What Are Spousal Fiduciary Duties in California?

Spouses own one another important statutory duties in financial and property transactions with third parties, which create huge responsibilities and pitfalls.  Husband and Wife are themselves subject to general rules government fiduciary relationshi8ps which control their actions.  “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.” Family Code section 721(b).

The essence of the “fiduciary relationship” is that the parties are treated under the law as though they do not deal with each other on equal terms because one person (typically the managing spouse) accepts the trust and confidence of the other and so is in a superior position to exert influence over the dependent party. A presumption of undue influence arises whenever either party benefits from the transaction.

Transactions Benefiting One Spouse

For divorcing couples, this means:

• b) The burden of convincing a Court that a set-aside should not occur shifts to the advantaged spouse;
• a) If one party has benefited in a transaction involving money or property and so obtained an advantage during the course of the marriage, the law presumes the advantage was gained through undue influence vis-a-vis the other, and the transaction is presumed invalid and may be set-aside;
• c) This can occur without regard to good or bad intent on the part of the advantaged spouse (i.e., actually intending to defraud as opposed to merely being sloppy). Either way the law declares the transaction to be the result of “constructive fraud”.

Once the Court finds constructive fraud the transaction can be set aside. The benefited party can be ordered to pay restitution to the other and to disgorge any profits they alone received, title may be reformed to include both parties’ names, or the property may be held in trust for both on a present and go-forward basis rather than in the name of the one alone. If there is an actual fraudulent intent, the remedies to the injured spouse are much more severe. Where a court finds a spouse acted intentionally to defraud the other spouse, the Court “shall” award 100% of the value of what should have been disclosed, or what should not have been transferred, to the innocent spouse! FC section 1101(h).