Family Code Section 721 | The Starting Point for All Interspousal Fiduciary Duty Analysis in Divorce!

In financial transactions between spouses (so-called "interspousal transactions"), or with third parties where the interests of both spouses are impacted, spouses owe one another important statutory duties that create huge responsibilities and pitfalls for them. As between themselves, spouses are subject to the general rules governing fiduciary relationships which control and may limit the permissible actions of persons who occupy confidential relations with each other, in the same manner as obligations are owed as a matter of law between business partners.

Per section 721(b) "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." The public policy recognition that people sometimes tend to abuse trust and take advantage of another person who relies or once relied upon them, is the reason why these laws exist. They combat the egoic and narcissistic tendency of humans to serve their own interests, above those of others, in legally protected relationships. The balance of power in intimate relationship is simply not arm's length, where it may be in outside transactions with relative strangers.

People in a "fiduciary relationship" are treated under the law as though they do not deal with each other on equal terms, because one person (typically the fiscal managing spouse) initially accepts the trust and confidence of the other. This puts one of the parties into a potentially superior position to exert influence over the dependent party, while the other trusts that both of them are on the same page and so are working to serve the common interest, now and in the future.

We all know what it looks like before the common interest is no longer perceived as common: one marital partner has managed the family unit, while the other was entrusted to manage the income stream and investments - this division of labor and focus is what makes marriages work. With mothers and wives historically more often than fathers and husbands managing the family, this places women at particular risk, but relationships come in all kinds of permutations. I've been practicing family law for 35 years, and in those two generations our culture has radically changed. In my experience, it is not gender that controls who the bad or selfish actor might be in any given case; it is really power and property, and who is more butt-hurt, that threatens to corrupt us all. So often someone uses money and property to try to grind the other spouse into the dust, and it is the same for opposite gendered cases and same-sex relationships. Duh.

Fiduciary duty rules and consequences, at their core, deal with greed and reactivity and the FD rules attempt to even the playing field, most often to ensure that the less empowered, whatever gendered, party can exercise informed consent in managing and planning their future affairs, and hopefully settling their dissolution cases.

A presumption of undue influence arises whenever either party benefits from a transaction to the economic detriment of the other. One of the interesting things about this consequence is that parties may agree to a transaction that benefits one, for instance, in situations involving transmutations of separate property to community and fully intend that result at the time of the transaction but, once the relationship blows up, then seek to claim they were unduly influenced.

Fiduciary duty litigation is quite complex and requires a huge comprehension of the entire Family Code - rarely to be safely attempted without counsel that understands the terrain!

Michael Peterson and Thurman Arnold are available to guide litigants, and their attorneys, including via discreet Second Opinions. Otherwise, your FB Likes as you click out are valuable to us, because we want to know what resonates for you!

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CALIFORNIA FAMILY CODE

RIGHTS AND OBLIGATIONS DURING MARRIAGE

RELATION OF HUSBAND AND WIFE AS FIDUCIARIES

Family Code Section 721

(a) Subject to subdivision (b), either husband or wife may enter into any transaction with the other, or with any other person, respecting property, which either might if unmarried.

(b) Except as provided in Sections 143, 144, 146, 16040, and 16047 of the Probate Code, in transactions between themselves, a husband and wife are subject to the general rules governing fiduciary relationships which 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. This confidential relationship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, including, but not limited to, the following:

(1) Providing each spouse 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 which 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 which concerns the community property.