Fact Sheet – Disclosure in Marital Dissolution Matters

As a matter of public policy, the California legislature and the courts impose a fiduciary duty on spouses involved in a marital dissolution matter to disclose all matters required by the other spouse to determine their interests in marital property. This duty is based on the confidential relationship between spouses and imposes
a duty of the highest good faith and fair dealing on each spouse, requiring that neither take unfair advantage of the other. This includes providing access to:

  • Any books kept regarding a transaction for the purposes of inspection and copying.
  • True and full information of all things affecting any transaction which concerns the community property.
  • Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concern the community property.

Each party is obligated to provide “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 proceeding…together with 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…each party will have a full and complete knowledge of the relevant underlying facts.2 Remedies for the breach of the fiduciary duty by one spouse for failure to disclose includes, but is not 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.”

Automatic Temporary Restraining Orders (ATROs)

To prevent one spouse from gaining a financial advantage over the other, ATROs are imposed on the parties immediately upon the service of the Petition for Dissolution. These prevent a spouse from:

  • Transferring, encumbering, hypothecating, concealing, or in any way disposing of, any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, except in the usual course of business or for the necessities of life.
    • You may not take out a loan on community property.
    • You may not “hypothecate” community property, i.e. pledging property as security or collateral for a debt. Although title or possession of the property is not transferred to the lender, the lender has the right to sell the property upon default.
    • You may not close a joint checking account and transfer the money into your own separate account.
    • You may not remove items from your safe deposit box or cash from your safe and give them to a third party to hold for you.
  • Cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage, including life, health, automobile and disability, held for the benefit of the parties and their child or children for whom support may be ordered.
    • You many not cash in your life insurance policy and deposit the proceeds into a separate account.
    • You may not change the beneficiary to your life insurance policy.
    • You may not remove your spouse or children from the health, dental or vision insurance policy.
    • You may not remove your spouse from your automobile insurance policy even if you are not living together.

In addition, each party must notify the other of any proposed extraordinary expenditures at least five business days prior to incurring those expenses and must account to the court for all extraordinary expenditures made after the restraining orders are effective.

Declarations of Disclosure

One of the first steps in a marital dissolution is for the parties to disclose their financial matters to each other, so that they can make informed decisions concerning the division of their property, support, and other financial implications of the dissolution.

The principal disclosures are referred to as “preliminary” and “final,” but in practice many cases benefit from interim disclosures between the preliminary and final disclosures.

Generally, declarations of disclosure are not filed with the court, but are served on the other party. Proof of service of the disclosure on the other party should be filed with the court. Commission of perjury on the declarations of disclosure may be grounds for setting aside the judgment of dissolution.

The declarations of disclosure are comprised of three principal Judicial Council forms:

  • Form FL-140, Declaration of Disclosure. The parties should attach the two most recent tax returns along with the Forms FL-142 and FL-150. They must also enclose attachments disclosing all material facts and information regarding valuation of assets in which the community has an interest, obligations for which the community is liable, and any investment, business, or other income producing opportunity arising during the marriage or after separation.
  • Form FL-142, Schedule of Assets and Debts. This form should “set forth with sufficient particularity, that a person of reasonable and ordinary intelligence can ascertain…the identity of all assets in which the declarant has or may have an interest and all liabilities for which the declarant is or may be liable, regardless of the characterization of the asset or liability as community, quasi-community, or separate, and the declarant’s percentage of ownership in each asset and percentage of obligation for each liability when property is not solely owned by one or both of the parties. The preliminary declaration may also set forth the declarant’s characterization of each asset or liability.
  • Form FL-150, Income and Expense Declaration. This form includes employment, income and expense information, and should include attachments of the last several earnings statements if the declarant is employed.

Preliminary Declarations of Disclosure

The Petitioner in a marital dissolution action should serve these disclosures within 60 days of filing the petition, and the respondent should serve them within 60 days of filing the response. If a party serves their declaration of disclosure and the other party fails to serve a declaration of disclosure, the complying party can:

  • compel the noncomplying party’s compliance
  • prevent the noncomplying party from presenting evidence on issues which should have been disclosed in the declaration of disclosure, or
  • set aside a judgment for dissolution.

Final Declarations of Disclosure (FDDs)

FDDs are due not later than 45 prior to trial, or prior to a final stipulated settlement of the marriage. The parties can waive the service of final declarations of disclosure, but this can put them at great risk. We almost never recommend waiver of the final declarations of disclosure. The extra time and effort of preparing the FDDs can pay dividends in the event of a spouse’s failure to disclose community assets or debts.

Form FL-150, Income & Expense Declaration (I&E) Requirements

In addition to the above, an I&E is required within the past three months prior to a hearing on a motion for support, attorneys’ fees, or other orders relating to the parties’ property or finances.

Failure to submit a current income and expense declaration is grounds for outright denial of the monetary relief sought.

Consequences of Failing to Disclose

The consequences of not complying with the legally-imposed fiduciary duties can be severe. If a party to a family law case is found to have violated his/her fiduciary duties, the judge can do any or all of the following:

  • Impose monetary sanctions. In Marriage of Feldman, the husband was ordered to pay sanctions in the amount of $250,000 and attorney fees of $140,000 because of his failure to fulfill his fiduciary duties of disclosure.
  • Make that party pay the other party’s attorneys’ fees, court costs and other litigation expenses.
  • Award all – not just one-half – of an asset a spouse has concealed to the other spouse. In Marriage of Rossi,12 the husband was awarded all – not just half – of the $3 million in California lottery winnings that the wife did not disclose to the husband.
  • Prevent the offending spouse from presenting his or her case in court.
  • Set-aside (void) a court order or judgment that was entered as the result of a party’s failure to comply with the disclosure statutes.

The Family Code further provides that, when deciding what sanctions are appropriate, the judge is to order sanctions that will effectuate compliance with the above statutes. This means that sanctions can be ordered even if the other spouse did not suffer any actual financial damage or loss.

Tarlson & Associates

The above is not intended as “legal” advice. As professional forensic accountants, we often need to work with our clients to ensure they comply with disclosure requirements and know their rights to information from their spouses. If you have any questions concerning these matters, please feel free to contact us.