When Does The Duty To Disclose Material Changes In Income End?

When Does The Duty To Disclose Material Changes In Income End?

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Parties to a dissolution of marriage are bound by law to disclose all material facts relating to income or expenses of a party from the date of separation until the date of a valid, enforceable and binding resolution of all issues relating to child or spousal support. Family Code, Section 2102 ( c )

 

In a recent case, the California Court of Appeal for the Fourth District had to determine when that duty to disclose ended. Joseph and Maryanne Sorge married in 1983, separated in 2000 and entered into a marital settlement agreement (MSA) that was entered as a judgment of dissolution in 2003 in Wyoming. The judgment was registered in San Diego in 2005. In 2007, Maryanne sought to modify custody and child support. In the time between the MSA and the filing of the request to modify, Joseph sold a business and netted about $100 Million. During the modification proceedings, Maryanne requested sanctions against Joseph for breaches of fiduciary duties for failing to disclose changes in his income beginning in 2006, as well as failure to disclose material changes in his income from the date of her filing of the modification request in August 2007, until responses to formal discovery were received in March of 2008 as well as failure to provide documents concerning trusts, providing misleading financial and tax information and using a limited liability company to make his child support payments.

 

The trial court found that the duty set forth in Family Code, Section 2102, must be interpreted to apply until the court loses jurisdiction to make a child support order. Thus, even after the judgment, the duty to disclose continued to apply and, therefore, Joseph breached that duty. The court ordered Joseph to pay $75,000 in sanctions.

The Court of Appeal reversed. In ascertaining the legislative intent behind the language of Family Code, Sections 2100, et seq. (the disclosure statutes), the Court noted that the phrase “valid, enforceable, and binding resolution of all issues relating to child support…” was not defined and, therefore, needed to look elsewhere as well as consider the impact of different interpretations as an indication of legislative intent.

In finding the date of the judgment to be the binding resolution, the Court noted the distinction between temporary orders and final orders (or judgments) in cases. The court noted the Supreme Court noting that in child custody cases judgments are final or “permanent” orders but remain subject to modification in the future. The court also noted that the Family Code provides for a simplified process to request updated financial information, pot judgment by requesting an updated income and expense declaration every 12 months. Such provision would be rendered senseless if the duty to disclose continued to run during that time. Choosing to avoid an interpretation that did not consider the post judgment request for financial information, the court states the rule that the “valid, enforceable, and binding resolution of all issues relating to child…support” is the date of a final judicial support determination, whether obtained by agreement or after litigation.

 

The disclosure statutes are complicated and interpretation issues are still working their way through the courts. If you have to approach one of these issues, it is best you seek the assistance of an experienced family law practitioner so you do not unintentionally run afoul of the rules and find yourself sanctioned.