Recent Developments in Family Law

COURT FINDS WHERE THE NONMANAGING SPOUSE HAS PRIMA FACIE EVIDENCE THAT COMMUNITY ASSETS OF A CERTAIN VALUE HAVE DISAPPEARED WHILE IN THE CONTROL OF THE MANAGING SPOUSE POST-SEPARATION, THE MANAGING SPOUSE SHOULD HAVE THE BURDEN OF PROOF TO ACCOUNT FOR THE MISSING ASSETS. IN RE MARRIAGE OF MARGULIS 198 CAL.APP.4TH 277, AUGUST 11, 2011 (AS MODIFIED AUGUST 26 AND SEPTEMBER 9, 2011).

FACTS

Husband (H) and wife (W) separated after 33 years of marriage. For 12 years after their separation, they continued to handle their finances as they did during the marriage. H had exclusive control of the community’s substantial investment accounts and paid their bills. W trusted H to manage their finances for their mutual benefit. Just before trial, H disclosed for the first time that the parties’ once significant investment accounts were virtually empty. H did not present any evidence but asserted the account values diminished due to proper expenditures and stock market losses.

At trial W argued H should be charged with the missing funds unless he proved he did not misappropriate the money. W’s only evidence offered was a financial statement H prepared three years after the parties’ separation and nine years prior to the trial. The trial court concluded the document offered by W was insufficient evidence to charge H with the amount stated on the document. W appealed.

APPELLATE COURT DECISION

The District Court of Appeal that serves Orange County (4th District, 3rd Division) reversed the ruling of the trial court. The Appellate Court held that once a nonmanaging spouse makes a prima facie showing of the existence and value of community assets in the other spouse’s control post-separation, the burden of proof shifts to the managing spouse to prove the proper disposition decreased value of those assets. Absent such proof, the court should charge the managing spouse with the assets according to the prima facie showing.

COMMENTS

We think this case is reflective of the court’s increasing emphasis on the policy of the law for full and accurate disclosure throughout divorce proceedings. As explained in Margulis, the Family Code details the fiduciary obligations between spouses: “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.” (Family Code § 721, subdivision (b).) It is of the upmost importance that Family Law litigants are mindful of their ongoing duty to provide a complete and full disclosure to the other spouse throughout the separation and divorce process.