Sanctions for Failure to Disclose Assets in a Divorce

Division 4 of the California Family Code addresses marital rights and obligations. Within
that division, section 721 recognizes the confidential relationship held by spouses.  That relationship is a fiduciary relationship “impos[ing] a duty of the highest good faith and fair dealing on each spouse[.]” (§ 721, subd. (b).) Also within that division, section 1100 addresses management and control of community property. Subdivision (e) of that section provides:

“Each spouse shall act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obligation to 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 and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.”

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Family Code section 1101 creates a right of action and specific remedies for the breach of a spouse’s fiduciary duty “that results in impairment to the claimant spouse’s present undivided one-half interest in the community estate[.]” (§ 1101, subd. (a); In re Marriage of Prentis-Margulis & Margulis (2011) 198 Cal.App.4th 1252, 1270.) A section 1101 action may be brought separate from or in conjunction with a dissolution action. (§ 1101, subd. (f).) Section 1101, subdivisions (g) and (h) provide remedies for a spouse’s breach of fiduciary duty. Under subdivision (g), “[r]emedies 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.” When the breach constitutes fraud, oppression or malice, the remedy “shall include, but not be limited to, an award to the other spouse of 100 percent, or an amount equal to 100 percent, of any asset undisclosed or transferred in breach of the fiduciary duty.” (§ 1101, subd. (h).)

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Division 6 of the Family Code addresses marital separation and dissolution.  Chapter 9 of Part 1 of that division, titled “Disclosure of Assets and Liabilities,” contains sections 2100 to 2113. Section 2100 announces a public policy of full disclosure and cooperation in a marital dissolution. (§ 2100, subd. (b).) To that end, subdivision (c) mandates “a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest” in the early stages of a dissolution proceeding, “regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties.” Subdivision (c) imposes “a continuing duty to immediately, fully, and accurately update and augment that disclosure” so that “each party will have a full and complete knowledge of the relevant underlying facts.”  Section 2102 extends the fiduciary standards under section 721 “to all activities that affect the assets and liabilities of the other party” from the date of separation to the date community property is distributed in dissolution proceedings. (§ 2102, subd. (a).)

Those activities include: (1) “accurate and complete disclosure of all assets and liabilities in which the party has or may have an interest or obligation and all current earnings, accumulations, and expenses,” including “immediate, full, and accurate update[s];” (2) accurate and complete written disclosure of any investment or business opportunity; and (3) the operation or management of a business (or a business interest) in which the community may have an interest. (§ 2102, subd. (a)(1)–(3).)  Section 2107 mandates monetary sanctions against a party who fails to comply with any provision in Chapter 9 “in an amount sufficient to deter repetition of the conduct or comparable conduct.” (§ 2107, subd. (c).)  Section 271, located under the Family Code’s General Provisions, provides as a sanction that the court may award attorney’s fees or costs when a party’s conduct “frustrates the policy of the law to promote settlement of litigation” and “to reduce the cost of litigation by encouraging cooperation between the parties and attorneys.” (§ 271, subd. (a).)

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In a recent case (In re Marriage of Schleich (2/8/17) 6 Civ H039870, H041234 (Grover) 2017 WL 510881), the California Court of Appeal, Sixth District, reversed a trial court award of Family Code section 1101 sanctions, finding that the trial court may not award the “value of the asset” remedy (50% or 100% of asset value) to a wife pursuant to sections 1101(g) and (h) for the husband’s breaches of fiduciary duty in addition to her community property half interest in the assets the husband failed to disclose because such would be duplicative sanctions not permitted by the statute.