Spousal fiduciary duty refers to responsibilities that spouses have to one another regarding their finances. Here’s everything you need to know about a breach of fiduciary duty in California family law.
A fiduciary refers to a relationship between two parties related to a transaction in which both parties are obligated to act in good faith and integrity. For example, administrators of a corporation have a fiduciary duty to the company. The executives must always act in the interests of the company, and perform their role diligently.
Spousal Fiduciary Duty Rules
Community property refers to the property or debt obtained or owed by either spouse during their marriage, and it is shared equally between them. Separate property refers to the property or debt obtained or owed by either spouse before their marriage or after their date of legal separation. In terms of spousal fiduciary duty, spouses are obligated not to take advantage of one another financially. That means they must disclose all of their financial information, and share administration duties over their shared property and debts.
Related: What is Spousal Fiduciary Duty?
Breaches of Spousal Fiduciary Duty
California Family Code Section 1101 defines a breach of spousal fiduciary duty as a transaction or transactions that have a significant negative impact on the petitioning spouses’ claim to their one-half of the community property. Some examples of breaches of spousal fiduciary duty could be:
- Omitting an asset or debt during a disclosure process (such as divorce)
- Embezzling funds from a shared business into one’s separate account
- Making individual decisions regarding the community property without consulting the other spouse
If the court finds that spousal fiduciary duty has been violated, it can take separate steps, such as:
- The court may order that both spouses disclose all of their separate and community property, even if this has already happened during the divorce process (for example, if one spouse had omitted an asset during the first disclosure proceeding).
- The court may order that one asset or multiple assets from the violating spouses’ separate property become considered community property
- The court may order that fifty percent of an asset that was used to breach spousal fiduciary duty (for example, an omitted asset in the disclosure proceeding) be awarded to the spouse who did not violate the fiduciary. The amount awarded would be determined based on the highest value of the asset at the time when spousal fiduciary duty was breached.
- An important aspect of spousal fiduciary duty is that both spouses must consent to any transactions pertaining to the couples’ community property. However, upon determining the violation of spousal fiduciary duty, the court may order that the perpetrating spouses’ consent is no longer required for such transactions.
- According to California Civil Code Section 3294, any violation of spousal fiduciary duty that entails fraud, is done with malicious intentions, or which falls under any of the other activities as described in the code, then 100% of the assets used to breach spousal fiduciary duty may be transferred to the separate property of the victimized spouse.
Spousal Fiduciary Duty in Divorce
Fiduciary duty is owed to ones’ spouse until the date of divorce or legal separation. However, if a divorce is awarded prior to the division of community property and debts, then spousal fiduciary duty continues to apply until each spouse has individual administration over their respective awarded assets and liabilities. Some aspects of spousal fiduciary duty that may become more important after a divorce include:
- Informing the ex-spouse of any changes to one’s income, such as a change in employment status.
- Informing the ex-spouse of any lawsuits or tax troubles surrounding the former couple’s community property (including assets and debts).
- Informing the ex-spouse of any favorable changes pertaining to the former couple’s community property, such as business interests, offers to purchase assets, or investment opportunities.
The violation of any of the aforementioned rules after divorce (and before property division), along with any other rules involved with spousal fiduciary duties, may result in any of the consequences listed above. The only difference is that since the goal of the divorced couple is to no longer have any community property, it is unlikely that a court will make an order that any separate asset become community property.
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