Our divorce lawyers could probably write you a treatise on fiduciary duty of spouses in California, it rules and the consequences of breaching them. We won’t do that here. Heck, you probably wouldn’t want to read a treatise on that anyway. Most people who ask questions of our lawyers about this topic just want to know the basics. Do spouses have certain duties to each other related to the issue of finances and the family estate? What are they? What happens if one spouse violates the rule? Let’s take a look.
Each Spouses Fiduciary Relationship in California
The relationship of husband and wife carries with it the highest duties known by law – that of a fiduciary. California family law states that when spouses enter into transactions with each other as well as when one or both of them engage in any management and control of community property, they must always act as a fiduciary during such transactions, management and control.
This relationship mandates the highest duty of “good faith” and “fair dealing” and neither is permitted to take “unfair advantage of the other.” The standard mandated by the law is similar to how business partners must act toward each other in management of partnership assets.
Most executives and CEOs who are going through a divorce understand this concept of partnership fiduciary duty very well. Executives and CEOs must be particularly careful of fiduciary duty laws as it relates to their spouses and that is where experienced Orange County divorce lawyers like ours can help.
To What Property Does The Breach of Fiduciary Duty Apply?
The fiduciary duty laws between spouses in California apply to community property and to the other spouse’s separate property. That last part is often forgotten by divorce lawyers. If one spouse is managing or controlling the other spouse’s separate property, the controlling or managing spouse has to treat that property with the same care as a fiduciary would.
Does The Fiduciary Duties Between Spouses Last Forever?
No. It applies during the marriage and after separation.
The reason it applies after the date of separation is because separation leads to dissolution (or an annulment) so the community assets must be protected during this time period. The fiduciary duties stop at the date of distribution of the assets or, if applicable, the debt or liability that was divided. Once the division takes place, each spouse (by then, typically, “ex” spouse) has complete management and control over their own designated property. The final division traditionally takes place when the divorce is finalized.
But what about a situation where the divorce judgment does not divide everything? What happens if the spouses, through their lawyers, “reserved” to divide certain community property at a future date? Do the fiduciary duties still apply? Yes. They apply until the property, asset, debt or liability is formally divided.
Do Fiduciary Duties Include Disclosures?
Absolutely. The California Family Code requires “immediate, full and accurate” disclosures. California law has specific rules regarding the exchange of preliminary declaration of disclosure and final declaration of disclosure, which require, at their heart, a schedule of all assets and debts and a declaration of all income and expenses.
These disclosure laws are so broad that it doesn’t matter whether a spouse “thinks” or “believes” something may be his or her separate property. Both community and separate property has to be disclosed.
The disclosure laws also require spouses to update the disclosures when material changes occur.
What Happens if There is a Breach of Fiduciary Duty?
That depends on how serious the breach is. Breaching the fiduciary duty to a spouse can result in mandatory monetary sanctions (attorney fees and costs), at a minimum, and, if there is an asset at issue that was wasted, destroyed or not disclosed, the punishment can be as great as the loss of that asset (or its value) to the victim spouse. In the case of asset nondisclosure, noncompliance with the disclosure rules is grounds for a set aside of the judgment, although not necessarily all of it.
Can Your Divorce Lawyers Help Me?
You bet we can. Got additional questions about fiduciary duties? Do you have a case where you are being accused of breaching your fiduciary duty? Has your spouse breached his or her fiduciary duties and you want to know your legal rights? Contact our lawyers for a consultation. We are ready to help.