In a decision filed August 11, 2011, the Third Division of the Fourth Californa Appelate District ruled, “In a marital dissolution proceeding to divide the community property, where the nonmanaging spouse has prima facie evidence that community assets..have disappeared while in the control of the managing spouse post-separation..the managing spouse [shall] have the burden of proof to account for the missing assets[.]”
Alan and Elaine Margulis were married for 33 years; Alan was the sole breadwinner and manager of community finances. After separation, Alan asserted that the hundreds of thousands of dollars in community investment accounts had been depleted in expenditures for the community’s or Elaine’s benefit or due to stock market losses. Alan presented no evidence at trial to show how he disposed of the funds under his control.
At trial, Elaine presented an account statement prepared three years after separation (and six years before trial) showing total assets of $1,305,500. She argued that she should not have to prove how Alan had disposed of these monies; rather, as managing spouse, the burden of proof should be on Alan. The trial court rejected this argument and said the statement wasn’t sufficient to establish the values of the community assets at separation These assets were thus excluded from the equalization calculation, and Elaine had to pay Alan a hefty sum.
The trial court reversal on appeal constitutes an exception to the general rule under Evidence Code §500, which states that “a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting.” This exception is in line with the large body of case law, which allows courts to alter the normal allocation of the burden of proof in the interests of fairness and equal access to evidence, especially where a plaintiff has no access to records.
The appellate court noted that “the trial court’s failure to place the burden of proof on Alan relieved him of the duty to account for his postseparation management of these assters..This lack of accountability poses a risk of abuse and runs afoul of the statutory scheme imposing broad fiduciary duties of disclosure and accounting on a managing spouse.”
Indeed, pursuant to CFC §721(b), Alan was obliged to furnish information regarding his disposal of the community assets to Elaine even without demand. Relief for the sequestering and disposal of community assets is controlled by CFC §1101 et. seq. under which an injured party is mandatorily due half of the purloined asset plus fees and costs and under which an injured party may be awarded the entire asset. When the trial court revisits this issue, it will have to make a new decision with CFC §1101 et. seq. in mind.
Full transcript of the Court’s decision can be found here.