What Are Spousal Fiduciary Duties in California?
In financial and property transactions with third parties and each other,
spouses owe one another important statutory duties that create huge responsibilities
and pitfalls. As 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."
Family Code section 721(b).
The essence of the "fiduciary relationship" is that the parties are treated under the law as though they do not deal with each other on equal terms because one person (typically the managing spouse) accepts the trust and confidence of the other and so is in a superior position to exert influence over the dependent party. A presumption of undue influence arises whenever either party benefits from a transaction.
In 2002 Family Code section 721 was amended to expand this confidential fiduciary relationship and impose the same rights and duties as applies to non-marital business partners under the California Corporations Code. A number of important disclosure and accounting obligations thereby arise.
While Section 721 does not mention Registered Domestic Partners, it applies to such persons as well.
Transactions Benefiting One Spouse
For divorcing couples, this means:
a) If one party has benefited in a transaction involving money or property and so obtained an advantage during the course of the marriage, the law presumes the advantage was gained through undue influence vis-a-vis the other, and the transaction is presumed invalid and may be set-aside;
b) The burden of convincing a Court that a set-aside should not occur shifts to the advantaged spouse;
c) This can occur without regard to good or bad intent on the part of the advantaged spouse (i.e., actually intending to defraud as opposed to merely being sloppy). Either way the law declares the transaction to be the result of "constructive fraud".
Once the Court finds constructive fraud the transaction can be set aside. The benefited party can be ordered to pay restitution to the other and to disgorge any profits they alone received, title may be reformed to include both parties' names, or the property may be held in trust for both on a present and go-forward basis rather than in the name of the one alone. If there is an actual fraudulent intent, the remedies to the injured spouse are much more severe. Where a court finds a spouse acted intentionally to defraud the other spouse, the Court "shall" award 100% of the value of what should have been disclosed, or what should not have been transferred, to the innocent spouse! FC section 1101(h).
After Separation, Fiduciary Obligations Continue
The fact that parties have separated or that a dissolution or legal separation
is pending does not end the parties' fiduciary responsibilities.
Family Code section 1100(e) continues those same duties "until such time as the assets and liabilities
have been divided by the parties or by a court."
Remedies for breach of the fiduciary duty as described in Family Code section 721, and 1100, include an amount equal to one-half of the value of any asset undisclosed or transferred in breach of fiduciary duty, plus attorneys fees. This includes inadvertent or unintentional violations. Family Code section 1101(g).
If you have a business, or investments in real estate or simply a family
residence, and certain transactions have occurred,
you may have a problem. If you are a dependent spouse, regardless whether the other party intended
to cheat you, you may have important entitlements and remedies.
This is one of the most complicated, emerging areas of California family law jurisprudence. Do not go it alone! In every single dissolution and legal separation case, regardless whether either party has an attorney, each party must exchange a Preliminary Declaration of Disclosure, and unless expressly waived, a Final Declaration of Disclosure. If these documents contain material errors, misinformation, or are incomplete the consequences can be financially devastating to you. These documents sit as land mines for years to come.
We have written dozens of articles explaining the operation of interspousal fiduciary duties in every dissolution related context!
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If you have a family law fiduciary duty issue,
contact Palm Springs divorce lawyers from Arnold, Peterson & Criste today!