Spousal fiduciary duty refers to the moral and legal responsibilities that spouses have to one another. Here’s everything you need to know about spousal fiduciary duty in California.

The legal term “fiduciary” refers to confidence or trust. In terms of a marriage, a fiduciary duty is owed to each other. These duties can impact many facets of marriage including assets, properties, and debts. If spousal fiduciary duty is violated, there can be high financial ramifications, as well as implications for the legal state of the marriage.

Separate and Community Property

In order to understand spousal fiduciary duty, there are two important legal terms to understand. The first term is community property. California is a community property state. This means that a registered marriage or domestic partnership in California creates a legal “community” of two people. Property or debt that is obtained by the couple within this legal community becomes “community property” or “community debt”. Any income that is earned by either spouse (or both) during the partnership is considered community property as well. If money used to purchase a property was earned during the partnership, then the property is also considered community property. For example, if one spouse buys a vehicle with money that was earned from their salary during the marriage or partnership, then the vehicle becomes community property regardless of whether or not that spouse covered the entire cost themselves. This also applies to debt accumulated during the marriage. If a spouse accumulates debts during the marriage or partnership, the other spouse is also responsible for the debt. Each spouse owns one-half of the community property, and owes one-half of the community debt.

The second important term is separate property. In California, anything earned, bought or owed by a spouse prior to entering the legal marriage or partnership is “separate property.” The income earned before registering the marriage or partnership, and anything bought with this income, is considered separate property. For example, a house bought with an inheritance from a relative prior to entering the partnership is separate property. Separate property also refers to anything obtained or owed after the date of legal separation. A date of separation is very important in California law because it can mark the difference between community and separate property. Additionally, any debts acquired before entering the marriage or partnership can be kept separate even after the marriage or partnership begins.

Related: Community vs Separate Property in California

What about pensions?

Pensions operate on a slightly different set of rules, but pensions earned during the marriage or partnership can be divided evenly between spouses.

What about properties or debts obtained outside of the state of California?

According to California law, any properties or debts acquired outside of the state during the partnership are referred to as “quasi-community” properties or debts, and will be treated as community properties or debts during a legal divorce or separation.

Related: Quasi-Community Property in California

What are the rules of spousal fiduciary duty?

According to California Family Code Section 721, spouses that abide by spousal fiduciary duty must act in the “highest good faith” and “fair dealings” with one another, and cannot take advantage of one another in financial matters. This legal responsibility concerns both community and separate property, but applies differently to both. Spousal fiduciary duty applies during the marriage and legal separation period until the assets are divided (which usually occurs after the finalization of divorce). If the spouses agree to divide assets at a specified time after the finalization of the divorce, then the spousal fiduciary duties continue to apply until the date of division.

Similar to nonmarital business partners, there are three important rules laid out in this code:

  1. Each spouse must disclose any records of transactions that are made regarding their properties to the other spouse,
  2. Each spouse has to disclose (when requested) complete records of all matters that may affect transactions involving the couple’s community property, and
  3. Profits or benefits that result from community property transactions will be accounted for by each spouse, and each spouse will be given administration over them

How do disclosures work?

In California, spouses must legally disclose all of their assets, debts, incomes, and expenses pertaining to community and separate properties by a certain date, which is known as the preliminary declaration of disclosure. The last disclosure after the legal end of a marriage or partnership is referred to as the final declaration of disclosure. Spouses are also required to update disclosures if there are changes. Disclosures can be made in detailed books or records.

What if one spouse is incapacitated?

Spousal fiduciary duties also (and especially) encompass circumstances in which one spouse is incapacitated and the other spouse is required to act alone in the administration of properties and expenses. With respect to community property, California law allows each spouse to act alone in making decisions regarding administration. However, in order for a spouse to legally manage an incapacitated spouses’ separate property, the other spouse will need to be granted power of attorney or trust by a California court.

What is a trust?

In California, a trust refers to when one person holds the legal title (in other words, ownership) of a property for the benefit of another person. The person who benefits is called the “beneficiary”, and the person who holds the title is called the “trustee”. According to California Probate Code Section 16220, the trustee has the powers to make reasonable repairs or alterations to a property, destroy any improvements, destroy or build new walls for a property, distribute, make public or develop land, and enter into a lease involving the property as lessor or lessee, among other things.

What is power of attorney?

Another important term is power of attorney, which allows someone to act on another’s behalf either permanently or temporarily, usually due to that person being incapacitated. Power of attorney is granted with the signing of a document in a court proceeding, and can be legally revoked. Those with power of attorney may be referred to as conservators, guardians, or committees.

What if spousal fiduciary duties are violated?

In California, there are serious legal and financial ramifications for the violation of spousal fiduciary duty. Some potential violations of spousal fiduciary duties include:

  • Failing to tell the other spouse about a transfer of assets
  • Failing to get consent from the other spouse regarding a transfer of assets
  • Failing to disclose community property assets, among other activities

Undue Influence

An important aspect of spousal fiduciary duty is that each spouse acts with the “highest good faith” in their financial dealings within the marriage. This means that partaking in undue influence would be considered a violation of spousal fiduciary duty. In California, undue influence refers to using excessive persuasion to financially abuse a dependent adult. Financial abuse occurs when a person or body takes or assists in taking the personal property of a dependent adult. In the context of a marriage or partnership, this could entail a spouse in a position as trustee or conservator of a dependent spouse persuading the dependent spouse into changing their separate property into community property.

Consequences of Violating Spousal Fiduciary Duties

According to California Family Code Section 1101, if one spouse engaged in any transactions that led to the damage of the other spouse’s claim to one-half of the community property, then the victim spouse can bring this to court. If spousal fiduciary duty is found to have been violated, then there are several steps that the court can take:

  1. The court can order that the spouses take inventory of all of their community property.
  2. The court can order that the name of the victim spouse be added to the title of some of the separate property belonging to the spouse who engaged in the breach of their fiduciary duties. This separate property could be anything from a business interest to a professional corporation to an estate property.
  3. The court can order that fifty percent of any asset that was used to breach the spousal fiduciary duty be awarded to the victim spouse, according to the highest value of the asset at the time of the breach.
  4. For transactions involving community property, the consent of both spouses is always required. However, if spousal fiduciary duty is found to have been breached, the court can order that the requirement for the perpetrating spouse’s consent be waived with respect to community property transactions.
  5. If the violation of spousal fiduciary duty entails fraud (intentional misrepresentation or concealment of material facts), is done with intent to harm, or falls under any other activity described in California Civil Code Section 3294, then 100% of the assets involved in the breach could be transferred to the victim spouse.

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