MARRIAGE, INC.: The Financial Partnership Between Spouses

When it comes to finances, California law treats spouses just like business partners.  In fact, provisions of the California Corporations Code addressing the duties between business partners are incorporated right into the California Family Code.  For example, Family Code 721(b), states that marriage is a “[confidential and fiduciary relationship] subject to the same rights and duties of nonmarital business partners” including an obligation between spouses to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts.  These duties and obligations exist between spouses while they are married and continue through the divorce proceedings and until the date on which all assets or liabilities are actually distributed.  Further, these duties obligate both spouses to provide information even if the other spouse does not ask for it.  Remedies for failure to abide by the disclosure requirements include attorney’s fees as well as an award to the other spouse of 100% of an asset that is undisclosed.

The Fourth Appellate District was recently called upon to visit these disclosure obligations in the case of Marriage of Feldman (2007) 153 Cal. App. 4th 1470.  There, husband failed to disclose several financial transactions during the divorce proceedings, including the purchase of a home and $1 million bond, and the existence of a 401(k) and several other investments.  Wife sought attorneys’ fees and sanctions and was awarded $140,000 in fees and sanctions in the amount of $250,000.  The Appellate Court affirmed.

While the Feldman decision caught the attention of the family law bar and judges alike, this was not the first time a California court upheld a sanctions award based on the failure to disclose.  In Marriage of Rossi (2001) 90 Cal. App. 4th 34, the Court of Appeal affirmed an award of 100% of $1.33 million in lottery winnings, which wife actively concealed during the proceedings, to Husband based on a finding that the concealment constituted fraud and came within the penalty provisions of the disclosure statutes.

The lesson to be learned by Feldman and Rossi is simple:  disclose, disclose, disclose!