The landscape of divorce litigation has undergone a tectonic shift. No longer is the "out-spouse" (the partner without direct access to the books or business) forced to play a high-stakes game of "detective" to find community assets. Modern fiduciary duties have turned the "burden of discovery" on its head, moving from a culture of "hide-and-seek" to a mandate of radical transparency. Historically, divorce discovery was an adversarial marathon. The spouse who managed the business or the family's complex investments (the "in-spouse") held all the cards, while the "out-spouse" was burdened with demanding the right documents and asking the perfect questions just to see the community estate. This often led to "discovery wars" where the wealthier, more informed spouse could simply out-wait or out-spend the other.
However, the legal tides turned with the landmark case In Re: Marriage of Feldman. The court essentially declared that the era of "hide the ball" is over. Under Family Code §721(b), spouses are bound by the same fiduciary rules that govern business partners. This means you owe your spouse the "highest duty of good faith and fair dealing". The main statutory authorities in California reinforcing this include Family Code Sections 1100(e), 2100(c), and 2102, Family Code §1100(e) requires parties to act as fiduciaries until the final division of assets. Family Code §2100(c) requires full and accurate disclosure of all assets and liabilities, regardless of how they are characterized. Family Code §2102: Extends these duties from the date of separation until the date of distribution.
In the Feldman case, the husband failed to disclose the existence of several new companies and assets, arguing that their creation was just "standard business" and that the wife wasn't harmed because she eventually found out about them. The court’s response was a $390,000 wake-up call in sanctions and fees. The court clarified several critical points. First, sanctions can be issued even if the other spouse suffers no economic loss. The goal is to deter the behavior itself. Second, failing to disclose an asset is a breach even if that asset is small compared to the total estate. Third, you cannot wait for a formal discovery request. You must proactively disclose material facts in writing, supplement them continually, and disclose new projects immediately. “A spouse who is in a superior position to obtain records... must acquire and disclose such information to the other spouse." Marriage of Brewer & Federici.
A common misconception is that the duty to disclose ends when the judge signs the divorce decree. In reality, the fiduciary obligation remains in effect until the assets are actually distributed. If you wait until after the judgment to move money or "forget" to mention a post-judgment dividend from a community asset, you remain at risk for sanctions or a complete "set aside" of the judgment.
If you are the partner with superior access to information, the burden of proof is now on you. You must determine what is "material" and err on the side of over-disclosure. While this may increase your initial legal and accounting fees, it is a fraction of the cost of a $390,000 sanction or having to litigate your entire divorce a second time.
Please note that this article is not legal advice and is not intended as legal advice. The article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article does create any attorney client relationship between you and the Law Offices of Kenneth U. Reyes, APC. This article is not a solicitation.
Attorney Kenneth Ursua Reyes is a Board-Certified Family Law Specialist and an active CPA. He is founder and owner of the Law Offices of Kenneth U. Reyes, APC and Reyes Capital Management, LLC. He was President of the Philippine American Bar Association. He is President of the PABA Foundation. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He is a graduate of Southwestern University Law School in Los Angeles and California State University, San Bernardino School of Business Administration. LAW OFFICES OF KENNETH U. REYES, APC is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail kenneth@kenreyeslaw.com or visit our website at Kenreyeslaw.com