The family code requires full disclosure of all marital assets and failure to make such disclosure may subject a party to severe sanctions. What happens when one party to a divorce action discovers marital assets that were not disclosed by the other spouse and thus were not divided in the Judgment for dissolution of marriage?
Family Code Section 2556, provides as follows:
In a proceeding for dissolution of marriage, for nullity of marriage, or for legal separation of the parties, the court has continuing jurisdiction to award community estate assets or community estate liabilities to the parties that have not been previously adjudicated by a judgment in the proceeding. A party may file a post judgment motion or order to show cause in the proceeding in order to obtain adjudication of any community estate asset or liability omitted or not adjudicated by the judgment. In these cases, the court shall equally divide the omitted or un-adjudicated community estate asset or liability, unless the court finds upon good cause shown that the interests of justice require an unequal division of the asset or liability.
MANDATORY AWARD OF 100% FOR FRAUD
The interests of justice may require an award of 100% of the omitted or un-adjudicated community property to the other party under Fam. C. section 1101(h) by not listing the asset in the Declaration of Disclosure. Under Fam. C. section 2105, a party is required to serve a declaration of disclosure on his or her spouse containing, including, “all material facts and information regarding the valuation of all assets that are contended to be community property or in which it is contended the community has an interest.” A party in a better position of obtaining material facts and information regarding an asset has an affirmative duty to disclose that information. IRMO Brewer & Federici (2001) 93 CA 4th 1334. So if the aggrieved party can show that the other spouse intentionally failed to disclose a community asset prior to entry of a judgment.
Marriage of Rossi illustrates the harshness of FC 1101(h). During marriage, Denise Rossi was a member of a lottery pool with some coworkers. Denise claims she withdrew from the pool after a few weeks and subsequently the pool won the jackpot, $6,680,000. One of the members allegedly put in for Denise, or gave her a share as a gift. Denise’s share was 1.3 million paid over 20 years.
Denise informed the lottery commission that she was contemplating divorce. They advised her to file for divorce before she received her first check. Denise did just that and never informed Thomas (husband) about the lottery jackpot. Moreover, Denise did not disclose the lottery winnings in her schedule of assets and debts either as community or separate property. She had the checks sent to her mother’s address. The parties executed a Stipulated Judgment prepared by Denise’s attorney. Thomas was self-represented.
Approximately 2 years after entry of the Judgment a letter was sent to Thomas’ home address asking if Denise was interested in a lump-sum buy-out of her lottery winnings. This was the first indication Thomas had of the lottery winnings. Thomas confirmed that Denise was a winner with the California Lottery and retained counsel.
Thomas claimed Denise breached her fiduciary duty in not disclosing her lottery winnings and that her conduct constituted fraud under Civil Code Section 3294. The Court agreed, and this invoked the mandatory provision under Family Code 1101(h), thereby awarding 100% of the undisclosed lottery winnings to Thomas.
The Rossi case demonstrates the importance of full and transparent disclosure of all assets in a dissolution proceeding. In the event that an asset was not disclosed in the preliminary disclosures, a party can amend their schedule of assets and debts. Failure to do so could result in substantial penalties to the non-reporting spouse.
Do you want to hear more about the latest information on omitted assets in dissolution? If you have questions regarding this issue, please contact our office to schedule a consultation. The Law Office of Family Law Specialist Richard E. Bawden also handles legal issues regarding adoption, annulment, mediation, domestic violence, child custody, child support, spousal support and bankruptcy as well as pre-marital agreements. Telephone (909)792-0222, or email us at [email protected]