Sunday, July 20th 2008
Sanctions possible for failure to disclose
Parties should think twice before failing to disclose information to the other spouse, in light of In Re Marriage of Feldman (2007), 153 Cal.App.4th 1470.
In the Feldman case, the parties separated in August, 2003, after 34 years of marriage. During the marriage, the husband created many privately held companies. The husband estimated his net worth in excess of $50 million. The wife made numerous formal and informal requests for information, some of which husband provided. However, he failed to disclose numerous significant transactions and the formation of numerous new companies until after wife had learned of them through other means. Wife filed sanctions motion pursuant to California Family Code § 1101(g), § 2107(c), and § 271(a), which the trial court granted. The trial court ordered the husband to pay wife $140,000 in fees and $250,000 in sanctions. The husband’s request for a statement of decision was denied. The husband appealed and the Court of Appeal affirmed.
The appellate court held that failure to immediately, fully, and accurately update and augment disclosure to the extent there have been any material changes is sanctionable.
Family Code § 1100(e) requires that spouses act in accordance with fiduciary standards until the assets have been divided and to make full disclosure 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.”
Family Code § 2100(c) requires “full and accurate disclosure of all assets and liability 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.”
Family Code § 2103 and 2104 require the service of a Preliminary Declaration of Disclosure setting forth with sufficient particularity, to the extent that “a person of reasonable and ordinary intelligence can ascertain [them],” “[t]he 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 assets or liability as community, quasi-community, or separate.”
The appellate court found that no injury was required to be sustained by the wife for the husband’s failure to disclose. Instead, sanctions are to be imposed to effectuate compliance with the laws that require spouses to make disclosure to each other and to “deter repetition” of conduct that “fails to comply” with the disclosure requirements.
The court further found that there was no requirement that the wife file a motion to compel. Instead, the court found that Family Code § 2107(c) contained no requirement that the wife first seek preliminary orders.
The court further found that the husband’s actions were sanctionable. The court determined that the husband had an 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.”
So What Must Be Disclosed?
A spouse is not required to disclosure every insignificant occurrence in the operation of a business. Instead, according to Feldman, a spouse must immediately disclose “material changes” and “material facts and information.” It does not matter if the transaction is in or outside the normal course of business. What matters is whether it is significant.
This case sends a very powerful message that the statutory duty “to immediately, fully, and accurately, update and augment that disclosure to the extent there have been any material changes,’ means what it says and the failure to do so is sanctionable. When, as in Feldman, there is a pattern of non-disclosure and playing fast and loose with the information actually disclosed, sanctions are appropriate.
View other articles for: Assets and Debts, Property Divison