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Home » divorce » Coming Clean during Divorce – The Fiduciary Relationship between Parties during Divorce

Coming Clean during Divorce – The Fiduciary Relationship between Parties during Divorce

One of the least understood aspects of divorce – by folks going through it and frankly often by their attorneys – is the “fiduciary relationship.” From the Latin (fiduciaries) meaning confidence or trust (this is why I can charge the big bucks – I can Google), a fiduciary relationship begins with the marriage vows and ends with the judgment (although it can be extended in some ways by an agreement at judgment, but that is a post for another day).

In practical terms, what the fiduciary relationship means is that the divorcing parties owe each other during the divorce the highest level of good faith and fair dealing – pretty much the opposite of what they are generally feeling like giving each other.

Generous quoting from Family Code section 721 is best to illustrate:

721. *** (b) [S]pouses are subject to the general rules governing fiduciary relationships that 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 confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in … the Corporations Code, including, but not limited to, the following:

(1) Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspection and copying.

(2) Rendering upon request, true and full information of all things affecting any transaction that concerns the community property.***

(3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse that concerns the community property.

Remember again that until judgment in a divorce you remain spouses. No matter how you may refer to your former better half as your “ex” during the divorce, you remain married and this law remains applicable.

What does this mean?

You cannot hide your assets. You cannot keep your spouse from learning about your finances. You have to provide documents when requested in discovery. You have to provide (within reason, but broad reason) bank statements, credit card statements, retirement account plan information, etc.

If you are living in the community property house during separation, you have to keep the other party apprised of all developments relating the house. Get a notice from the lender about a change in the interest rate? Send your spouse a copy. The property insurance rate increases? Your spouse needs to get a copy of that. Termite inspection failed? Send them a copy.

It is amazing how often spouses are resistant to producing things like bank records and credit card statements when asked in discovery (formal requests or demands for documents you have 30-45 days to produce certain documents). Today judges know that it is simple to obtain copies of statements online; many banks allow you to download copies of statements going back 2 to 7 years in minutes, often with copies of checks included.

The same is true with utilities, cell phones and land lines. What used to be a process that took weeks of communicating with providers and banks for hundreds of dollars can now be accomplished online in an hour or two at no cost and then be provided to the other side on a cheap USB drive or cheaper CD.

Yet many times I am faced with other parties who fail to respond in time or at all, or who provide only partial responses. This can lead to expensive litigation (a motion to compel responses) and the non-responsive party being ordered to pay the costs of the moving party’s attorney fees as well as their own to defend against it. I recently was awarded over $8000 in fees when I prevailed in such a motion; I imagine the total cost to the other party was well over $10,000 simply because she did not respond to requests for bank and credit card statements she was eventually forced to produce.

And while you may believe you are protected by some constitutional rule of privacy, you must provide your recent tax returns as well. (Fam. Code § 3552.)

Worth mentioning is the automatic temporary restraining order (sometimes referred to by attorneys as the ATROS) on the back of the summons served with the divorce petition. This is a powerful protection of the parties’ rights which also reflects their fiduciary duties.

In addition to prohibiting removing minor children from the state without prior written permission of the other parent, it prevents BOTH parties from:

  • cashing, borrowing against, changing or canceling insurance policies
  • transferring, concealing, disposing, selling, etc., real or personal property
  • creating or modifying a nonprobate transfer

The bottom line is that there is nothing to be gained by attempting to hide the ball. If you attempt to hide assets, or try to stubbornly refuse to cooperate with providing documents that you are required by the code specifically or your fiduciary duty in general to produce, you will be forced to do it at a greater cost in the long run.

Years ago, a small business owner claimed to the judge in one of my cases that he did not keep sales records. The judge point-blank told him she didn’t believe him, and that at trial she would probably end up penalizing him. The end result was that my client, rather than get some small cash payout that would have ended his pain, ended up equal partners in his business because he refused to provide simple documents.

Don’t be afraid of the facts or try to hide them, because they will come out whether you bring them out or the other side does. You want to bring them out so you control how, where and when. You have to trust your attorney to take your facts and accomplish your goals with them and your spouse’s facts.

Rarely have I found that my client’s facts were so bad that I could not achieve our goals in spite of them. Using sunshine and full disclosure while the other side tried to hide and play games often gave us the advantage with the court that allowed even inconvenient facts to work to our advantage.

When in doubt, deal in good faith.

Wow, what a concept!

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