Fiduciary Duty

In 1992, the Legislature changed the duties that existed between husband and wife from a good faith standard to a full fiduciary duty. A fiduciary duty is one which requires the highest degree of good faith and fair dealing in transactions. Provisions of the California Family Code clearly state that this duty continues to run beyond the date of separation and through a divorce proceeding until the jointly-owned property is divided. We have now seen a case where a breach of fiduciary duty has resulted in significant penalties and sanctions being imposed by the trial court.

Mary Hokansons’s 1994 judgment of Dissolution provided that the family home in which she was living would be sold as expeditiously as possible for the best price reasonably obtainable. Mary delayed in listing the property during a declining real estate market. Mary then listed the property so high that no offers were received. Mary shunned the real estate agent’s recommendation for reducing the listing price.

Eventually Jon, Mary’s ex-husband requested that the court set a listing price and make other orders to assist in the sale. A month after the Court made its orders, the house sold. Mary requested that the Court make orders with respect to the distribution of the proceeds of sale. Jon responded, complaining of Mary’s breach of her fiduciary duty in failing to act responsibly in the sale of the house. Jon complained that Mary’s breach of the fiduciary caused damage to him as a result of the reduced sales price, and he requested attorney’s fees. The trial court agreed that Mary had breached her fiduciary duty but declined to order Mary to pay any of Jon’s attorney’s fees.

Jon appealed. The Appellate Court reversed that portion of the trial court’s order denying the request for attorney’s fees. The court stated that the award of attorney’s fees in a breach of fiduciary case is mandatory, and the trial court has no discretion to deny that request.

This case provides powerful ammunition to any party similarly situated in dealing with an actual or threatened breach of a fiduciary duty with respect to jointly held assets. Commonly in divorce proceedings assets need to be administered and sold. If a party is saddled with the burden of administering or selling an asset, the failure to act responsibly carries with it significant and severe consequences.