Family Code 721 Defines Each Spouse's Fiduciary Duty to the Other Spouse

Family Code 721 places on each spouse the highest fiduciary duties

Family Code 721 is one of those code sections every husband and wife should read. It states in concise fashion the fiduciary duties spouses owe to each other.

What is a fiduciary duty and why is it important in a marital relationship? Keep reading to learn more.

What does Family Code 721 state?

Family Code 721 states the following.

"(a) Subject to subdivision (b), either spouse 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, and 16047 of the Probate Code, in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that 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 that 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 that concerns the community property."

Why is Family Code 721 important?

To understand Family Code 721, you first need to read Family Code 720. Section 720 states, "Spouses contract toward each other obligations of mutual respect, fidelity, and support."

Section 720 tells you the marital contract between a husband and wife includes obligations of mutual respect, fidelity and support. That is exactly where Family Code 721 steps in to explain what section 720 means.

We will break section 721 down as follows.

"(a) Subject to subdivision (b), either spouse may enter into any transaction with the other, or with any other person, respecting property, which either might if unmarried."

This section means spouses are not limited to any type of contract just because they are married.

• They may transact in the purchase or sale of assets or the accrual of debts as if they were unmarried.
• There are however limitations on intent and the foreseeable consequence of such contracts.

"(b) Except as provided in Sections 143, 144, 146, 16040, and 16047 of the Probate Code, in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other..."

The marital relationship places on each spouse a fiduciary duty to the other spouse. Therefore, when spouses contract with each other, they are subject to the rules that control fiduciary relationships. This section explains what it means by that limitation.

"...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..."

Notice the code section does not mince words regarding the duty of good faith and fair dealing. It attaches the word "highest" to each. It goes on to explain a spouse shall not take unfair advantage of the other. When I first read this code section, I chuckled because I wondered if there is such a thing as taking a "fair" advantage of another person. It is a good example of the legislature being verbose.

To avoid ambiguity, the code explains the nature of the confidential relationship as being the same as those of a nonmarital business partner. That places spouses in the same position as shareholders, officers, directors, business partners, etc. who hold to each other the duty of good faith and fair dealing.

Family Code 721 then provides examples of the fiduciary relationship and what it means to each spouse. Notice section 721 uses words "including, but not limited to..." What that tells you is the following are not the only examples. The California legislature intentionally wrote Family Code 721 with breadth.

The three examples it provides are 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 that 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 that concerns the community property."

• Spouses cannot have secret documents regarding transactions and each spouse must make all documents available for inspection and copying.
• Spouses cannot refuse a request to see any transaction that concerns community property, although that does not mean each spouse must keep a "detailed books and records" of all transactions. The code is broad but did not want to place unreasonable duties so every insignificant transaction needed backup documentation.
• The code requires an accounting to the other spouse which includes showing any benefit or profit from any transaction whereby one spouse acted alone and without the consent of the other.