Husband [H] and Wife [W] were married in 1990 and had four children together.
For the first ten years of their marriage, W stayed home with the children,
and H successfully created numerous businesses. In fact, he was so successful,
that after ten years, he too, was able to stay home and live a very affluent
life style while their money was managed by a professional money management
company - except for their day-to-day expenses. Those were managed by
H from an office he rented. W had rarely seen any asset/debt documentation
in their entire marriage. She trusted H and their management company to
handle their finances.
Sometime in 2010, H began researching information for options trading.
He took classes on the stock market and began reading publications. He
convinced W (who thought it would give H something to do) to allow him
to invest some of their portfolio in the stock market. W agreed to allow
H to invest $2.5 million of their Apple Stock in TD Ameritrade. She thought
that amount was a “sliver” of their true net worth. H did
extremely well with his investments increasing the portfolio at one point
up to $18 million. What H didn’t tell W, however, was that he had
fired the management firm and he was investing all of their money in this
high-risk portfolio. Ultimately, by the couple’s separation in 2013,
the portfolio was worth $498.000. H never informed W how well or poorly
their financial investments were doing.
In their divorce, W contended that H breached his fiduciary duty to W by
investing more money than she had agreed to and investing their finances
extremely recklessly. H argued that the loss of their finances wasn’t
his fault, but the decline of the stock market in general. Further, he
had the right to control the community assets, even if he made mistakes.
The court agreed with W and awarded her $1.95 million as her portion of
the community funds.
H appealed and the Appellate Court agreed with the trial court.
Each spouse owes the other spouse the utmost care when handling community
property. This is known as a
fiduciary duty. And, the other spouse has no obligation to question how the managing
spouse is handling the community property. The non-managing spouse can
trust that managing spouse completely.
Here, the Appellate Court agreed with the trial court that H was extremely reckless.
California Family Code section 1100 says that each spouse is mutually entrusted
with full individual authority to manage and control community property
Family Code section 721 states that “in transactions between themselves,
spouses are subject to the general rules governing fiduciary relationships
that control the actions of persons occupying confidential relations with
each other. 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…”
Section 721 also further states: “(1) [E]ach spouse [must provide]
access at all times to any books kept regarding a transaction for the
purposes of inspection and copying. (2) Rendering upon request, true and
full information of all things affecting any transaction that concerns
the community property. Nothing in this section is intended to impose
a duty for either spouse to keep detailed books and records of community
property transactions. (3) 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 that concerns the community property.”
Failure to maintain one’s fiduciary responsibilities will result
in a loss of that spouse’s portion of the community property. (See
California Family Code sections 1101, 1102, and 1103.)