Understanding Breaches of Fiduciary Duty in California Divorces

Flicker, Kerin, Kruger & Bissada LLP

Although marriage may be thought of as a declaration of love, it also has legal and financial ramifications that impact most aspects of married life. Some of the most important elements are fiduciary duties. 

What Are the Fiduciary Duties of a Spouse?

According to California Family Code FAM § 721, “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.” Family Code §721 incorporates sections 16403, 16404, and 16503 of the Corporations Code, which include duties of loyalty and care.

In other words, California law treats spouses as having the same responsibility to act in good faith as business partners. The obligations this entails include:

  • Providing accurate information about joint finances
  • Giving each other full access to any existing community property financial records
  • Sharing ownership of assets purchased with or earned by community property and accounting for transactions made with community property without the other spouse’s consent 

These duties exist both during marriage and, in some cases, until assets are actually divided in a dissolution. Failing to act in good faith or attempting to take advantage of the other person are considered breaches of fiduciary duties. 

Examples of Breaches of Fiduciary Duties

There are many ways that spouses may breach their fiduciary duties. FAM § 1100 names certain specific issues that are always in violation, such as:

  • Giving away or disposing of community personal property for less than fair value without the other spouse’s written consent
  • Disposing of community real property “used as the family dwelling, or the furniture, furnishings, or fittings of the home, or the clothing or wearing apparel of the other spouse or minor children” without the spouse’s written consent
  • Selling or encumbering a community property business without giving prior written notice

There are other potential breaches as well that are not explicitly named in the Family Code. Common violations of fiduciary duties include:

  • Taking on large amounts of debt without disclosing it to the other person
  • Hiding property or funds during the asset division process
  • Failing to provide a complete financial disclosure during divorce
  • Refusing to permit the other person to view important documents about the couple’s finances

These behaviors breach fiduciary duties, regardless of whether they were performed negligently or maliciously. Malicious breaches of fiduciary duty can carry higher damages under Family Code §1101. 

How Breach of Fiduciary Duties Impact Divorces

California’s laws regarding fiduciary duties are in place to ensure neither spouse takes financial advantage of the other during their marriage or divorce. Unaddressed breaches typically lead to the other spouse suffering a financial loss, for example, by taking on unexpected debt or failing to receive their fair share of the marital assets after a divorce or separation. 

California has instituted penalties for spouses who breach their fiduciary duties to incentivize good faith behavior even during divorces. Depending on the circumstances, these may include monetary sanctions, an order to pay the other party’s legal fees related to the breach, and, in cases of malice or fraud, awarding the other party a greater share of affected assets.

Maintaining Good Faith and Fair Dealings During California Divorces

Fiduciary duties and obligations are particularly complex when they intersect with family law matters. People who suspect their spouse may be hiding assets or otherwise breaching their fiduciary duty will benefit from speaking to specialized divorce attorneys in California. The experts at Flicker, Kerin, Kruger & Bissada LLP are prepared to provide comprehensive legal counsel in the most complicated high-asset divorces. Contact our office today to schedule a consultation and discuss your concerns with an experienced family law attorney in our Menlo Park or San Ramon offices.

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