Fiduciary Duty in California Divorce: What Spouses Must Disclose (and the Penalties for Hiding Assets)

Divorce can be a complex and emotionally draining experience. Yet, despite the emotional turmoil, California law expects spouses to uphold a legal obligation known as fiduciary duty, even as they part ways. This concept isn’t just legal jargon, it can dramatically affect your financial future post-divorce.

This guide offers a comprehensive exploration of fiduciary duty during divorce in California, backed by real-life cases, actionable steps, legal interpretations, and frequently asked questions.

What Is Fiduciary Duty Between Spouses?

In marriage, each partner holds a legal and ethical responsibility to act in the other’s best interest when managing community property. In legal terms, this is called a fiduciary obligation.

Fiduciary Duty Defined:

A fiduciary duty is the legal duty of care, loyalty, full disclosure, and good faith that one spouse owes to the other, especially regarding financial and property decisions.

California Law on Fiduciary Duty: Core Legal Concepts

When couples divorce, generally, the last thing on their mind is to be fair to the other spouse. However, that is exactly what the law in California requires of both spouses. The more formal term for this concept is a fiduciary obligation. More specifically, spouses are subject to the general rules governing fiduciary relationships, which control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This concept covers all aspects and dealings between spouses, including any transaction regarding any item of community property, whether it be car insurance, medical insurance, bank accounts, running a business, or handling investments. Every aspect that deals with having an impact on the other spouse is subject to this obligation.

Any alleged violation of this fiduciary obligation can result in a cause of action against the other spouse. California Family Code section 1101 states that a spouse has a claim against the other spouse for any breach of the fiduciary duty that results in impairment to the other spouse’s present undivided one-half interest in the community estate, including, but not limited to, a single transaction or a pattern or series of transactions, which transaction or transactions have caused or will cause a detrimental impact to the claimant spouse’s undivided one-half interest in the community estate.

Should there be a violation of the fiduciary obligation, very harsh repercussions may follow. Remedies for breach of the fiduciary duty by one spouse can include 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. Thus, not only could a spouse get the entire asset or 100% of its value, but the violating spouse would have to pay the attorney fees of the other spouse!

Legal Framework: California Family Code Section 1101

Violation Scenarios:

Under California Family Code S1101, fiduciary duty violations may occur when:

• A spouse hides assets during divorce proceedings.
• One spouse transfers or sells property without notifying the other.
• A party engages in self-dealing or fails to disclose financial changes.

Legal Consequences:

• Reallocation of up to 100% of the hidden asset’s value to the injured spouse.
• Payment of legal fees and court costs by the violator.
• Court assessment of the asset’s highest historical value for penalty calculation.

Case Study: Simkin v. Blank (New York)

A recent article by Patricia Hurtado on Bloomberg.com shows how this concept of a fiduciary duty and fair dealing may come into play to help a litigant in a case in New York. In that case, an attorney, Steven Simkin, and his ex-spouse, Laura Blank, had an uncontested divorce. During the divorce proceeding, Mr. Simkin bought out Ms. Blank’s one-half share of an investment for $2.7 million. The problem was that the investment account was with Bernard Madoff, who was charged in December by federal prosecutors with securities fraud after allegedly confessing to investigators that he directed a $50 billion Ponzi scheme. Because this asset is of no value, Mr. Simkin now wants his money back. Suzanne Bracker, a New York City divorce lawyer, said Simkin may have a chance to redo the terms of his divorce settlement. It will depend in large part on this concept of good faith and fair dealing. If Mr. Simkin can show that he did not know about this scheme, then he should stand a good chance of getting his money back.

Of course, California law does not apply to a New York case, but the concept of fiduciary duty and fair dealing between spouses that the New York case is dealing with seems to be similar to the rights and obligations California divorce litigants owe to each other. This concept may be the last thing on litigants’ minds when they consider a divorce; however, wise counsel should assure that these obligations are given serious attention. If you or someone you know has questions regarding what your fiduciary duties are, consult with a family law attorney who will point out your obligations and advise you on how you can avoid being in breach. Or, if you believe that your spouse may not comply with his or her duties, consult a family law attorney who can triage your case and point out the remedies available to you.

Related Legal Attributes Under Fiduciary Duty

To fully grasp fiduciary duty, it’s essential to understand its related legal and financial dimensions:

Community vs. Separate Property

• Community Property: Acquired during marriage; must be disclosed and divided equally.
• Separate Property: Owned before marriage or inherited; not subject to equal division, but still must be disclosed.

Financial Discovery & Affidavits

• Failure to complete or falsifying a Preliminary or Final Declaration of Disclosure can constitute a breach.
• Parties must disclose all assets, debts, and income streams under oath.

Role of Legal Professionals

• Forensic Accountants: Trace hidden assets or inconsistencies in financial records.
• Divorce Mediators: Help resolve disputes involving suspected fiduciary violations.
• Family Law Attorneys: Build cases for financial abuse or concealment.

Examples of Fiduciary Duty Breach

Common Breaches:

• Transferring ownership of real estate without consent
• Opening hidden bank accounts or offshore investments
• Overpaying debts to third parties (e.g., family or friends)

Documented Actions to Avoid Breach:

• Maintain open communication regarding financial changes
• Disclose every transaction related to marital property
• Refrain from unilaterally changing insurance beneficiaries

Emotional & Psychological Aspects

Financial Manipulation as Control

• Some spouses exert control by withholding financial information.
• This can be a form of emotional or economic abuse.

Impact on Settlement

• Breach of fiduciary duty often leads to distrust, delays, and higher attorney costs.
• Emotional turmoil may obscure financial decision-making, increasing risk.

Action Steps if You Suspect a Breach

• Gather Documentation: Collect statements, deeds, and financial records.
• Hire a Forensic Accountant: Especially if large sums or complex assets are involved.
• Consult with a Divorce Attorney: You may be entitled to significant legal remedies.
• File a Motion with the Court: Request penalties or reallocation of assets.

FAQs: Fiduciary Duty in California Divorce

Is fiduciary duty still valid after physical separation?

Yes. Until all property is divided, both parties owe fiduciary duties.

Can I sue my spouse for breach of fiduciary duty?

Yes. Under California Family Code, you may initiate a cause of action for asset reallocation and damages.

What’s considered a ‘hidden asset’?

Unreported real estate, investment accounts, cash reserves, or diverted income.

Does fiduciary duty include debts?

Absolutely. Failure to disclose joint or personal debts impacts fair division.

Is emotional abuse via financial control a violation?

Yes, especially if it leads to withholding financial resources or information.

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Conclusion: Upholding Duty Beyond Emotion

Fiduciary duty may be the last thing couples think of when separating, but legally, it may be the most powerful force in shaping post-divorce outcomes. Knowing how to comply or respond to a violation can protect your finances, your rights, and your peace of mind.