High-asset divorce cases are often fraught with complexities, particularly when one spouse intentionally hides or mismanages community assets. In California, Family Code Section 1101(h), Civil Code Section 3294, and Family Code Sections 2040, 2100, and 2102 offer powerful remedies for the wronged spouse, allowing them to potentially recover 100% of an asset rather than the typical 50% community share. This article explores how these legal tools intersect and how they can be leveraged in divorce litigation to secure substantial financial relief. Through analysis of California case law—including In re Marriage of Gilbert-Valencia, In re Marriage of Rossi, In re Marriage of McTiernan & Dubrow, and In re Marriage of Prentis-Margulis & Margulis—we will examine how these statutes can be used as a hidden weapon to improve outcomes in divorce cases.
Family Code Section 1101(h) – Breach of Fiduciary Duty and Its Repercussions
Family Code Section 1101(h) provides a remedy for a spouse harmed by wrongful conduct during divorce proceedings, particularly in cases where one spouse intentionally conceals, dissipates, or mismanages community property in violation of their fiduciary duty. When proven, the injured spouse can be entitled to more than the standard 50% share of the community property. The court may award full reimbursement for the misappropriated asset or a larger share of the community estate as compensation for the wrongful misconduct.
Civil Code Section 3294 – 100% Remedy
Under Family Code Section 1101(h), when one spouse breaches their fiduciary duty as set forth in Sections 721 and 1100, remedies may include an award of 100% of any asset undisclosed or transferred due to fraudulent conduct, as outlined in Civil Code Section 3294. To seek this 100% remedy, the injured spouse must prove with clear and convincing evidence that the wrongdoer acted with oppression, fraud, or malice. When used in conjunction with Family Code Section 1101(h), Section 3294 enhances the financial relief for the injured spouse.
Family Code Section 1101(g) – The Highest Value
If fraud, malice, or oppression are not present, Family Code Section 1101(g) still offers a remedy that results in higher reimbursement to the injured spouse. This provision provides that the value of the undisclosed asset or asset transferred in breach of a fiduciary duty shall be determined at its highest value at the date of the breach of the fiduciary duty, the date of sale or disposition of the asset, or the date of the award by the Court, plus attorney fees and costs. In high-net-worth divorce cases, especially involving businesses, this provision can significantly benefit the wronged spouse.
Violations of Family Code Sections 2100, 2102, and 2040 – Subtleties To Watch For, And Guard Against, In High Asset Cases
California Family Code Section 721 establishes that spouses owe each other fiduciary duties, like the relationship between business partners. This duty requires them to act with the highest good faith and fair dealing, meaning neither spouse should take unfair advantage of the other. Its purpose is to ensure financial transparency and prevent one spouse from exploiting the other, especially concerning community property.
Family Code Section 2102 reiterates each spouse’s Family Code Section 721 duties as to the assets and liabilities of the community. This includes the accurate and complete disclosure of assets and income-producing opportunities, as mandated by Family Code Section 2102(a) and (b). Often overlooked, however, is Family Code Section 2102(c), which requires the immediate, full and accurate disclosure of all material facts and information concerning the income and expenses until a valid, enforceable and binding resolution is reached regarding child support, spousal support or attorney fees.
Family Code Section 2040(a)(2)(A) imposes automatic restraining orders (ATROs) when a dissolution proceeding is filed and plays a critical role. It prohibits the transfer, concealment, or disposal of property, community or separate, without the written consent of the other party except in the usual course of business or for the necessities of life.
Commonly overlooked is that Family Code Section 2040 (a)(2)(A) mandates each party notifies the other of any proposed extraordinary expenditures at least five business days before incurring them and to account to the court directly for these extraordinary expenditures. A party may liquidate an asset in the usual course of business or for necessities of life under 2040(a)(2)(A). If the party then uses those proceeds, incurring an extraordinary expenditure, ostensibly that party is required to notify the other party of the proposed extraordinary expenditure at least five business days in advance of the expenditure, and to account to the court for all extraordinary expenditures. This mandate is not routinely followed and would be applicable to the liquidation of a business asset used for a personal expenditure and might also be applicable, depending on the expenditure, for a business expense. The failure to adhere to these disclosure obligations could result in serious consequences for one spouse.
Family Code Section 2100(c) imposes on each party the duty to “immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the relevant underlying facts.”
Together, Family Code Sections 721, 2100(c), 2102, and 2040 form a powerful weapon for uncovering breaches of fiduciary duty. Attorneys handling high-net-worth cases must ensure their clients comply with these provisions to avoid potential pitfalls and ensure proper financial disclosure. Conversely, recognizing the failure to comply with these code sections is imperative in high asset divorce cases to attempt to obtain either a greater than 50% share or 100% of the undisclosed asset transferred in breach of a fiduciary duty, plus potential attorney fees and costs.
Key Case Law
In re Marriage of Gilbert-Valencia (2021) 98 Cal.App.5th 520
In IRMO Gilbert-Valencia, the Court of Appeal addressed a situation where one spouse concealed assets during the divorce. Wife argued that her husband sold the quasi-marital home, titled in his name alone, in violation of Family Code Section 2040, and used the proceeds for his personal use. The trial court awarded 100 percent of the net proceeds from the sale to wife, but the Court of Appeal reversed because the lower court had not made the required finding of fraud, malice, or oppression. This case highlights how Family Code Section 1101(h) can be invoked to secure remedies beyond a 50/50 property division in cases of intentional misconduct, but obtaining the proper finding from the Court is key.
In re Marriage of Rossi (2000) 90 Cal.App.4th 34
In IRMO Rossi, the court found that wife intentionally concealed lottery winnings during the dissolution proceeding constituting fraud, oppression and malice within the meaning of Civil Code Section 3294. The Family Court awarded 100% of the winnings to husband. The Court of Appeal defined malice, oppression and fraud as, “(1)‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. (2) ‘Oppression’ means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights. (3) ‘Fraud’ means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury….”
The Court of Appeal noted that on top of an award of 100 percent of the undisclosed lottery winnings, the family court could have ordered attorney fees to husband as “an additional penalty.” See Rossi at 41 & 43.
The case demonstrates the significant financial consequences of asset concealment, including the potential for 100% reimbursement and even attorney fees.
In re Marriage of McTiernan & Dubrow (2005) 133 Cal.App.4th 1090
In McTiernan & Dubrow, the husband sold community securities to pay community expenses without informing the wife or the court. While the trial court did not find malice or oppression, the violation of Family Code Section 2040 led to the stock being valued higher at the time of trial, rather than the lower value at the time of sale. The court awarded the wife her 50% share of the stock’s value, reinforcing the importance of proper disclosure.
In re Marriage of Prentis-Margulis & Margulis (2011) 198 Cal.App.4th 1252
In IRMO Prentis-Margulis & Margulis, the Court of Appeal found that not only do these code sections impose on the managing spouse “affirmative, wide-ranging duties to disclose and account for the existence, valuation, and disposition of all community assets from the date of separation through final property division” but these code sections “impose a similar sua sponte duty on the managing spouse to furnish information concerning the disposition of community assets,” thereby reinforcing the power of Family Code Sections 721, 1100, 1101 and 2100 when read together.
Combining Statutes for Full Reimbursement
In high-asset divorce cases, combining Family Code Section 1101(h), Civil Code Section 3294, and Family Code Sections 721, 2100, 2012 and 2040 can lead to significant financial relief for the wronged spouse by proving fiduciary duty violations, asset concealment, or fraudulent conduct.
Practical Considerations for Attorneys
Divorce attorneys handling high-net-worth cases should be proactive in investigating potential fiduciary duty violations and disclosure obligations. This includes thorough discovery, forensic accounting, and scrutinizing financial disclosures. When fraud or misconduct is suspected, these statutes can help secure a more favorable financial outcome for the injured spouse.
Conclusion
Family Code Section 1101(h), Civil Code Section 3294, and Family Code Sections 721, 2100, 2012 and 2040 offer powerful remedies for spouses who have been victims of fraud, concealment, or breach of fiduciary duty in high-asset divorce cases. Through key cases such as In re Marriage of Gilbert-Valencia and Rossi, California courts have reinforced that intentional misconduct can result in an award that exceeds the standard 50% share of the community estate. By strategically using these provisions, attorneys can help their clients recover more than the injured party’s community share of the misappropriated assets.
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