Full Financial Disclosure in a California Divorce

full financial disclosureDo I have to make a full financial disclosure of all my financial information to my spouse during our divorce?
The short answer is, YES!

California Family Code Section 721 makes this fact very clear. FC 721 provides in part:

“…in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners.”

What we can take away from this statute is in a marriage, the parties have a fiduciary duty to each other with the same rights and duties as would be full financial disclosure between business partners.

What is a fiduciary relationship? It is a legal obligation of one party to act in the best interest of the other with each party being held to a high standard of honesty and full disclosure.

California Family Code Section 1100 provides in part:

This 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 and 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.”

Full Financial Disclosure and California Family Code Section 2100

California Family Code Section 2100 goes even further providing:
“… a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a proceeding for dissolution of marriage or legal separation of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties. Moreover, each party has a continuing 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.”

So not only must you disclose you finances because of a fiduciary duty, but the disclosures must be full, accurate and done early in the proceeds for all assets and debts.

During a divorce, parties are required to prepare and serve a Preliminary Declaration of Disclosure and a Final Declaration of Disclosure. While the Final Declaration of Disclosure can be mutually waived by the parties, the Preliminary cannot.

The Judicial Council has provided four forms to facilitate the mandatory disclosure process between the parties during divorce. The forms are:

  1. Declaration of Disclosure (FL-140); includes production of the last two years of tax returns.
  2. Schedule of Assets and Debts (FL-142); requires last two month of paystubs.
  3. Income and Expense Declaration (FL-150); requires latest statements and titles.
  4. Declaration Regarding Service of Declaration of Disclosure and Income and Expense Declaration (FL-150)

The first three forms must be completed and signed under penalty of perjury with the attached documents requested and served on the other party. None of these documents are filed with the court with the exception of the fourth document, Declaration Regarding Service of Declaration of Disclosure and Income and Expense Declaration (FL-150) which provides the requisite proof of service to the court that the disclosure has been made to the other party. If a party fails to file this document, the parties cannot obtain a judgment in their divorce.

So, what happens if a spouse fails to disclose everything?

The answer to that depends. If it was unintended, that is one thing, but if the spouse deliberately fails to disclose, is found guilty of oppression, fraud or malice, then it is another. If a spouse innocently leaves something out, they can generally amend their disclosures with an explanation as to what happened. If a spouse leaves out information intentionally, then they run the risk of losing it all under California Family Codes 1101(h).

FC 1101(h) provides:

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”.

In the case, In re Marriage of Rossi (2001), Wife won the lottery during marriage in the amount of $1,336,000. She did not want her then husband to have any of this money. The lottery was paying out installments and she had the checks sent to her mother’s address. She never disclosed her winnings in any of the court documents during the divorce. Two years after their divorce was final, her former husband found out about her winnings when he received a letter from the lottery. He filed a motion to set the judgment aside based on fraud, failure to disclose, and breach of fiduciary duty. She got a rude awakening when they went back to court. The court found she had breached her fiduciary duty and both the Trial Court and the Court of Appeals awarded 100% of the winnings to her former husband under FC 1101(h). He was also awarded the costs of the appeal.

The lesson here? Full financial disclosure is taken very seriously by the court, and yes, fully and accurately disclose everything.

Trusting that full financial disclosure will be provided by your soon to be ex-spouse may end up being a costly mistake. If you have reason to be suspicious about total disclosure its worth a discussion with your attorney. Beck Law P.C., family law attorneys will work hard to obtain a fair settlement. If you live in Sonoma County, Mendocino County or Lake County California, contact our Santa Rosa office to arrange for a confidential consultation.