Presented by Ron J. Anfuso, CPA, ABV, CFF, CDFA, FABFA
Yes, of course, California is a no-fault state. However, no fault relates only to grounds for the termination of a marriage. Financial fault, on the other hand, has no limits. It can lie in the past, present or future. In fact, it seems that as time passes and cases grow, in law, the theories for asserting financial fault have increased. You might say that financial fault is trending.
There may have been instances in which Appellate Courts have ruled in favor of fiduciary faults. Let us first take a look at Family Code §1100 and §1101.
Family Codes §1100 and §1101
Under Claim for Impairment of Community Property Interest, section g and h read: (g) Remedies 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.
The value of the asset shall be determined to be its highest value at the date of the breach of fiduciary duty, the date of the sale or disposition, or the date of the award by the court.
(h) Remedies for the breach of the fiduciary duty by one spouse, as set forth in Sections 721 and 1100, when the breach falls within the ambit of Section 3294 of the Civil Code 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. (Am Stats 2001, C703).
When the family law court chooses to apply Section 3294 of the Civil Code, it allows for a spouse to recover actual damages, and damages for the sake of example should the breach of an obligation be proven by clear and convincing evidence that the other spouse has been guilty of oppression, fraud or malice. This section defines fraud as “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 Disentitlement Doctrine
When a party unlawfully withholds evidence of his or her income and assets he or she will not be heard to complain that an order is not based on the evidence being refused to disclose.
The Marriage of John and Lisa Hofer (2012) 208 Cal.App.2d 100 is an excellent example of a disentitlement ruling in which John was ordered to pay Lisa’s attorney fees and costs pursuant to Family Code § 2030. In this case, John failed to disclose evidence of the value of several family businesses of which John was a part owner.
During their marriage, Lisa did not work outside of their home. John, on the other hand, was the sole manager of the assets in which he had ownership interest. The parties did not dispute that John had substantial income and assets derived from these business interests. However, Lisa had no idea just how substantial the assets were.
Despite three discovery requests made by Lisa, John failed to produce any records. John never denied that he could obtain the documents. Rather, he asserted that the business entities owned by his family and John would not allow him to disclose any financial information. Despite this claim, Lisa moved to compel the responses. The trial court sanctioned John $7,500.
Lisa then made a new motion to compel John to appear for a deposition and produce the documents. The discovery referee found that John was properly served but never appeared for his deposition. As a result, the referee recommended the court grant Lisa’s motion and sanction John for $5,670 in attorney fees and costs. The court adopted this recommendation.
The referee stated, “Without these documents, Lisa cannot determine what, if any interest, the community has in any assets, nor can she rebut John’s assertion that assets are his separate property.”
John was given one more chance to produce the documents before being precluded from presenting evidence that the business entities were his separate property. He again failed to do so. At this point, John was able to keep his fees to his attorneys current, which amounted to more than $300,000. Because the extent of John’s resources were not known and he demonstrated his ability to pay his attorneys, as well as Lisa having no resources of her own, the court ordered John to pay Lisa a contribution to her attorney’s fees and costs an unallocated sum of $200,000.
The disentitlement doctrine enables an appellate court to stay or dismiss the appeal of a party who refused to obey a superior court’s legal orders. In this case, the appellate court chose to dismiss the case due to its inherent power to use its processes to induce compliance with a presumed valid order.