In a decision filed April 18, 2013, the 1st Court of Appeals interpreted that California Family Code (CFC) §§1101(g) and (h) apply solely to community property.
What does this mean to you?
Back in February 2011, I talked about CFC §1101 requests. CFC §1101(a) says
“A spouse has a claim against the other spouse for any breach of the fiduciary duty that results in impairment to the claimant 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.”
For instance, a party might liquidate an asset completely upon receiving a divorce summons so that it can’t be split, or perhaps that party might transfer it to a hidden location.
If a party finds out about this, he/she can get relief pursuant to CFC §1101 et. al. If the mistake was made honestly, or even if it wasn’t, but the actions aren’t found to be malicious or tantamount to fraud, the Court must award half of the asset plus attorney’s fees. But if the party hid or took the money in a manner tantamount to fraud (for instance, lying about its existence in an attempt to keep it), then the Court can award *all* of the asset to the other party.
The first type of relief (half plus fees) is granted pursuant to CFC §1101(g). The second (the whole thing) is granted pursuant to CFC §1101(h). The two statutes were never clear on whether or not the statute applied to all funds, community and separate, or just community, and prior appellate cases had only dealt with community property requests under these statutes.
As a quick primer, In California, virtually everything earned and acquired from the date of marriage to the date of separation is “community.” This means the married parties have equal claim to them. Anything earned or acquired before the marriage or after separation is separate, and things purchased with separate funds are usually separate property. Gifts and inheritances are usually separate property.
Obviously, it matters to a party if the other hides a community asset, but what does it matter if he/she hides a separate asset? Well, spousal support and attorney’s fees awards are based on the relative abilities of the parties to pay for attorneys/support themselves. If a party hides a substantial asset, the Court will assume that party has less of an ability to afford an attorney or pay support.
So do the CFC §1101 statutes apply to community property only or all types? The recent Appellate Court decision clarified the issue.
The divorce of La Jolla residents Tracy Hoogenberg and Keith Smmons was a lengthy, expensive affair, in large part due to Keith’s obstreporousness. In a divorce, the parties have the obligation to disclose to each other a complete picture of their financial situation so that they and the Courts can come up with a plan for property division and support and fees allocation.
When all was said and done, the Court found Keith had failed to comply with “even the most basic” financial disclosures. He didn’t respond to discovery (attempts by Tracy to get financial information out of him), he tried to declare the marriage a nullity on shaky grounds (and then said he would drop that request for a settlement of $500,000!), and he didn’t appear at his own deposition or his trial. The Court found that Keith had acted intentionally and in bad faith.
The Court also found that Keith had fraudulently failed to disclose a separate savings account in the amount of $245,850.24 (while at the same time telling the Court he could not afford an attorney!).
Tracy, at that point, had a number or options open to her to seek remedies:
She had the option to pursue sanctions pursuant to CFC §2107 for Keith’s failure to properly disclose. Such damages are *punitive*; they are supposed to keep someone from doing this kind of thing again.
Tracy also had the option to pursue sanctions for actions in frustration of settlement (i.e. dragging things out unnecessarily) pursuant to CFC §271. Again, these damages are punitive.
Finally, Tracy had the option to pursue relief pursuant to CFC §1101(g) or (h).
Tracy decided on going for all three, and she got all of them: $150,000 in §2107 sanctions, $250,000 in §271 sanctions, and the entirety of the $245,850.24 pursuant to §1101(h).
Keith appealed all of these orders. While the Appellatte Court upheld the two sanctions orders (Keith’s actions plainly qualified, and the the lower Court has a lot of discretion to award these sanctions, the Appellate Court said), the Appellate Court overturned the §1101(h) award.
While §1101(h) doesn’t specify whether it applies to both community and separate properties, §1101(a), which starts the section, specifically refers to community property. Moreover, §1101(f) says an §1101 request can be made even before parties file for divorce, at a time when separate property isn’t even an issue. Also, the Appellate Court reasoned, there are already other remedies for hiding/liquidating separate assets (§271 and §2107 sanctions).
Finally, said the Appellate Court, the point of §1101 et. seq. is to preserve each party’s one-half interest in community property, and, where appropriate, to give a party more than a one-half interest in an asset in the event the other party tried to deprive the first party of that asset.
Since there is no community interest in a separate property, the Appellate Court continued, §1101 et. seq. cannot apply to separate property.
In the end, the Appellate Court overturned the lower court’s ruling on the §1101(h) award, only, and remanded the case back to the Superior Court to reconsider the amount of the §271 and §2107 sanctions Keith should pay. It may well be that the Superior Court orders Keith to pay $245,850.24 in sanctions pursuant to CFC §§271 and 2107, and it’s a fair bet such orders would stand up on appeal given this decision.
The full opinion can be found here.
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