What Are Fiduciary Duties?

In California, spouses are considered to be in a confidential relationship and owe each other heightened legal obligations called fiduciary duties. Fiduciary duties include the obligation to act honestly, transparently and in good faith with respect to community property assets and debts. Under Family Code section 721(b), this duty is the highest duty of good faith and fair dealing, similar to that owed by partners to a business. This duty begins at marriage and continues until the community estate is fully divided.

The Duty of Disclosure

Each spouse must make full and accurate disclosure of all material facts regarding the existence, characterization, and valuation of all assets. Under Family Code section 1100(e), this is an ongoing obligation that continues until all community assets have been divided.

The mandatory disclosure requirements under Family Code sections 2100 through 2113 that include the preparation of Declaration of Disclosure (FL-140) are the formal expression of this duty.

A Declaration of Disclosure (FL-140) is accompanied by the party’s last 2 years of income tax returns, an Income and Expense Declaration (FL-150) and a statement of all assets and debts via one of two options: 1) a Schedule of Assets and Debts (FL-142) or 2) two Property Declarations (FL-160), one for community property and one for separate property.

Verification is also part of the disclosure process. A Property Declaration or Schedule of Asset and Debts should have account statements, titles and other relevant documents attached. An Income and Expense Declaration should be accompanied by the last two months of pay stubs or proof of self-employment income (see top of page 2, Income and Expense Declaration).

A party has an ongoing duty to update their disclosures as material changes occur.

There are 2 types of mandatory disclosures: the Preliminary Declaration of Disclosure (FL-140) and the Final Declaration of Disclosure (FL-140). All parties have to complete and exchange the preliminary (except a respondent who is placed in default), but the final can be waived by mutual agreement.

A willful failure to disclose an asset can lead to penalties, or sanctions, including the loss of the entire asset. Accuracy and care here is important.

The Duty of Good Faith

Under Family Code section 1100(a), a spouse may not gift community personal property or dispose of it for less than fair value without written consent. Under Family Code section 1102, community real estate cannot be sold, leased, or encumbered without the other spouse’s written consent. The Automatic Temporary Restraining Orders (ATROs) included on page 2 of the Summons (FL-110) reinforce these these obligations during the pendency of the divorce or legal separation case.

Consequences of Breach

Under Family Code section 1101, the court may award 50 percent or more of a concealed or misappropriated asset to the non-breaching spouse. For willful conduct, the court may award the entire value. Under Family Code section 2107, sanctions, compelled compliance, and set aside are available for disclosure failures. Under Family Code section 2122, judgments can be set aside for disclosure failures.

Practical Implications

Do not hide assets, understate income, or fail to disclose debts. Do not make large transfers without consent or court order. Do not destroy financial records. Keep detailed records and act transparently to protect yourself and ensure a fair division.

Disclaimer: This article on California family law is published for informational purposes and does not constitute legal advice. Family law issues are fact-specific and complex. Consult with a licensed family law attorney for specific advice about your case.