Understanding Breach Of Fiduciary Duty
A fiduciary duty is product of confidential relationship contract of trust and reliability, and it accompanies every deal made among two or more parties.
By law, a person who is entitled as the fiduciary in a relationship, maintains the obligation to the other person, who for the purpose of law is called the principal (Corporation Code). The person, or principal, who has assigned or entered a fiduciary relationship, has high expectations regulated and secured by law. The nature of fiduciary obligations differ among jurisdictions, therefore the breach consequences vary. The information below will give you a deeper understanding of the law and will help you familiarize yourself with the legal terms.
Marriage And Fiduciary Duty
Marriage, by its nature, is based on the most intimate confidential relationship, where both parties are the principal and beneficiary (unless one party is trusted with the duty of managing the community property). Therefore, marital fiduciary duty imposes a highest level of care among spouses.
Remedies for breach of fiduciary duty during the marriage are designated in Fam. Code §§ 721 & 1101, based upon the nature of the breach. Such remedies differ on the issue and they may an accounting of property, name added to title, transfer without consent when it benefits the community property, award to the other spouse of 50% of undisclosed asset plus attorney fees and court costs; and if fraud is combined with the breach of the fiduciary duty, the remedy can include an award to the other spouse of 100 percent of any asset undisclosed or transferred in breach of the fiduciary duty. Fam. Code §1101 (g) also provides that among the remedies for breach of fiduciary duty is an award for attorney’s fees and court costs. In order for the parties to be accountable to the end of their portion of the responsibility, the parties have to be carrying the fiduciary
Except as provided in Probate Code §§ 143, 144, 146, 16040, and 16047, spouses entering into marital contracts (and in all relationships between them) are subject to the general rules governing fiduciary relationships which control the actions of persons occupying confidential relations with each other.
When Is A Contract Void?
A contract can be voidable/null if there is a breach of confidential relationship. A marital agreement made in breach of the confidential relationship standard of care, or otherwise a product of fraud, duress or undue influence, is voidable and may be rescinded, canceled or set aside by the aggrieved spouse. Starr vs. Starr (2010)
Parties are equally responsible and share the obligation to deal fairly toward separate and community property. The golden rule to treat the other person or his/her property as you would like to be treated it’s another way to point the standard of moral and care in such delicate and vulnerable relationship . The Court has found that “wife’s assertion that a spouse cannot be subject to statutory breach of fiduciary duty for mismanagement of separate property [is] contrary both to sound public policy and to the language of Family Code section 721, subdivision (b) which speaks of the confidential relationship between husband and wife imposing on them the duty of ‘highest good faith and fair dealing’ and ‘not taking unfair advantage of the other.’ We can fathom no reason to distinguish between a spouse’s duty to deal fairly and in good faith with separate property and her duty to deal fairly and in good faith with community property”. Marriage of Walker (2006))
Understanding Undue Influence
If the economic transaction during the marriage or when parties are in a confidential relationship advantage one of the parties it may raise the presumption of undue influence. Generally, a spouse obtains an advantage over the other in a transaction between them if his or her “position is improved,” he or she obtains a favorable opportunity, or he or she “otherwise gains benefits, or profits.” Marriage of Balcof. The key to raise this presumption is for the advantage to be unfair, and in such case the party who is found to benefit from such transaction has to prove that such advantage was fair.
Cohabitation And Fiduciary Duty
There is no fiduciary duty between cohabiters absent finding of contractual relationship. No contract, no breach of fiduciary duty. Quantum meruit allows recovery for value of beneficial services, not value by which someone benefits from those services and the statute of limitation begins to run with termination of the services. Absence of contract between parties would not preclude her recovery in quantum meruit. The underlying idea behind quantum meruit is the law’s distaste for unjust enrichment. “If one has received a benefit which one may not justly retain, one should restore the aggrieved party to his [or her] former position by return of the thing or its equivalent in money.” Maglica v. Maglica (1998)
It has been proven through experience that spousal agreements may be less vulnerable to latter attack, if both parties had the assistance of independent legal advice. At the very least, a pro per spouse must be instructed to consult an independent counsel and if he or she rejects such advice, it will serve the best to have the party to sign an acknowledgment as part of the agreement. That will save grief in the future.
Termination of fiduciary duty in a marriage: The case law previously held that the fiduciary duty is terminated once one of the parties files for dissolution of marriage. That has changed and spouses stand in “fiduciary relationship” with regard to the management and control of their community (and quasi-community) estate until the date of distribution of all assets and liabilities in question. This fiduciary duty is enforceable by several statutory remedies and penalties, but a Fam. Code §2045(a) restraining order provides further protection by recourse to the court’s contempt order:
The status of limitation for breach of marital fiduciary duty is three years of actual knowledge, or upon the death of a spouse or in conjunction with an action for legal separation, dissolution of marriage, or nullity. (Fam. Code §1101 (d).)