Why Disclosure is so Important in California Divorces

The State of California imposes very broad duties of disclosure between spouses that are in the midst of a divorce. Inevitably, a spouse will try to cut corners or try to defraud their spouse altogether in an attempt to get an edge in the divorce case. The Family Code has built-in provisions that severely punish or otherwise disincentivize this kind of behavior. We will talk about a few of these provisions below.

Family Code section 1101(h): Forfeiting 100% of a Concealed Asset: Imagine the following fact pattern. Husband and Wife are going through some difficult marital problems. Wife just finds out she won a $1+ million dollar lottery. She then tells Husband that their marriage is over and completely conceals the existence of this $1+ million award. Husband finds out about it later when a congratulatory letter is sent to the parties’ old address where Husband resides.

As crazy as it sounds, these are the actual facts of the Marriage of Rossi case. And the trial court was not happy. 1101(h) allows the Court to award 100 percent of a community asset to one spouse if the Court finds, by clear and convincing evidence, that the other spouse acted with fraud and or malice. This court just did that. Wife must kick herself every morning.

Family Code section 1101(g): Breach of Fiduciary duty, but short of Fraud, Oppression, and/or Malice: Family Code section 1101(g) states as follows:

Remedies for breach of the fiduciary duty by one spouse, including those set out in Sections 721 and 1100, shall include, but not be limited to, 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.

This provision, unlike 1101(h), only allows a spouse to take 50% of the value of an undisclosed asset, but essentially allows the injured spouse to define value in a way that is favorable to that spouse. For instance, let’s say a spouse sells $100,000 of Apple stock to pay attorney fees, but fails to disclose that to his spouse. 1 year later, at trial, the Court determines that this sale of community’s stock was a breach of fiduciary duty. The value of the same amount of Apple stock sold one year ago would, at trial, be valued at $200,000 instead of $100,000. In this case, the Court must award Wife damages of $100,000 (50% of $200,000) because the value of the same Apple stock was higher at the date of the award than the date of the breach.

Set Aside Statutes- A Ticking Time Bomb: If a material failure to disclose is ever discovered, even if the noncompliant party did not act nefariously, delayed discovery provisions in the Family Code prevent noncompliant parties from using the passage of time as a shield.. That’s because, with respect to fraud, perjury, and failure to disclose, the time limits to set aside an order of judgment under Family Code section 2122 do not begin to run until the fraud, the perjury, or the failure to disclose is discovered (or should have been discovered). If there is such a discovery 10 years after the judgment is entered, not only will that not be a bar to a set aside, but one of the parties will have to answer to a judge who will be ready to throw the book at them.

Attorney Fees: More Hurt for the Noncompliant Spouse: As if the preceding parts of this post weren’t enough of a deterrent, the Court has ample authority to award attorney fees and/or sanctions to the injured spouse either under Family Code sections 1101(g), 1101(h), 2100 et seq, 2030, and 271. If the Court is required to dig up an old file and reexamine a case that should have ended years ago, it is likely that the Court is going to make the noncompliant party pay, literally and figuratively.

Feel free to contact us if you are considering a divorce from your spouse, a legal separation, or have questions regarding child custody and visitation. Nancy J. Bickford is the only Certified Family Law Specialist (CFLS) in San Diego County who is also a licensed Certified Public Accountant (CPA) with a Master of Business Administration (MBA). Don’t settle for less when determining your rights. Call 858-793-8884 in Del Mar, Carmel Valley, North County or San Diego.


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