The operative word in any divorce case in California is “disclosure”. Divorcing spouses have an affirmative duty to each other to promptly and fully disclose all assets and liabilities in which one or both of the parties may have an interest during the dissolution proceeding. Disclosure requirements are mandatory and not dependent upon the other party seeking information through discovery. This obligation is a continuing obligation that starts at the commencement of the dissolution proceeding and terminates only when the assets are divided.
In Family Code Section 2100, the California Legislature has specifically referred to this disclosure requirement as paramount, not only for divorcing parties, but for the State as well, in order to ensure fairness in the divorcing process.
The statutory scheme for these disclosure responsibilities and obligations between spouses was laid out by the legislature in the early 1990’s. Family Code Section 721 defines the relationship between the spouses as a fiduciary one akin to individuals in a confidential relationship with the highest duty of good faith and fair dealing between them. In a dissolution proceeding, this fiduciary relationship between spouses is implemented in part through Family Code Section 2103, which requires the parties to make full, accurate and complete disclosure of all assets and liabilities that may impact the other party from date of separation until the assets are distributed. The mechanism in which these disclosures are made are through the preliminary Declaration of Disclosure (PDD–Family Code Section 2104) and the final Declaration of Disclosure (FDD– Family Code 2105). This disclosure obligation is ,per Family Code Section 2100, an ongoing obligation that requires the party to update and augment their disclosure.
Although there are similarities between the PDD and the FDD, there are also significant differences. Both use the FL-140 form. Both the PDD and FDD require, as a minimum, responding to points 1 through 5 on the form. Point no. 5 is particularly interesting, in that it form requires “An accurate and complete written disclosure of any investment opportunity, business opportunity or other income producing opportunity presented since the date of separation that resulted from investment, significant business, or other income producing opportunity from the date of marriage to the date of separation.” Failing to disclose the “opportunity” (even if it ultimately results in a money-losing-venture), is of its self a violation of the fiduciary duty.
Both the PDD and the FDD are only served on the other side and not filed with the court. The PDD serves primarily to identify assets (and not necessarily value them) and cannot be waived under any circumstance . On the other hand, an FDD, by statute contains more specificity than a PDD. Family Code Section 2105 requires the FDD to contain all material, facts and information regarding assets and income, such as value. However,upon mutual agreement, the FDD can be waived [Family Code Section 2105(d) and form FL-144].
Failure to adequately make the disclosures outlined in Family Code Section 2100, is deemed a violation of a spouse’s fiduciary duty, and the code provides various monetary and other sanctions, including awarding any non-disclosed asset to the other party without offset. The court takes a very dim view of the nondisclosure of an asset by a spouse. For example, in the case of In Re Marriage of Rossi (2001) 90 Cal.App.4th 34, 100% of the winnings of a lottery ticket were awarded to recipient’s spouse as a result of nondisclosure of the lottery ticket by the lottery winning spouse. The court found that non-disclosure had been intentional, despite the recipient’s contention lottery winnings constituted separate property.
In the recent case of In Re Marriage of Feldman, the Fourth Appellate District affirmed a lower court’s ruling wherein Aaron Feldman was sanctioned $250,000.00 for his violation of his fiduciary duty to make full and complete financial disclosures to his spouse. The case involved a 34 year marriage, where Aaron, a millionaire, had during the marriage set up a series of privately held companies to develop real estate and own auto dealerships. Throughout the course of the dissolution proceeding, Aaron failed to fully disclose numerous investments, some of which he made at that time of or shortly thereafter separation. Aaron made his disclosures as difficult and opaque as possible; the court even described his behavior regarding disclosure as “hide the ball”.
In his appeal from the sanction award, Aaron argued that the court should not impose sanctions against him as a result of fiduciary duty violations, and failure to make full disclosure, because there was ultimately no economic harm suffered by his spouse as result of the nondisclosure.
In support of his argument, Aaron cited several cases where dissolution judgments were not vacated for noncompliance with disclosure obligations, unless some actual harm or prejudice to the complaining party had been show.
The appellate court dismissed Aaron’s argument.
The court found that Family Code Section 2107(c) authorizes sanctions to be imposed solely to effectuate compliance with the disclosure requirements. As the court stated:
“This statute … does not require any actual injury … in light of this legislatively expressed intention, the authority to impose sanctions for nondisclosure is plainly aimed at effectuating the goal of reducing the adversarial nature of marital dissolutions rather than at redressing any actual harm inflicted on the complaining spouse.”
The court distinguished the authority cited by Aaron primarily because they dealt with attempts to vacate an already existing Judgment based upon disclosure failures. The court reasoned that in the case at bar, Aaron’s actions were done within an ongoing pre-judgment dissolution proceeding, and the sanctions were an appropriate attempt by the Court to correct Aaron’s behavior with regard to his fiduciary obligations prior to the entry of dissolution Judgment.
Unlike Rossi, where there was an actual economic harm as a result of the failure to disclose the winning from a lottery ticket, Feldman stands for the proposition that even absent any economic harm caused by the nondisclosure the Court can award sanctions in order to encourage compliance. The actions of the trial court in Feldman, affirmed by the appellate court, clearly shows that a Òno harm, no foul” approach in disclosures between the spouses is a violation of a fiduciary obligation, and should be dealt with seriously. Regardless of what the results could be as a result of a nondisclosure, the courts are adamant about the requirement that disclosure occur between spouses.
