
profit derived from any transaction by one spouse without the consent
of the other spouse which concerns the community property.