In 1996, wife Denise Rossi purposefully hid lottery winnings in the amount of $1.3 million from her husband of 25 years. When her ex-husband realized what she had done, he filed a motion to set aside the divorce agreement. Denise was found guilty of fraud and her ex was awarded all $1.3 million of the lottery winnings.
Pursuant to section 1101(h) of the California Family Code, the remedy for a breach of fiduciary duty by one spouse is harsh. In a community property state, assets earned during the marriage are usually split 50/50. But in a case of fraud, the judge has wide discretion to include an award of up to 100% plus court fees and attorney fees. So instead of getting 50% of her winnings, she wound up losing 100% and having to pay legal fees.
Often in divorce, one spouse/partner has been thinking and/or planning for the event from 1-5 years. The one who has more to lose might be tempted to strategize how they can preserve the lion’s share of their community assets, even though it’s illegal. California family code provides that a relationship between a husband and wife is confidential and imposes the duty of the highest good faith and fair dealing with each spouse. Neither shall take unfair advantage of the other.
This holds even during divorce, so the finding in Marriage of Rossi was that she violated her fiduciary duty to her husband.
When a person starts thinking about hiding assets, they might try to rationalize:
- I was the breadwinner while she stayed at home.
- I bought the ticket, so the winnings should be all mine.
- He was always underemployed and now he’s leaving. There’s no way I’m paying spousal support.
When I first started to practice, I questioned the equitability of community property. But as time passed, I realized it is designed to recognize the contributions of both parties in the marriage, whether you are the primary breadwinner or the stay-at-home parent who cares for a child.
It also, however, has the unintended consequence of holding a person accountable, not only for their choice of partner, but for the ongoing lifestyle decisions made during the marriage that affect finance. One spouse will remain responsible for maintaining the financial status quo, even post-divorce, rather than having the other become a burden of the state.
You’re responsible for full financial disclosure whether:
- You’ve been cheated on;
- You feel blind-sided;
- You believe a fraud has been perpetrated on you; or
- You’ve allowed your spouse to be underemployed while you secretly simmered with resentment.
If you find yourself confused on what you should and must disclose, a CDFA is trained to help you compile the information needed to fill out your financial affidavit correctly. They are there to help you better understand and document your financial standing, as well as create a strategic plan that will maximize your settlement outcome and satisfy the requirements of the California Family Code.
These complex projections are the necessary cornerstones to ensure that your settlement will provide a secure financial future that takes into consideration all of your assets as well as your current lifestyle.