Q. I am an attorney practicing in San Bernardino. I represent the wife in a dissolution action we filed and served a little more than 60 days ago.
I recently received from opposing counsel her client's Preliminary Declaration of Disclosure and was surprised that the husband either failed or refused to value any of the assets she listed or to state the amount of any of the debts in the Judicial Council Form FL-142, or even to identify the numbers for the bank and brokerage accounts that the husband controls but which belong to the community estate (this is an eighteen year marriage). My office always provides that type of information in the preliminary disclosures that we prepare on behalf of our clients.
I wrote opposing counsel a letter asking that she have her client file a supplemental PDD. She wrote back, pointing out that Family Code section 2104 does not require a party to give values as any community or separate property asset or liability. She did agree to provide account numbers. She stated, however, that because she was not required to do so by the Family Code at this time that she was declining to provide any values for now. My client and I were planning to file a Request for Order for spousal support and attorney fees, and I want the valuation information to show the Court that the marital estate is substantial and that the husband has access to significant resources that could be used to pay a portion of my client's fees (plus, in order to evaluate the case I need to know the other side's contentions on these points).
It feels like the husband or his attorney is purposely not being transparent - I am quite confident that he has opinions of value as to the assets he controls, and that he could easily have found the bank account and credit card balances without my having to even write a letter - and I am disappointed that the case is starting out this way. I could draft special interrogatories but it can take months to get answers, and if the other side were to play games by objecting to them then I will find myself running up client fees in meet and confer letters, and I don't want my client to have pay me for nonsense letters that shouldn't be necessary in the first place.
Do you have suggestions about how to get this information faster, and how to set up a claim for breach of fiduciary claim or for sanctions if the husband won't provide this information early on in the case?
I am also going to speak to others who may find your question relevant, and I apologize if I rant a bit because the situation you mention is one that is close to my heart in terms of the frustrations I encounter in my daily practice, and my own philosophical views.
First, opposing counsel is correct - per the language of Family Code section 2104 she is not required to have her client provide account balances or opinions of value as to either community or separate property in the Preliminary Declaration of Disclosure ("PDOD"), a rule that for me makes no sense and needs to be changed. Preliminary declarations of disclosure, for reasons that I cannot fathom but which presumably can be found in the legislative history of Family Code section 2104, have evidently not been viewed as nearly as important as the disclosures that must be made when completing the Final Declaration of Disclosure. This is very odd, and as a practical matter it does a disservice to less empowered family law legal consumers for exactly the reasons you mention (i.e., the importance of obtaining a complete picture of the parties' circumstances at the earliest stages of a divorce when it is critical that both spouses have access to justice and the money required to hire competent attorneys, and avoiding running up the lawyer fee meter for stuff that should not require a follow up letter in the first place).
The person that controlled the marbles during an intact marriage when the parties were functioning (however dysfunctionally) as an economic and family-based unit, whether as a matter of convenience or as a result of - for instance - the division of labor created by parenting gender roles, should not be thereby entitled to continue to impose financial hegemony on the other once the parties separate. To the contrary, it is imperative that under-informed spouses be brought up to speed in the early stages of relationship transition, if the playing field is to be level.
That is not what tends to happen in real life, however, and that is not what the California fiduciary disclosure statutes presently promote. Section 2104 in practice serves to perpetuate power imbalances in favor of those who control the pie (gosh, a reflection of our societal norms in general, eh? Think "central bankers and the current obliteration of the middle class"), at a life stage when people are in the greatest need of protection. Our legislature has given this recognition some lip service in the form of Family Code section 2040, which provides for certain ATROS (automatic temporary restraining orders) which are intended to protect the marital status quo once a dissolution or legal separation is filed, so that one party cannot loot portions of the marital estate. Given the legislative recognition of a need to preserve assets at case commencement to protect citizens from suffering financial or other harm, it is unfortunate that our political representatives have not equipped out-spouses with the tools to obtain critical information when their transition is at its most raw, and the learning curve is greatest. Knowledge is power; withholding the tools for accessing knowledge in a meaningful way is power abused. Pretending that we are protecting the less powerful and less informed with prophylactic gestures is insulting. (Okay, "it is my blawg and I can rant if I want to").
For instance, it was only in 2012 that the legislature amended section 2104 effective January 1, 2013 to add subsection (f) requiring that the Petitioner serve his or her PDD within 60 days of filing the petition, and for Respondents within 60 days of having filed their response. Before that the requirement was that the parties each file their PDOD within a "reasonable time," which meant it could be a year or more before a party ever bothered to complete one. The 2013 revisions further added the requirement that parties also exchange the last two years' of their tax returns (including presumably corporate returns for any business entity either controls) together with an Income and Expense Declaration (FL-150).
Fortunately, there are tools for less informed spouses to obtain a parity of knowledge if you know where to look (as with Family Code section 1100(e), discussed below), but most people - especially unrepresented family law litigants - don't know which stone to kick over, which is why section 2104 should impose greater duties at the outset sua sponte (voluntarily, without prompting or suggestion). Legal consumers newly enmeshed in divorce shouldn't have to run around kicking over rocks, or to pay the highest priced most competent lawyers to do so for them.
All that is required to comply with the initial statutory duties imposed by Family Code section 2104 within the first 60 days of the filing of a petition and its service upon that other party is that each provide the other with their last two years' tax returns, and Income and Expense Declaration, and declare under oath:
- The identity of all assets or liabilities, regardless of either's contentions regarding separate property or community property characterization
- Each party's percentage of ownership in the asset or obligation
Cynthia, I applaud your decision to provide more than the minimum that is required by statute as you guide your clients, in the form of the PDODs that you exchange including the depth and quality of your disclosures, for a number of reasons. That is my style as well. How the parties and their lawyers behave at the outset of divorce can have a huge impact on not merely the tone of the litigation, the amount of lawyer's fees, or even the quality of financial outcomes - it also has ramifications that are more subtle but perhaps doubly important in terms of the consequences on the emotional and wellbeing of societal members and, frankly, especially women because they have historically been under-empowered. If family law adversarial litigation is the default method by which we as a society resolve our relationship conflicts, and protect the least powerful among us, then when that system fails by encouraging and perpetuating power imbalances a sometimes debilitating sadness or depression can inflict its most important members. By undertaking a policy of transparency in your office in disclosing more than is statutorily required, whether one day you represent a fiscally more savvy husband or wife or on the next day a husband or wife who had little information about the parties' assets and debts, you are doing a service for both.
In every litigated case the PDOD creates an invaluable road-map of what the financial issues consist of and it becomes, when taken seriously and fully completed, a useful tool for quickly remembering and understanding where the property disputes lay and what issues must be tackled to move the case to resolution.
As a practical matter, in probably 90% of all dissolutions and legal separations, the PDOD is the only disclosure document that will ever be exchanged. Most family law attorneys but few unrepresented parties (except perhaps regular readers of this Blog) know that Family Code section 2105, concerning Final Declarations of Disclosure ("FDOD"), is far more extensive in terms of the information that must be disclosed to the other party. The information that must be exchanged in the FDOD includes:
- An Income and Expense Declaration
- All "material facts and information" regarding the characterization of all assets and liabilities
- All "material facts and information" regarding the valuation of all assets that are contended to be community property or in which it is contended that the community has an interest
- All "material facts and information" regarding the amounts of all obligations that are contended to be community or as to which the community is contended is liable, and
- All "material facts and information" regarding the earnings, accumulations, and expenses of each party that has been set forth in the income and expense declaration
Unfortunately, the exchange of FDODs is only required by statute at the 11th hour of the case. Family Code section 2015(a) reads "Except by court order for good cause, before or at the time the parties enter into an agreement for the resolution of property or support issues other than pendente lite support, or, if the case goes to trial, no later than 45 days before the first assigned trial date, each party, or the attorney for the party in this matter, shall serve on the other party a final declaration of disclosure and a current income and expense declaration." [Emphasis added]. Wow, just when we needed it!
Family law practitioners short reference "material facts and information" as "MFI's". Now we are getting somewhere useful. MFI's include not only facts, but the backup documents. What is or is not "material" is probably a whole other blog, but the term may encompass anything that either side considers relevant to their positions regarding characterization and valuation. MFI's are considered critical to making informed judgments about economic matters, because any settlement based upon false or misleading information is inherently coercive.
Obviously, upon actual compliance with this fiduciary disclosure obligation we begin to reach some level of transparency but it is my experience that the FDOD is regularly never exchanged between parties to marital proceedings, for a number of reasons. Therefore, it is way more common than not that the information that a party might have received through the FDOD process is never actually obtained. If so, then the PDOD may be the only disclosure document that actually ever gets served on the other party and a lousy or careless PDOD may never be supplemented or augmented. This means the PDOD is a lot more important than FC section 2104 makes it out to be, since no MFI's are required in a PDOD and therefore they may never be provided.
Family Code section 2106 requires that FDODs be exchanged unless (a) a case is resolved by way of default judgment pursuant to Family Code section 2110 (often accompanying a settlement where one party reasonably wishes to avoid paying the almost $500 filing fee for filing a response to the petition when there is no need to give that money to the state) or (b) unless both parties waive the exchange of FDODs in writing. The FDOD, especially where the parties exchanged a half-assed PDOD at the beginning of the proceedings, feels to clients to be extremely burdensome and as a huge waste of time and some, undoubtedly, even go so far as to believe the legislature has created these exchanges as a way for lawyers to generate revenues and gouge their clients for fees. In some situations, usually involving low asset marriages, it does look like a waste of time to go through the formality of putting these schedules together because the other party may already have all the information; therefore, 'why do we have to tell them again?'
In order to waive the FDOD however, and succeed in getting the settlement document (i.e., Marital Settlement Agreement, Marital Termination Agreement, Stipulated Judgment) past the judgment clerks who first review pleadings sent to the court, before placing them on a desk of a judicial officer who is only then asked to sign them, the parties must sign a document that contains the magic FDOD waiver words of Family Code section 2105 (d)(1) through (5) and most notably those require the parties to represent and swear under oath that 1) they've completed and exchanged PDODs; 2) that they've completed and exchanged current income and Expense declarations that contain all MFI's; 3) that both parties have fully "augmented" the PDOD including providing their contentions as to "the valuation of all assets that are contended to be community property" and obligations; 4) that the waiver of FDODs is knowingly, intelligently, and voluntarily entered; and 5) that both parties understand that the waiver does not limit the disclosures that would otherwise be contained in the FDOD that was not exchanged, and a statement under penalty of perjury that the disclosure obligations have in fact been fulfilled AND a recognition that noncompliance with all of the foregoing "will result in the court setting aside the judgment."
This last clause is the most concerning for attorneys because it speaks to our potential exposure for malpractice. Accordingly, there are significant benefits for lawyers (and self-represented parties) who exceed the minimum standard of care and disclosures encompassed in the bare-bones PDOD. Given that most settled cases waive the FDDs, and given that most lawyers - including, Cynthia, the one you are now facing - do an incredibly incomplete and lousy job when meeting the minimum statutory criteria that pass muster for PDODs, it is BELOW THE STANDARD OF CARE for lawyers to treat PDODs cavalierly UNLESS they not only really intend to subsequently exchange a FDOD or in fact augment the PDOD so that they've effectively turned it into an FDOD. However, once again, in practice that is NOT what happens.
As to the self-represented readers of this Blog, while you aren't committing malpractice upon yourself by failing to understand and follow these rules you ARE setting yourself up for a potential set-aside of the settlement that you thought you'd achieved, not to mention the legal fees when you now find you must finally hire an attorney to defend the peace of mind you thought you'd achieved.
Of course, Cynthia, the attorney you are opposing very possibly has thought through none of this or they wouldn't have provided you a crappy PDOD in the first place. You must be concerned about your own back-side, and the best interests of your client.
So what to do to force the opposing side to provide you the information - immediately - in order to prepare your support and attorney fee motion and also to set them up for breach of fiduciary duty claim if they refuse to comply? Since I've babbled on so long with my own views I will shorten the remainder to suggest the following principles:
- In order you to complain to the court about the quality of the other side's disclosures you must ensure your client's compliance. Parties who don't themselves satisfy the disclosure requirements of the Family Code have been held to have no standing to object to the quality of those of the other side, so consider full compliance on your part a condition precedent to even requesting relief as to the other. Get your paperwork completed and perfected, before filing anything.
- Certain duties imposed by FC section 2104, and within the concept of PDODs, are imposed by statute sua sponte (as a matter of law) and others aren't. Notably, the obligation to disclose the identity of all assets and obligations is sua sponte, as are the obligations to make disclosures regarding income and expenses.
- There is no sue sponte duty, except in an FDOD if you ever get one, to provide all MFI's regarding characterization and valuation.
- The other party is, nonetheless, absolutely required to provide what you need regarding characterization and valuation IF you make a formal request for that information pursuant to Family Code section 1100(e). That subsection reads:
"Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request." [Emphasis added].
Send opposing counsel a letter politely demanding the information you need, independently of her FC section 2104 obligations. If she refuse to respond, this will give your client that basis for a breach of fiduciary duty claim and possibly for sanctions and attorney fees.
Author: Thurman W. Arnold III, CFLS