Any transaction between a husband and wife arises in the context of a confidential relationship imposing a duty of the highest good faith and fair dealing on each spouse, with neither side taking unfair advantage of the other. The standard of care stems from California’s public policy that marriage is an equal partnership and that spouses owe each other the same highest duties owed by parties to a fiduciary relationship.
In 2003, the California Legislature redefined the fiduciary relationship between spouses to include all of the duties owed by nonmarital business partners in Family Code Sec. 721(b). This confidential fiduciary relationship includes, but is not limited to:
Providing access at all times to any books regarding a transaction for the purpose of inspection and copying;
Providing, upon request, full and true information about any transactions concerning community property; and
Accounting to, and holding as a trustee for, the other spouse any benefit or profit derived from any transactions concerning community property that occurred without the other spouse’s consent.
When a transaction between husband and wife is advantageous to only one spouse, the law presumes the transaction to have been induced by undue influence. The “advantaged” spouse would need to show that the transaction was freely and voluntarily consented to, with full knowledge (of the other spouse) of all the facts and a full understanding of the effect of the transfer.
The fiduciary duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization and valuation of all assets in which the community has or may have an interest; debts for which the community is or may be liable; and to provide equal access to all information, records and books that pertain to the value and character of those assets and debts, upon request.
Spouses should keep each other fully informed regarding major transactions and provide written notice and full disclosure.
BREACH OF DUTY REMEDIES
A spouse can file a civil action against the other spouse for abuse of this fiduciary duty. But these problems that arise between a couple usually result in one spouse filing for divorce. When one spouse fails to act in accordance with the fiduciary duty, the aggrieved spouse has several statutory remedies.
When one spouse’s undivided one-half interest in the community estate is impaired by the actions of the other spouse, a court may order an accounting of the property. Any asset undisclosed or transferred in breach of a spouse’s fiduciary duty could result in a 50 percent or even 100 percent penalty. Remedies may include an award to the other spouse of 50 percent of any asset – plus attorney’s fees and court costs. Remedies when the breach arises from oppression, fraud or malice could include an award to the other spouse of 100 percent of any undisclosed asset.