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California’s Spousal Fiduciary Duty is a Tool against Fraud in Divorce Cases – In re Marriage of Cain and Mbadugha

California law imposes a “fiduciary duty” on spouses to generally act in each other’s best interests in financial transactions throughout the course of the marriage. That includes the time period after a couple separates and before they divorce. As the Second District Court of Appeals recently explained, a spouse who commits fraud during that time is likely to be required to pay back the other spouse for the value of any community property lost as a result.

broken-blush-and-makeup-brush-1171197Husband and Wife separated in September 2009, following more than five years of marriage in which the couple had two children. Wife filed for divorce shortly thereafter. In the proceedings that followed, a judge found that Husband actively tried to conceal the fact that he owned a cosmetics business based in Nigeria. Husband later admitted that he owned the company, but he said it had no assets and was created solely to transact business for a separate entity where he worked as an employee.

The trial court said Husband’s testimony at trial about the business and his role in it was simply “preposterous.” Although the company was technically community property to be split evenly between the spouses, the judge awarded Wife full ownership of the business and its trademarks. The court cited Family Code section 1101, which allows a court to award one divorcing spouse 100 percent of an asset when the other spouse breaches his or her marital fiduciary duty. The court also ordered Husband to pay Wife half of the more than $95,000 that had been in the business’ account at the time of the separation. It rejected Husband’s claim that he’d drained the account to cover business expenses, finding that he provided no evidence to support it.

Affirming the decision on appeal, the Second District agreed that Husband had the burden of proving that the business account funds had been properly disposed because he had complete control over the account at the time of the separation. Although Husband said the money was going to business expenses, the Court found it curious that there was no corresponding income as a result of those expenditures. Even evidence showing that the business had written two checks for a combined $70,000 to a supposed manufacturing company wasn’t enough to establish that the recipient actually did work for the business. “The trial court was not required to accept as true Husband’s statement that the money was used for this purpose, even if uncontradicted,” the Court held.

As a result, the Second District allowed the lower court’s decision to stand.

If you’re considering divorce or are grappling with community property, fiduciary duty, and other issues in California, contact San Jose spousal support lawyer John S. Yohanan. With more than 30 years of experience, Mr. Yohanan is an accomplished family law attorney who has helped a number of clients resolve a wide variety of marital disputes. Call our office at (408) 297-0700 or contact us online to schedule a consultation.

Related blog posts:

Getting Divorced in California? Another Reason Why You Need a Lawyer – In re Marriage of Hendrix

Valuing a Spouse’s Business in California Divorce Cases – In re Marriage of Caldwell

McCourts’ Dodgers California Divorce Battle Includes High Stakes Business Valuation Debate – In re Marriage of McCourt