What many parties who are going through the divorce process are unaware of is that they are bound by various fiduciary obligations as it involves the community property of the parties and the other spouse. This includes (in the simplest form), not taking unfair advantage of the other spouse, not impairing the other spouse’s 1/2 interest in community assets or funds, making books, records and other financial information available to the requesting spouse, not hiding, secreting, transferring or failing to disclose assets or debts for which the community may have an interest in or be responsible for in the ultimate disposition of the case. The consequences for breaching your fiduciary duties to the other spouse can be devastating, including the loss of assets that were not disclosed to the other spouse, if the action of the breaching party rises to the level of fraud, deceit, undue influence, malice, oppression, etc. If there is a finding of a breach of fiduciary duty, attorney’s fees and costs are mandatory to the victim spouse. To avoid any issues of fiduciary duties from ever coming up (and costing you money in defending against such allegations), adhere to some simple rules.
1. Disclose, disclose and disclose. When in doubt, always disclose an assets no matter whether community property, separate property or quasi-community property. The schedule of assets and debts should be amended or augmented anytime there is a change to reflect the disclosure.
2. Do not hide assets. Do not transfer assets to other third party’s to hold for your benefit until the divorce process is over. Do not withholding information and documentation relating to assets. Always provide access to information and documentation (without a formal demand by the other party) as the California Family Code makes it a sua sponte obligation (meaning without the need to be asked by the other party).
3. Always give notice to the other party of actions you intend to take regarding the community assets or debts (way in advance and see if the other party objects). When in doubt, file a formal request with the Court and get Court permission to liquidate, sell or otherwise transfer or dispose of any community property.
4. Cooperate, cooperate and cooperate. A breach of a fiduciary duty to the other spouse can be found in one spouse’s failure to cooperate in the sale of a property (thereby risking the equity interest in the home). Dragging one’s feet or “squatting” in the family home when the mortgage payments are not being paid by the spouse in possession of the home can and oftentimes does give rise to a breach of fiduciary duty claim.
5. Do not violate what are known as the Automatic Temporary Restraining Orders or otherwise known as the Family Law Standard Restraining Orders on the back of the summons. Those four restraints on conduct (putting each party on notice) is meant to preserve the status quo so one party doesn’t cancel health, life, auto or other insurance policies for the other party (or changing the beneficiary designations) pending the dissolution matter being concluding, so that one party doesn’t encumber, hide or dispose of any assets, so one party doesn’t remove the children of the marriage or relationship from the State of California or create a non probate transfer (these are all of course paraphrased and simplified). Speak with your attorney to make sure you know what the restraints on conduct cover and avoid violating those orders as it will give rise to a breach of fiduciary duties by the victim spouse, including potential enforcement of the orders (by way of contempt or otherwise).
Remember, in the Court process one party will make or attempt to make as many claims or allegations against the other party (in those contentious cases). Taking the right steps to avoid those issues from ever arising will not only save you in attorney’s fees and costs, but also avoid headaches, heartaches and frustration down the line.