Understanding Spousal Fiduciary Duty During Divorce

In California, the relationship between spouses is governed not only by personal trust but also by legal fiduciary obligations. A fiduciary duty is the highest legal standard of fairness, requiring spouses to act with loyalty, honesty, and transparency when dealing with marital assets.

Under California Family Code § 721, this duty parallels the responsibility that business partners owe to one another. Each spouse must:

• Fully disclose all relevant financial facts.
• Avoid hiding, transferring, or wasting community property.
• Place the marital community’s best interests above personal gain.

This responsibility is not symbolic — it is legally enforceable. Courts view fiduciary duty violations as serious breaches that can result in attorney’s fees, sanctions, or reallocation of property.

Legislative Background: From Good Faith to Fiduciary Duty

Prior to 1992, California law imposed only a good-faith obligation between spouses. That year, the Legislature expanded the duty into a full fiduciary standard, ensuring stronger protections in divorce cases.

• Why this matters: The Legislature recognized that divorces often involve complex financial disputes. By elevating the duty, California law now holds spouses to the highest standard of accountability.
• Scope of the duty: Fiduciary obligations begin during marriage, continue through separation, and last until the final distribution of marital property.

This means spouses cannot simply act independently after separation. Fiduciary duties continue even when a marriage is dissolving.

Fiduciary Duties After Separation and During Divorce Proceedings

Some people believe fiduciary duty ends once spouses separate, but this is not the case.

Under California Family Code §§1100 and 2100–2106:

• Each spouse must provide ongoing financial disclosure until the court finalizes the division of assets.
• Failure to disclose income, debts, or property can lead to mandatory penalties.
• Courts may issue sanctions if a spouse delays, conceals, or mismanages property.

This legal framework ensures that divorce proceedings remain fair, preventing either spouse from gaining an unfair advantage.

Case Example: When a Breach Leads to Court Sanctions

To understand the impact of fiduciary breaches, consider the real-life dispute between Mary Hokanson and her ex-husband Jon.

• Mary’s 1994 Judgment of Dissolution required the prompt sale of the family home.
• Instead, she delayed listing the house during a declining real estate market.
• When she finally listed it, the asking price was so high no offers came in. She ignored her real estate agent’s advice to reduce the price.

Eventually, Jon petitioned the court to set a listing price and enforce the sale. After the court intervened, the property sold. Mary then sought court orders for dividing the proceeds. Jon objected, arguing that her delay and inflated listing price breached her fiduciary duty.

• Trial Court Ruling: The court agreed that Mary breached her duty but denied Jon’s request for attorney’s fees.
• Appellate Court Ruling: The appellate court reversed, holding that attorney’s fees in fiduciary breach cases are mandatory. Trial courts lack discretion to deny them once a breach is proven.

This case demonstrates the seriousness of fiduciary obligations. Even delaying a sale or ignoring professional advice can amount to a costly breach.

Consequences of Breaching Fiduciary Duty

California courts impose significant consequences for breaches of fiduciary duty. Depending on the facts, a spouse may face:

• Mandatory Attorney’s Fees: As clarified in Hokanson, fee awards are not optional once a breach is established.
• Financial Sanctions: Courts may impose fines or order repayment of financial harm caused by misconduct.
• Asset Redistribution: Under Family Code §1101(g), a court can award up to 100% of the hidden or mismanaged asset to the innocent spouse in extreme cases.
• Loss of Credibility in Court: Judges may draw adverse inferences against a spouse who withholds or misrepresents information.

These penalties are designed to maintain fairness and deter misconduct.

Common Examples of Fiduciary Duty Violations

Breaches can occur in many forms, including:

• Concealing bank accounts, investments, or business income.
• Delaying the sale of real estate for personal gain.
• Refusing to comply with court-ordered disclosures.
• Spending community assets recklessly after separation.
• Undervaluing or hiding marital property during negotiations.

Each of these actions undermines the integrity of divorce proceedings and exposes the spouse to legal consequences.

Preventing Fiduciary Duty Breaches

Both spouses can take steps to avoid violations:

• Maintain accurate financial records throughout the marriage.
• Respond promptly to requests for financial disclosure.
• Follow professional advice when selling property or managing assets.
• Avoid unilateral decisions that affect community property.
• Seek legal guidance before making significant financial moves after separation.

Transparency and compliance with disclosure laws are the best ways to avoid costly disputes.

The Role of Attorneys in Fiduciary Duty Cases

Because fiduciary disputes involve both financial and legal complexities, attorneys play a critical role in:

• Investigating assets — requesting discovery, subpoenas, and forensic accounting.
• Proving breaches — gathering evidence of concealment, delay, or mismanagement.
• Enforcing remedies — requesting sanctions, asset redistribution, or attorney’s fees.
• Protecting clients — ensuring compliance with disclosure obligations to prevent penalties.

Working with experienced family law attorneys ensures that fiduciary duty disputes are handled strategically and effectively.

Conditional and Temporal Scenarios to Consider

• Before filing divorce: Both spouses must still act in good faith regarding community property.
• During divorce proceedings: Fiduciary duties are heightened, and all disclosures are mandatory.
• After judgment but before division of assets: Duties remain until assets are distributed.
• In mediation or arbitration: Fiduciary obligations still apply, and breaches can be raised later in court.

Understanding these timelines helps prevent mistakes that could lead to costly litigation.

FAQs About Fiduciary Duty in California Divorce

What is fiduciary duty in California divorce?

It is the legal obligation requiring spouses to act with honesty, fairness, and transparency in managing community assets, similar to business partners.

Does fiduciary duty continue after separation?

Yes. Fiduciary obligations last until the court completes division of property, even after spouses live separately.

What happens if my spouse breaches fiduciary duty?

Consequences include attorney’s fees, monetary sanctions, redistribution of property, and potential loss of credibility in court.

Can I recover attorney’s fees if my spouse delays selling property?

Yes. California law requires fee awards when a breach is proven, as established in Hokanson’s appellate ruling.

What types of assets are commonly involved in fiduciary breaches?

Hidden bank accounts, real estate, retirement accounts, business holdings, and high-value personal property.

Get Legal Help with Fiduciary Duty Disputes

Fiduciary duty is one of the most critical — and most frequently misunderstood — aspects of California divorce law. If your spouse has hidden assets, delayed property sales, or failed to provide required disclosures, you may be entitled to attorney’s fees, sanctions, or even redistribution of assets.

At Reape Rickett, our family law attorneys have extensive experience litigating and defending fiduciary duty claims. We understand the nuances of California Family Code provisions and the strategies courts use to evaluate breaches.

Contact Reape Rickett today for a confidential consultation and let our attorneys help protect your financial rights during divorce.