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Spousal Fiduciary Duties or How to Punish a Spouse That Hid Your Assets

John has 3 houses in Tokyo that his wife Naomi never knew about during the marriage. He proceeds during the divorce without telling her about it. What consequences are there for John if Naomi discovers that John has been hiding the assets?

Hiding assets from your spouse in the divorce process not only stinks but is also against California family law. Spouses have a fiduciary duty to each other, meaning a duty of the highest good faith and fair dealing, where neither takes any unfair advantage of the other. If you read Family Code section 721, you’ll see that spouses have the same fiduciary duty to each other that business partners have. In other words – don’t hide the ball during the divorce process.

During the marriage (or registered domestic partnership), the parties' fiduciary duties require (among other things) full and accurate disclosure of all information affecting community property transactions. After the separation, disclosure duties extend to all assets and liabilities to which either party has some interest, whether separate or community, and to current earnings, accumulations and expenses. So long as the fiduciary obligations continue, each party has to supplement their required disclosures to the extent there have been any material changes. Family Code sections 721, 1100, 2100 and 2102 outline these disclosure obligations.

During the divorce process, parties are required to complete two rounds of financial disclosures.

The first is a “preliminary declaration of disclosure” as prescribed by Family Code § 2104. The party attaches with that a Schedule of Assets and Debts, which describes the parties’ assets and debts and an Income and Expense Declaration, which describes, as you can guess, a party’s income and expenses. The parties also have to exchange the previous two years' tax returns. The preliminary declarations of disclosure have to be served on the other party either concurrently with service of the parties' respective initial pleadings or within 60 days of filing same, unless those time periods are extended by written agreement or court order

The second disclosure is the “final declaration of disclosure” as prescribed by Family Code § 2105, along with an updated income and expense declaration (due before or at the time of entering into a property or support settlement agreement and, in any event, no later than 45 days before the first assigned trial date). See Family Code § 2103. Parties can waive the final declaration of disclosure in writing as part of the finalization of their divorce.

There are consequences for failing to comply with the disclosure requirements or to otherwise violate the fiduciary duty owed to a spouse under Family Code §§ 721 and 1100.

Noncompliance with the declaration of disclosure requirements will result in mandatory monetary sanctions in favor of the complying party. See Family Code § 2107(c).

In addition, the noncompliance is ground for a set-aside of the judgment (or at least those provisions materially affected by the nondisclosure). See Family Code §§ 2105(c), (d)(5), 2107(d).

Subject to certain time limitations, the Family Code provides certain other remedies to spouses who have been ripped off by their spouses in the divorce process through a breach of fiduciary duty. There is a constellation of relief available, but the most powerful reside in Family Code § 1101. Here are the different avenues of action, in brief:

1) The court may order an accounting of the spouses' marital property and obligations; and it may determine the “rights of ownership in, the beneficial enjoyment of, or access to, community property, and the classification of all property” of the spouses. (Family Code § 1101(b).)

2) The aggrieved spouse's remedies “shall include” an award of 50%, or an amount equal to 50%, of any asset undisclosed or transferred in breach of the fiduciary duty, plus attorney fees and costs. (Family Code § 1101(g);

3) For a breach of fiduciary duty set forth in Family Code § 721(b) or § 1100 that “falls within the ambit” of Civ.C. § 3294 (punitive damages upon clear and convincing evidence of “oppression, fraud or malice”), the aggrieved spouse's remedies “shall include” an award of 100%, or an amount equal to 100%, of any asset undisclosed or transferred in breach of the fiduciary duty. (Family Code § 1101(h).)

What does this mean for John and Naomi? If Naomi can prove that John hid the properties with oppression, fraud or malice, she can take all of the properties or their value AND get her attorney fees paid! Yes, you heard it, she can take everything just because John thought he could pull one over on his wife in the divorce process. Word to the wise – heed the law!

Are you afraid that your spouse is hiding assets from you? The Law Offices of Jane Migachyov has multiple tools at its disposal to discover assets; everything from discovery of records and information from the other side and third parties to the use of private investigators who research property holdings. If there are assets, we will find them. Contact the firm today to preserve your marital assets from your shady spouse.

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