Tuesday, February 25, 2014
According to the California Family Code, married persons owe each other " a duty of the highest good faith and fair dealing." The duty has been compared to that of a trustee. The duty is applied to transfers between the spouses and to the management of community property. The duty arises most frequently when dealing with community property. As a result, a spouse's retirement account, which contains contributions during the marriage, is community property, despite the fact that the account is solely in only one spouse’s name. In order for any changes to the death beneficiary to affect the entire account, written permission is required from the non-participating spouse. Thus, if a spouse withdrawals funds from his retirement for their benefit they are probably violating the duty.
What are the consequences of a violated duty? The other spouse can bring a claim and involve the court. The statute indicates “a court may order an accounting of the property and obligations of the parties to a marriage and may determine the rights of ownership in, the beneficial enjoyment of, or access to, community property, and the classification of all property of the parties to a marriage.” Additionally, even if the breaching spouse files for bankruptcy this claim may not be discharged if the breaching spouse had “a culpable state of mind involving knowledge of, or gross recklessness” regarding the duty.
See Dennis Fordham, Estates Planning: Fair Dealing and Married Persons, Lake County News, Feb. 22, 2014.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.