Breach of Fiduciary Duty – In re Marriage of Williamson (2014) 226 Cal.App.4th 1303, 172 Cal.Rptr.3d 699 (6/12/2014)
WHEN DOES A PARTY BREACH THE FIDUCIARY DUTY OWED THE OTHER SPOUSE?
Ever since publication of In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 64 Cal.Rptr.3d 29, where the court explained remedies for breach of fiduciary duties, one of the most hotly contested areas in family law has been a request for sanctions due to failure to timely disclose assets, or the breach of some other fiduciary obligation. The reason spouses overuse this remedy is nothing more than the language of the statute itself, “Breach of a fiduciary duty”, and “Sanctions for failure to disclose”, etc. This language resonates with aggrieved spouses, many of whom are convinced the breakdown of their marriage resulted from chicanery on the part of the other, and fear the same behavior will be employed during the division of assets.
But look closely at Family Code, Section 1100:
“… [Each spouse shall] make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest …” Section 1101 goes on to state: “… A spouse has a claim against the other spouse for … breach of the fiduciary duty that results in impairment to the claimant spouse’s present undivided one-half interest in the community estate …”
In other words, it is not enough to show breach of a fiduciary obligation or failure to disclose an asset; the failure must be ongoing, and the breach must have somehow “impaired” the other party’s interest in the asset. Examples include In re Marriage of Hokanson (1998) 68 Cal.App.4th 987, (failure to cooperate in the sale of a home); or failure to disclose lottery winnings (In re Marriage of Rossi (2001) 90 Cal.App.4th 34). But not in a post-judgment situation where one party failed to disclose assets and earnings available for the payment of child support (In re Marriage of Sorge (2012) 202 Cal.App.4th 626), or in a post-judgment situation where one party sold an asset for more than he/she estimated its worth in disclosure documents (In re Marriage of Burkle [Burkle II] (2006) 139 Cal.App.4th 712).
HOW DOES MARRIAGE OF WILLIAMSON ILLUSTRATE THIS CODE SECTION?
Husband initially failed to disclose assets to Wife, but did disclose his assets well in advance of trial and Wife suffered no prejudice. Wife argued the court erred by declining to impose sanctions for Husband’s breach of fiduciary duty. Wife claimed Husband improperly liquidated a $60,000 Roth IRA and failed to initially disclose his 1/11th interest in a 401(k) plan worth $14,990, and stock worth $5,850. When brought to trial, the court determined none of those acts constituted a breach of fiduciary duty, stating that although Husband improperly withdrew monies from the Roth IRA, he divided the account equally with Wife. The court properly found this and the other assets were disclosed well in advance of trial and that Wife suffered no prejudice from Husband’s initial failure to disclose.
The trial court held: No breach of fiduciary duty where Husband initially failed to disclose assets to Wife but did disclose well in advance of trial and Wife suffered no prejudice.
The lesson is this: In order to find a breach of the fiduciary obligation to disclose assets, the court must find an ongoing failure to disclose (Williamson tells us that disclosure prior to trial will “cure” the breach), and thereafter as a result of the breach the value of the asset in question must be “impaired”, e.g., either decreased in value or its worth withheld from the other spouse. If you can’t prove these elements, don’t waste your time, energy and money litigating the alleged breach.