Fiduciary Duties

As a result of the confidential relationship established by law upon marriage in California, spouses owe each other certain fiduciary duties in transactions between themselves and in the management, control, acquisition, and disposition of community property and/or the other spouse’s separate property assets, liabilities, income, investment opportunities, business opportunities, and other income-producing opportunities.

As codified in Family Code Section 721, spouses have a fiduciary obligation to conduct themselves in the highest good faith and fair dealing and to avoid taking unfair advantage of the other during the tenure of their marriage.

During marriage, spouses have a fiduciary duty to provide full and accurate disclosure of all material information to the other spouse regarding the existence, characterization, and valuation of assets in which the community has or may have an interest and debts for which the community is or may be liable; and provide equal access to all information, records, and books pertaining to the value and character of such assets and debts.

Upon separation, additional disclosure duties arise, which require similar disclosure of all assets and liabilities in which either party has or may have an interest or obligation, regardless of community or separate property characterization, and to current earnings, accumulations, and expenses. These duties “arise without reference to any wrongdoing” and are not conditioned upon request by the other party. In other words, parties in a marital dissolution action are required to immediately, fully, and accurately update and augment prior disclosures upon any material change.

In order to effectuate full and accurate disclosure in a marital dissolution or legal separation proceeding, spouses are required to initially exchange a Preliminary Declaration of Disclosure at the commencement of the marital dissolution action, and prior to trial or entering into a Judgment (unless waived in writing) and Final Declaration of Disclosure. The Declarations of Disclosure require the inclusion of a schedule of assets and debts, a current income and expense declaration, and the previous two years’ tax returns.

A spouse’s right of management and control over the community estate during marriage and thereafter operates consistent with the other fiduciary relationships recognized in California. Except with respect to businesses, spouses are equally entitled to share management and control over the community estate “with like absolute power of disposition, other than testamentary” and possess the same general rights and duties of non-marital business partners. Although spouses may enter into transactions involving community property unilaterally, doing so nonetheless requires the acting spouse to provide the other with an accounting and to hold, as a trustee, any benefit or profit derived from said transaction.

The fiduciary obligations owed between parties in a marital dissolution or legal separation proceeding continue post-separation until distribution of the respective asset or liability, or, with respect to the disclosure of income and earnings, until a binding resolution on all issues affecting child support, spousal support, and professional fees is achieved.

Should a party suffer any loss to a community asset or any harm as a result of the other spouse’s failure to fulfill the fiduciary duties described above, courts are required to order sanctions against the breaching party for attorney fees and costs plus restitution for the amount lost, or, where the breach is intentional or fraudulent, for entire value of any asset undisclosed or transferred in breach of duty. In addition to monetary relief, any settlement agreements entered into as a result of the party’s failure to comply with all disclosure requirements may be set aside (i.e. undone or cancelled).

Call 949-644-4007 or contact us online to arrange a consultation with a family lawyer today. Phillips Whisnant Gazin Gorczyca & Curtin, LLP provides legal guidance and representation to individuals and families throughout California, including Newport Beach, Huntington Beach, and Irvine.

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