Divorce and Fiduciary Duty

By | November 29, 2017

Folks in the process of getting divorced are often surprised to learn that separating spouses have a fiduciary responsibility to one another. This responsibility lasts until the divorce is finalized. If you don’t know what effect fiduciary responsibility will have on your financial transactions, or even what fiduciary means, take heart, this article was written to offer some basic information on the issue and hopefully answer both questions.

It’s important to remember that every divorce situation is different, and no article could ever adequately cover the specifics of your particular situation. That’s why it’s important if you are considering filing for divorce, or have been served with divorce papers, that you discuss your situation with a good family attorney.


Fiduciary Responsibility Defined

To those not familiar with the term fiduciary, the word might sound like it was invented specifically for use by lawyers. While there could be some truth to this, the term applies to a broad range of fields across both the legal and business professions. California Civil Jury Instructions No. 4100 define the phrase as “a duty to act with the utmost good faith in the best interests of [his/her/its] [principal/client/corporation/partner].

For instance, in the real estate business, brokers and agents have a specific fiduciary responsibility to their clients. In California, a broker representing a client who’s buying a home must disclose all facts known to the broker that materially affect the value or desirability of the property.

Fiduciary Responsibility Between Divorcing Spouses

California Family Code §721(b) “imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.”

It’s key to remember that this law applies to spouses regardless of whether they are swept up in the joy of marital bliss, or engaged in a bitter divorce. Furthermore, California Family Code §1100(e) states that a couple’s fiduciary responsibility continues until the divorce is finalized:

“Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in section 721, until such time as the assets and liabilities have been divided by the parties or by a court.”

What Does This Mean for Divorcing Couples?

In simple terms, the law requires divorcing couples to adhere to certain standards when managing community property. These include:

  • Providing each spouse access at all times to transactions records.
  • Accounting to the other spouse any profit gained from any transaction involving community property conducted by one spouse without the other’s consent.
  • Rendering, upon request true and full information of all things affecting any transaction involving the community property.

Qualifying community property transactions might include:

  • Real estate
  • Credit card purchases
  • Car sale or purchase
  • Sale of (jewelry, appliances, furniture)
  • Bank withdrawals, or transfers
  • Credit applications
  • Other transactions

Penalties for Violating a Spouse’s Fiduciary Right

California Family Code §1101(g) provides clear penalties for spouses who violate their fiduciary duty, as well as benefits for the affected spouse. The section states:

“Remedies for the breach of fiduciary duty by one spouse…shall include, but not be limited to, an award to the other spouse of 50 percent, or an amount equal to 50 percent, of any asset undisclosed or transferred in breach of the fiduciary duty plus attorney’s fees and court costs. The value of the asset shall be determined to be its highest value at the date of the breach of the fiduciary duty, the date of the sale or disposition of the asset, or the date of the award by the court.”

In other words, a spouse wants to be sure not to dispose of any property if there is a question as to whether it is part of the community estate. Furthermore, a spouse whose fiduciary rights have been violated could stand to gain significantly in a divorce proceeding.

A Word About Temporary Restraining Orders

When a person files for divorce and serves his or her spouse with the legally required divorce summons, there are a series of automatic restraining orders that go into effect, some of which deal specifically with the couple’s fiduciary responsibility. Specifically, both spouses are restrained from:

  • Cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage, including life, health, automobile, and disability, held for the benefit of the parties and their minor children.
  • Transferring, encumbering, hypothecating, concealing or in any way disposing of any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life.
  • Creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affects the disposition of property subject to the transfer, without the written consent of the other party or an order of the court.

For more information on automatic restraining orders, be sure to read our article on TROs.

Complicated Family Situations Call for Quality Legal Representation

Whether you’ve read this page in its entirety, or skipped directly to this section, it goes without saying that family law, as well as family dynamics, are complicated. A person filing for divorce, or recently served with divorce papers will naturally have many questions about their financial future, as well as other pressing matters such as child custody. It’s important that if you have questions, you discuss the situation with a qualified family attorney for the answers.

When it comes to the division of community property, or your legal responsibilities to your soon-to-be former spouse, don’t let your questions go unanswered. Contact our office for more information.

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