the advantages of using informal discovery under the family code

Association of Certified Family Law Specialists Winter 2008, No. 1

Newsletter Editor

Dawn Gray, j.d., cfls

N E W S L E T T E R

From the Editor’s Desk . . . . 2Dawn Gray

President’s Message . . . . . . 3Sharon A. Bryan

Marriage of Feldman: The Fourth District Sanctions Breaches of the Fiduciary Disclosure Duties . . . . . . . 4

Dawn GrayA Civil Litigator’s Education in Disclosure Duties . . . . . . 6

Ronald S. Granberg

WH

AT

’S

INS

IDE

A Prescription for Feldman’s Logistical Challenges . . . .10

James “Jim” SchaeferFamily Law ccps Symposium & 2008 Annual acfls Spring Seminar . . . . . . . . . .12acfls Feldman Seminar . . . .14acfls Holiday Party . . . . . 24Reflections on the Human Side of Family Law Practice: Disclosure . . . . . . . . . . . . 47

Heidi Tuffias

Charting the Way:

Disclosure Statutes That Measure Their Requirements by the Fiduciary Standard Stated in Family Code §721(b) . . . 5

What Exactly Must Be Disclosed 9

How Long After Separation Are Parties Under Fiduciary Disclosure Duties? . . . . . . . . . . .14

The Public Policy Behind All Family Code Disclosure Requirements . . . . . . . . . . . . . . .46

The Advantages of Using Informal Discovery Under

the Family Code Rather Than Formal Discovery Under the

Civil Discovery Act

Continued on page 26

Purpose of This Article: The purpose of this article is to address the advantages of “infor-mal discovery,” authorized by the Family Code based upon the fiduciary duties owed by spouses, over “formal discovery,” authorized under the Civil Discovery Act (CCP §§2016.010 et seq.).

Scope of This Article: As detailed in Volume B, Chapter B12 of Gray & Wagner, Complex Issues in California Family Law, Fiduciary Duties – A Practical Approach: Handling Fiduciary Duty Issues in the DaytoDay Practice of Family Law, there are four methods by which a family law practitioner can obtain material facts and information:

• Formal Discovery: Through the formal discovery process under the Civil Discovery Act;

• Informal Discovery: Through the informal discovery process based upon interspousal fiduciary duties of disclosure under the Family Code.• Corporations Code Rights: Through the rights granted to shareholders, general partners, limited partners and members

of Limited Liability Companies (LLCs) by the Corporations Code.

• Information Obtained Independent of the Court’s Process: Through various sources inde-pendent of the court’s process, such as public records, the Internet or from third parties.

This article is limited to comparing the benefits of informal discovery under the Family Code to those of formal discovery under the Civil Discovery Act. A detailed discussion of discovery using the four methods summarized above and the court’s ability to issue protective orders in light of First Amendment rights can be found in Complex Issues, supra.

“One-Stop Shopping”: To aid the reader, this author has adopted a “one-stop shopping” philosophy by including the full or pertinent portions of applicable statutes and cases. While such inclusion lengthens this article, it also permits the reader to see the language of the statutes being discussed or compared, as well as that of the cases.

Stephen James Wagner, j.d., cfls1

Sacramento

[email protected]

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N E W S L E T T E RWINTER 2008, NO. 1

Association of Certified Family Law Specialists

PresidentSharon A. Bryan, j.d., cfls

President-ElectJoseph J. Bell, j.d., cfls

Newsletter EditorDawn Gray, j.d., cfls

Newsletter Editor-ElectDebra S. Frank, j.d., cfls

PrintingExecuprint/Northridge, California

Graphics and TypographyGraeme Magruder/Kalligraphics

The acfls Newsletter is a publication of the Association of Certified Family Law Specialists.

Send your submissions in WordPerfect or Word on disk or email to:

Dawn Gray, cfls, Newsletter Editor 2036 Nevada City Hwy., Suite 195

Grass Valley, CA 95945 Phone: (530) 477-5574 • Fax: (530) 477-5578

Email: [email protected]

All contributions become the intellectual property of acfls, and may be distributed by acfls in any fashion it chooses, including print, internet and electronic media.

Authors retain the right to independently republish or distribute their own contributions.

This newsletter is designed to provide accurate and authoritative information in regard to the subject

matter covered and is distributed with the understanding that acfls is not engaged in rendering legal, accounting

or other professional advice. If legal advice or other expert assistance is required, the services of a

competent professional person should be sought.

acfls Mission StatementIt is the mission of acfls to promote

and preserve the Family Law Specialty. To that end, the Association will seek to:

1. Advance the knowledge of Family Law Specialists;

2. Monitor legislation and proposals affecting the field of family law;

3. Promote and encourage ethical practice among members of the bar and their clients; and

4. Promote the specialty to the public and the family law bar.

Executive DirectorFor circulation, membership, administrative and

event registration requests, contact:

Lynn Pfeifer, acfls Executive Director 15 Corrillo Drive, San Rafael, CA 94903-3902

(415) 499-1610 • Fax: (415) 479-1347Email: [email protected]

© 2008 Association of Certified Family Law Specialists

Winter 2008, No . 1 acfls Newsletter

In the opinion of many family law practitioners, Marriage of Feldman (2007) 153 Cal.App.4th 1470, 64

Cal.Rptr.3d 29, is one of the most significant family law cases to be published in years. As a result, the ACFLS Board decided to devote one Newsletter issue entirely to that case and other matters related to the Family Code’s interspousal disclosure obligations. In this unusual single-topic newsletter, you will find my detailed analysis of Feldman, detail-ing all of its holdings and discussing their implications for family law practitioners.

Feldman raises many issues regarding the use of enforcement mechanisms for obtaining the other party’s compliance with their dis-closure obligations. In this issue, Stephen J. Wagner, CFLS, AAML, Sacramento, compares disclosure obligations under the Family Code’s informal disclosure requirements with formal discovery under the Civil Discovery Act. The compari-son is very enlightening and points out some very significant advantages

of informal discovery over formal discovery. In addition, Ronald G. Granberg, CFLS, Salinas, examines an initial client interview in which the attorney gives the client the “bad news” about the extent of the dis-closure duties. Finally, Heidi Tuffias, CFLS, Brentwood (Los Angeles), com-ments on the human side of requiring each party to “fess up” to everything they know so that the other spouse can present her case, pondering how this duty applies personally to all of us married family lawyers. That should give us all food for thought.

Due to time constraints on publi-cation of this issue, I was unable to include an article giving us the judi-cial perspective on enforcing disclo-sure duties, but I would love to do so in a future issue. So, any judicial officer who may be reading this and would like to write on this topic, please contact me. Feldman is certainly one indication that judicial officers and appellate justices are willing to enforce the disclosure statutes as written. Also, one member reports that the Marin County court is eval-uating the local Family Law rules in light of Feldman. We would like to hear from you regarding the extent of enforcement of fiduciary duties in your counties.

I am collecting articles for upcom-ing Newsletter issues, so don’t be shy. If you have an interesting issue in a case or some topic has caught your imagination, let your muse run wild and share your expertise – or passion – with the rest of the members. Mean-while, I hope that you find this issue interesting and helpful. ■

From the Editor’s DeskDawn Gray, j.d., cfls

acfls Newsletter Editor

Grass Valley

[email protected]

acfls Newsletter Winter 2008, No . 1

Happy New Year, everyone. As I commence my Presidency, I want to express how much I value and

enjoy my association with ACFLS mem-bers throughout the state. I am honored to be in this position for a year.

Our annual Spring Seminar is fast approaching. It will be in Palm Springs for the second consecutive year. There is a summary of the program elsewhere in this Newsletter. Stellar speakers and recognized authorities will address spousal support from every angle, with Justice Donald King as the moderator. I urge you to attend.

Last year, members had several questions with regard to the Spring Seminar, so I will reiterate the answers to a few of them:(1) The Spring Seminar will provide

eight hours of legal specialization and MCLE credit;

(2) Those family law attorneys in your firms or local Bar associations who are not certified specialists are welcome to attend, as are certified family law specialists who are not members of ACFLS;

(3) If colleagues in your Bar association or other experts who are not family attorneys wish to attend (accoun-tants, for example), they are welcome to attend at the non-member rate;

(4) The seminar costs include a seminar book containing the educational materials provided by our presenters and also CDs; and

(5) All seminar registrants, their spouses, significant others and friends accom-panying them are invited to attend the Friday night cocktail party, which will be held at the home of one of our Board members. This is a truly terrific social event you won’t

want to miss. The Saturday night dinner is also a wonderful opportu-nity to greet old friends and make new ones.This year, ACFLS is sponsoring the

Council of Community Property States Symposium, which will take place on Friday, with a cocktail party on Thurs-day night and an annual meeting on Saturday afternoon. Attending the Council are delegates from the com-munity property states throughout the nation, and the speakers this year will discuss the interaction between estate planning and community property. This topic includes the drafting of pre-nuptial and post-nuptial agreements, transmu-tation agreements, and how life insur-ance plans, 401(k) Plans, and deferred compensation plans are impacted by the fact that you practice law in a commu-nity property state. There is a special reduced price of $450 for ACFLS mem-bers who wish to attend both the Spring Seminar and the Council presentation. The Spring Seminar tuition alone is $375 for members.

On other matters of concern to ACFLS, we are closely watching the appointments to the Elkins Family Law Task Force, which was formed at the request of Chief Justice Ronald George. We encouraged certified specialists in our local areas to apply for a position on this task force. We need task force members who represent all aspects of the judicial system, including judi-cial officers, practicing attorneys, and legislators. Due process to family law litigants, whose family law case is per-haps their only exposure to the judicial system, means having enough judges, sufficient time in court, and the ability to present their case.

Log onto our website periodically. We are uploading previous issues of the Newsletter with cutting-edge articles and expanding our brief bank. You will also find information regarding educa-tional seminars being put on by the Association. On January 12, 2008, Steve Wagner, CFLS, Sacramento, and Dawn Gray, CFLS, Grass Valley, the authors of Complex Issues in California Family Law, put on a fantastic seminar on the Feldman case with letters and actual court pleadings included in the seminar book to encourage – no, to require – attorneys and the courts to enforce fiduciary dis-closure obligations. The seminar was standing room only.

I also want to welcome our new Board members: Carol Delzer, CFLS, Sacramento, as Legislative Coordinator; Robert Friedman, CFLS, Beverly Hills, Treasurer-Elect; Patricia Rigdon, CFLS, Pasadena, Secretary-Elect; and Stephen Temko, CFLS, San Diego, Director South-Elect.

I urge all of you to read the News-letter, check out the website, attend our educational seminars and par-ticipate in social events such as our annual Holiday party in San Francisco, our Spring Seminar dinner (this year in Palm Springs) and also events with other ACFLS members in your local community. The Association is com-prised of specialists, leaders, and rec-ognized authorities from every corner of California. Join us and participate. You’ll be part of a network of truly knowledgeable and good people who practice law with the highest integrity and also who help and support one another.

See you at the Spring Seminar in March. ■

President’s MessageSharon A. Bryan, j.d., cfls

acfls President

Torrance (Los Angeles)

[email protected]


Marriage of Feldman:The Fourth District Sanctions Breaches

of the Fiduciary Disclosure DutiesDawn Gray, j.d., cfls

acfls Newsletter Editor

Grass Valley

[email protected]

On July 20, 2007, the Fourth District decided Marriage of Feldman (2007) 153 Cal.App.4th 1470, 64 Cal.Rptr.3d 29. It decides many issues of first impression

relative to the enforcement of interspousal fiduciary disclosure duties and makes it clear that the disclosure statutes mean what they say. Many family law attorneys feel that this case will change the way family law is practiced both in our offices and in the courts. At the very least, it provides an extremely important tool in the family law attorney’s kit, and will be quoted for years to come. This article examines the opinion and explores its impact on family law practice.

The Basic Facts: The facts of Feldman were substantially undisputed. Aaron and Elena Feldman were married in 1969

and separated 34 years later. During marriage, Aaron

established and devel-oped various busi-

ness entities, which by the time of separation existed under the umbrella of Sunroad Enter-prises. He esti-mated that his assets had a net

value of $50 mil-lion. Elena was

not involved in the businesses during mar-

riage. In the dissolution action, the parties disputed the character of the Sunroad entities; Aaron contended that they were entirely his separate property and Elena claimed that they were all or part a community asset.

As part of her trial preparation, Elena served Aaron with a Request for Production of Documents and took his deposition as well as the deposition of several Sunroad employees. In response to the request, he produced a number of documents and on November 24, 2003, also gave Elena a Schedule of Assets and Debts. At Elena’s attorney’s request, he updated that Schedule on several occasions thereafter.

The Enforcement Motion: Elena felt that Aaron had failed to provide many documents that she needed to prepare her

case. Also, documents that he did product indicated that he had failed to disclose several assets during his deposition and in his Schedule of Assets and Debts. In September of 2004, Elena brought a motion for an order imposing monetary sanc-tions against Aaron under Fam. Code §§1101(g) and 2107(c) for violating his fiduciary disclosure obligations. She also requested an attorney fee order under those statutes as a further sanction for his breach of duty and asked for a fee order under Fam. Code §271 on the basis that his nondisclo-sures did not further settlement or encourage cooperation.

Elena alleged that Aaron had failed to disclose several finan-cial transactions that occurred both during marriage and after separation, including the existence of a $1 million Israeli bond and a loan to purchase it, his use of one of the Sunroad enti-ties to purchase $5.8 mil-lion personal residence in La Jolla, his own-ership of a 401(k) retirement account with Sunroad and his post-separa-tion creation of several new Sun-road entities. The parties attempted to mediate the dis-pute but the court ulti-mately heard the motion and held that Aaron had breached his fiduciary disclosure obligation to Elena. She had requested sanctions in the amount of $250,000 plus conditional sanctions of $750,000, which would be stayed on the condition that Aaron fully, accurately and promptly comply with his disclosure obligations. Finding that Aaron had intentionally “sought to circumvent the disclo-sure process” and that “his conduct had frustrated the policy of promoting settlement,” San Diego County family court judge Randa Trapp granted Elena’s motion and sanctioned Aaron $250,000 – the full amount of Elena’s request – but declined to order conditional sanctions. It also ordered him to pay attorney fees of $140,000, for total sanctions of $390,000. It made its order under Fam. Code §§1101(g) and 2107(c) as well as §271.

Feldman will change

the way family law is practiced both in our offices and in

the courts.

Feldman should be

required reading for every family

law litigant.

Disclosure Statutes That Measure Their Requirementsby the Fiduciary Standard Stated in Family Code §721(b)

Family Code §721(b): Dis-closure duties imposed on all spouses during marriage and after separation.

Family Code §1100(e): Duties in the management and control of community assets during marriage and until assets or liabilities are divided by the parties or by the court.

Family Code §2102(b): Disclosure duties regard-ing assets and liabilities “(f)rom the date that a valid, enforceable, and binding resolution of the disposition of the asset or liability in question is reached, until the asset or liability has actually been distributed . . .”

Family Code §2102(a): Disclosure duties “from the date of separation to the date of the distribu-tion of the community or quasi-community asset or liability in question . . .”

Family Code §2102(c): Disclosure duties as to all issues relating to support and fees “(f)rom the date of separation to the date of a valid, enforceable, and binding resolution of all issues relating to child or spousal support and professional fees . . .”

Spouses are subject “to the

general rules governing fiduciary relationships which con-

trol 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. This confidential relationship is a fidu-

ciary relationship subject to the same rights and duties of

nonmarital business partners. . . .”


The Appeal: Aaron brought an interlocutory appeal of the sanctions order, but the Fourth District affirmed the order in its entirety. It first reviewed the fiduciary duty statutes, citing Fam. Code §2100(c)’s public policy statement and noting that “(t)his disclosure duty is ongoing. . . .” It agreed with the trial court that Aaron had failed to disclose material facts and information regarding assets and obligations in violation of his fiduciary disclosure obligation under Fam. Code §2100 et seq. It began by discussing the disclosure statutes, saying that (t)he fiduciary obligations of spouses to each other

are set forth in section 721, and are made specifically applicable during dissolution proceedings by section 1100, subdivision (e). “Each spouse shall act with respect to the other spouse in the management and control of

the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obli-gation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.” (§1100, subd. (e).)


The Cast:Carol Candid, divorce lawyerSusan Stonewall, real estate litigator and

Candid’s divorce client

The Scene:Candid’s law office

Candid Good morning, Susan! It’s just great to see you again! My goodness, how long has it been?

Stonewall The last time we saw each other was the day we graduated from law school. Don’t you remember the graduation party?

Candid Well, vaguely. Then twenty years go by and you’ve become the best – or at least the most aggressive – real estate litigator in the county.

Stonewall Carol, my dear, the most aggressive real estate litigator is the best real estate litigator – in this county or in any other county. You’ve just never had that killer instinct, have you?

Candid I guess not.Stonewall But somehow you became the best-respected

divorce litigator in the county, despite a notable absence of bloodlust. It just amazes me.

Candid I settle what I can, and try what I must.Stonewall The other thing that amazes me is the fact that

I’m here in your office needing your services. I thought Harold and I would last forever.

Candid Is there any way the marriage can be saved?Stonewall Nope. So let’s rend it asunder, shall we?Candid Alright.

Stonewall Stonewall’s cell phone rings. Stonewall opens the phone, telling Candid: I’m sorry, Carol. This will only take a minute.Stonewall speaks into phone: Okay, Barry. What’s up?After listening, Stonewall replies: No way, Barry! Don’t give plaintiff’s counsel a single document! If that nincompoop doesn’t know how to phrase a document inspection demand, he doesn’t deserve to receive any discovery responses! That idiot demanded a production of “writings” without referencing Evidence Code section 250 or other-wise defining the term “writings.” Well, in that case I choose to interpret the term “writings” to refer only to documents made in “handwriting.” Since none of the documents was made in handwriting, he gets nothing!Stonewall closes the phone.

Candid Wow, you take a pretty hard line approach to discovery responses, don’t you?

Stonewall I’m proud to report that in my law firm discovery avoidance is a well-honed skill. Frankly, we’re brilliant at it. We discuss avoidance techniques so frequently that we’ve nicknamed our discovery responses “Hard Ball,” or simply “HB,” and we refer to our discovery department the “HB Department.”Every lawyer joining our firm is required to complete a three-hour training class with HB Department Head Barry Blackwell, a nationally- recognized discovery avoidance genius. Barry is known in the legal community as “Black Hole Blackwell” because serving a discovery request on my law firm is like sending it into a black hole.

Candid Well, Susan, you’re going to discover a completely different culture regarding discovery in the family court. Here’s a packet containing family law disclo-sure statutes and cases. Please sign at the bottom to acknowledge your receipt of the packet.

A CIVIL LITIGATOR’S

EDUCATION IN DISCLOSURE

DUTIESRonald S. Granberg, j.d., cfls

acfls Past President

Salinas

[email protected]


Stonewall Hey, it looks like there’s some “cover your assessment” going on here, eh, Carol?

Candid You bet there is. I never want to get into trouble, either with an angry judge or with a client who’s been sanctioned for improper disclosure. That’s the reason I give this disclosure packet to every client, and require every client to acknowledge receipt of the packet in writing.

Stonewall I don’t like the way this is sounding. In my view, requiring a party to share information with her litigation adversary is like requiring FDR to share his D-Day plans with Hitler.

Candid Susan, you are definitely in need of some serious education regarding family law disclosure duties.

Stonewall Well, let’s start. Give me a quick overview tour of this disclosure packet, will you?

Candid I’d be happy to. OK if I refer to “Family Code sections” simply as “Sections?”

Stonewall Okay.Candid Sections 721(b) and 1101(e) describe interspousal

fiduciary duties, and Sections 2100 through 2106 describe specific disclosure duties. Section 721(b) makes spouses “subject to the general rules govern-ing 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.”Section 1101(e) requires each spouse to “act with respect to the other spouse in the management and control of the community assets and liabilities in accordance with the general rules governing fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable.”

Stonewall Okay. So those are the general interspousal fiduciary duties.

Candid Correct. You’ll notice that on the last pages of the handout I’ve summarized five cases: Haines, Delaney, Brewer, Rossi and Feldman.

Stonewall You’re being careful. I respect that.Candid Once I’ve described the sanctions that family law

judges impose for disclosure violations, you’ll see why care is needed.Let’s put case law on hold for now and review more statutes. Divorce lawyers have nicknamed a preliminary declaration of disclosure a “PDD,” and have nicknamed a final declaration of disclosure a “FDD.”

Stonewall Pronounced like the “Fudd” in “Elmer Fudd”?

Candid Sure. Section 2105(a) requires the spouses to exchange FDD’s and current income and expense declarations. Section 2105(b) requires a FDD to include:

• All material facts and information regarding the characterization of all assets and liabilities;

• All material facts and information regarding the valuation of all community property assets;• All material facts and information regarding the amounts of all community obligations; and

• All material facts and information regarding the earnings, accumulations, and expenses of each party.

Stonewall It’s my understanding that a PDD lists community assets and obligations, but needn’t value them, whereas a FDD both lists and values community assets and obligations. Is that the distinction?

Candid Basically, yes.Stonewall And I understand that Harold and I can waive the

exchange of FDD’s, electing to merely exchange PDD’s instead. Do I have that right, too?

Candid No. What you’ve stated is a common misunder-standing. Section 2105(d)(3) conditions FDD waiver upon each spouse’s having disclosed “all material facts and information regarding . . . the valuation of all [community] assets . . . and the amounts of all [community] obligations.”

Stonewall So, in effect, spouses can waive the FDD exchange only by exchanging FDD’s?

Candid Pretty much.Stonewall In civil discovery, each party must specifically

request information in order to receive it. From the way you’ve described it, family law discovery is the opposite – each party has an affirmative duty to volunteer all material information.

Candid Exactly. And the disclosure duty is a fiduciary duty.Stonewall Hmm. You know, Carol, this reminds me of some-

thing. I’ve always been impressed by the dramatic impact that a summary judgment motion has on litigation information exchange.When propounding discovery, Plaintiff first has to guess what information is important to Defendant’s arguments, then has to send discovery requesting that specific information. Defendant, naturally, does everything possible to hide the ball.But let Plaintiff file a summary judgment motion, you’ll be amazed how quickly the picture changes. Now Defendant is falling all over itself to detail its arguments and disclose all information supporting those arguments. Fear of failure is a powerful incentive to information exchange.

Candid I noticed the same thing when I did civil litigation back in the day. Family law information exchange has taken a radically different path than civil discovery did, by placing the obligation on each party to provide information instead of requiring each party to seek the information.

Continued on page �


Civil Litigator’s EducationContinued from page �

Stonewall I guess it makes sense that I should be obligated to disclose all information about community property. After all, since Harold and I jointly own the asset we should be jointly entitled to the information. And the same with community obligations. But I don’t have to tell him much about assets I own alone or had before marriage, do I?

Candid Yes, under the family law disclosure statutes you have to tell him about everything you own or owe, even if he does not own any part of it. Disclosure duties apply to separate property as well as to community property. Section 2102(a) requires each party to provide the other an “accurate and complete disclosure of all assets and liabilities in which the party has or may have an interest or obligation and all current earnings, accumulations, and expenses.”The Section 2101(a) definition of “asset” isn’t limited to community assets, and the Section 2101(f) definition of “liability” isn’t limited to a community liabilities. Also, if he makes any claim to any of your separate property, you must disclose the same information as if you agreed that it was community property.

Stonewall So once I’ve sent Harold a FDD and a current income and expense declaration, I’ve fulfilled my duties, right?

Candid Not exactly. Both of you have a continuing disclosure duty. If anything changes after you send him your FDD and income and expense declaration, Section 2102(a)(1) requires you to send Harold an “immediate, full, and accurate update or augmentation” to your previous disclosures.

Stonewall Wow. Looks like I have to tell him everything! So, what happens if I don’t play by all these rules? You know that playing by the rules has never been my strong suit, Carol. Will the court just slap me on the wrist?

Candid I’m afraid it’s worse than that. If you fail to properly disclose, Family Code 2107(c) requires the court to impose money sanctions against you in an amount sufficient to deter repetition of your conduct and also order you to pay Harold’s attorney’s fees and costs, unless it finds that you acted with substantial justification or that other circumstances make imposition of the sanction unjust. We would have to have some pretty good excuse for not disclosing, though.

Stonewall It sounds like family law discovery disputes carry a presumption that the at-fault party will pay sanctions. The legislature must have copied and pasted that language from several CCP discovery sanctions statutes I’m familiar with.

Candid Yeah – (chucking) – I’ll just bet you’re familiar with those!

Stonewall Ha ha. The discovery department is like home to me. My firms files or defends an average of three discov-ery motions every week. It’s all part of the game.

Candid Yeah, but that’s the point – in family law, we aren’t supposed to play games. The legislature has even said that the purpose of all of these rules is to encourage settlement and be sure both parties know everything before they settle or litigate the case. Your wimpy little CCP sanctions are nothing compared with our Family Code sanctions.

Stonewall What do you mean?Candid Have you ever had a civil judgment set aside due to

a discovery violation?Stonewall Not a chance; res judicata rules! Once judgment is

entered, any dirty tricks played along the way are irrelevant.

Candid Well, guess what? Section 2122(f) authorizes the court to set aside a family law judgment if a party has violated a disclosure duty.

Stonewall No way, Carol! Wow, that’s frightening.Candid Way! Not only that, but Section 1101(h) provides

that when a fiduciary duty breach “falls within the ambit of Section 3294 of the Civil Code” available sanctions “shall include . . . an award to the other spouse of 100 percent . . . of any asset undisclosed or transferred in breach of the fiduciary duty.” That means that if we fail to disclose a community asset, Harold can end up owning the whole asset instead of just half, to punish you for playing hide-the-ball.

Stonewall You’re kidding! Has that ever actually happened?Candid You bet it has. Your disclosure packet includes a

copy of In re Marriage of Rossi (2001) 90 Cal.App. 4th 34. Read the case. The Wife won a $1.3 million community property lottery jackpot, but breached her duty to Husband by trying to hide the fact that she had won. When Husband found out about the jackpot, he filed a motion asking for the entire amount to be awarded to him under Section 1101(h). The trial court granted his motion and the court of appeal affirmed. She had to give him the whole $1.3 million.

Stonewall Good grief!Candid Your disclosure packet also includes a copy of In re

Marriage of Feldman (2007) 153 Cal.App.4th 1470. Read that case, too. Husband violated his disclosure duties, and even though Wife wasn’t harmed by his violations because she found out about all of the undisclosed items, the trial court ordered Husband to pay a $250,000 sanction for his disclosure duty violations. The court of appeal affirmed.

Stonewall Yikes! These family law judges of yours are brutal!Candid Don’t blame the judges; they are just enforcing the

statutes. The legislature must have gotten tired of “trial by ambush” in divorce cases, and enacted the statutes to be sure that divorcing people didn’t play games in the divorce case. I don’t want to be the attorney whose client gets hit with a Feldman motion, so take these disclosure forms and fill them out. I want you to be forthright, detailed, and exhaustive.

Stonewall I will. You’ve made a believer out of me – but Black Hole Blackwell will never believe it.



What Exactly Must Be Disclosed?Under Family Code §721(b), disclosure includes, but is not limited to:• Upon request, true and full infor-mation of all things affecting any transaction which concerns the community property.• Without demand, any informa-tion concerning the parties’ business and affairs reasonably required for the proper exercise of the spouse’s rights and duties. • On demand, any other informa-tion concerning the parties’ business and affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.

Under Family Code §1100(d):• A spouse operating a business on behalf of the community must give the other spouse prior written notice of any sale, lease, exchange, encumbrance, or other disposition of all or substantially all of the per-sonal property used in the operation of the business (including personal property used for agricultural pur-poses), whether or not title to that property is held in the name of only one spouse.

Under Family Code §1100(e), disclosure includes, but is not limited to:• Full disclosure of all material facts and information regarding the exis-tence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may be liable.• Providing equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.

Under Family Code §2100, a spouse must provide:• Full and accurate disclosure of all assets and liabilities in which

one or both parties have or may have an interest, regardless of the characterization as community or separate.• Full and accurate disclosure of a party’s income and expenses.• Each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes.

Under Family Code §2102(a), a spouse must provide:• The accurate and complete dis-closure of all assets and liabilities in which the party has or may have an interest or obligation and all cur-rent earnings, accumulations, and expenses, including an immediate, full, and accurate update or augmen-tation to the extent there have been any material changes. • The accurate and complete written disclosure of any investment opportu-nity, business opportunity, or other income-producing opportunity that presents itself after the date of separa-tion, but that results from any invest-ment, significant business activity outside the ordinary course of busi-ness, or other income-producing opportunity of either spouse from the date of marriage to the date of separation, inclusive. The written disclosure shall be made in sufficient time for the other spouse to make an informed decision as to whether he or she desires to participate in the investment opportunity, business, or other potential income-producing opportunity, and for the court to resolve any dispute regarding the right of the other spouse to participate in the opportunity.

Under Family Code §2102(b), a spouse must disclose:• All material facts and information under “the standards provided in Section 721 as to all activities that affect the assets or liabilities of the other party.”

Under Family Code §2102(c), a spouse must disclose:• All material facts and information under “the standards provided in Section 721 as to all issues relating to the support and fees, including imme-diate, full, and accurate disclosure of all material facts and information regarding the income or expenses of the party.”

Under Family Code §2104, a spouse must disclose:• Information “with sufficient partic-ularity, that a person of reasonable and ordinary intelligence can ascertain,” the identity of all assets in which the spouse has or may have an interest and all liabil-ities for which the spouse is or may be liable, regardless of the characterization of the asset or liability as community, quasi-community, or separate. • The party’s “percentage of own-ership in each asset and percentage of obligation for each liability where property is not solely owned by one or both of the parties.” • “A completed income and expense declaration unless an income and expense declaration has already been provided and is current and valid.”

Under Family Code §2105(b), a spouse must disclose:• All material facts and information regarding the characterization of all assets and liabilities. • 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. • All material facts and information regarding the amounts of all obliga-tions that are contended to be commu-nity obligations or for which it is con-tended the community has liability. • All material facts and information regarding the earnings, accumula-tions, and expenses of each party that have been set forth in the income and expense declaration.


As family law attorneys increas-ingly enforce spouses’ obliga-tions to disclose information on

all aspects of the parties’ marriage and the documents pile up, the $250,000 question is, “How do I arrange my office logistics to meet the requirements of the post-Feldman era?” This article provides practical steps for meeting this question based upon procedures implemented at Schaefer & Company in working with family law and major fraud cases.

Here’s my diagnosis in preparing this article. I foresee that discovery requests and document production will become more challenging. My crystal ball sug-gests that family law practitioners in the future will frequently send and receive blanket “meet your fiduciary duty”–style letters with the added comment that you “should not forget the follow-ing 40 items” (e.g. income tax returns, bank statements, etc.) These fiduciary duty letters will either supplement or replace the tort-style document produc-tion requests to which some apply the “don’t ask – don’t furnish” rule. That is to say, my prediction is that in the post-Feldman era, additional attention will be given to providing all significant docu-ments – asked for or not – and being able to prove that they were provided.

Here’s the Rx for my diagnosis:Acquire a high quality production

scanner. Be sure to ask about service, as these devices need ongoing main-tenance. At Schaefer & Company, we use the Canon DR-9080C, which has a 500-page input capacity. Street price for the DR-9080C is approximately $5,800. Sometimes you can also locate this scanner in good condition on eBay at approximately $3,000 – but I sug-gest that you be highly selective. Scan

all client documents (other than work product) at 300 to 400 dots per inch into .pdf format. If any of the docu-ments have “highlighting” from those popular pens, scan in color or in gray-scale, as highlighted words are illegible on the black and white setting. Then:1. Set up a scanning log and charge

your client approximately 3.5 cents per page. Over time, this would cover the cost of the machine and its maintenance.

2. After you scan the documents, box the client documents for return to client at end of the case. Use the scanned files thereafter as your working files. The scanned files will be Bates stamped in a later step.

3. Arrange the scanned documents into 1,000-page computer data files. Files of 1,000 pages each are a good working size.

4. Using an add-on to Adobe Acrobat or the capability built into Acrobat 8 Professional, Bates stamp the files. It is best to coordinate the Bates stamp numbers with the number of the page in the file. Thus, the first 1,000-page .pdf file would be Bates stamped and named 1 to 1,000. The 2nd pdf file would be Bates stamped and named 1,001 to 2,000. See my article in the ACFLS Fall newsletter for additional specifics on Bates stamping within a .pdf file.

5. Redact social security numbers and other information facilitating identity theft.

6. Furnish documents created in prior steps to opposing counsel on CD. You can update documents furnished either monthly or as required by the case. My assumption is that you can’t send too often. Each CD should be consecutively numbered so that oppos-

ing counsel can readily determine if a CD in the set has been mislaid.Set up an extranet on your server. An

extranet is a password-protected work-group sharing tool accessed through the internet. We used the Sharepoint Ser-vices facility of Microsoft Small Business Server to set up our extranet for less than $1,000. For details, refer to http://msdn2.microsoft.com/en-us/sharepoint/default.aspx. Store the .pdf files with Bates stamps on the extranet. Give your forensic accountants, experts and staff access to the extranet. This provides efficient and confidential access to all case documents.

Establish a workstation with two large monitors for the paralegal in your office who indexes documents. This provides one screen to view the document and a second screen to make entries in the index. Maintain the document index on the extranet so that your team (including forensic

Winter 2005, No . 3 Page 10 acfls Newsletter

A Prescription for Feldman’s

Logistical ChallengesJames “Jim” Schaefer, cpa

[email protected] www.schaefercpa.com

James “Jim” Schaefer is a sophisticated user of technology in his forensic and general accounting practice. After leaving KPMG in 19�4, Jim established an independent accounting practice in Claremont, California. His firm has developed database, large format printing and related capabilities used in analyzing and communicating complex financial concepts. His forensic work is generally limited to family law cases in California and investigating tracing issues in large case Ponzi schemes. Jim frequently coordinates with larger forensic firms wherein he focuses on the litigation support graphics and communication aspects of complex cases.

Put Feldman Reverse Discovery to Work for Your Clients Today

Pick up the dvd/cd set of Dawn Gray and Stephen J. Wagner’s ground-breaking program (presented in Sacramento on January 12th) “A Systematic Method of Enforcing Fiduciary Duties” at the acfls Spring Seminar in Palm Springs (March 13-16) or order one now.

For $175 (including tax and shipping), you will receive a dvd of the presentation and a cd with the course syllabus and practice materials including sample fiduciary duty disclosure letters and notices.

Order by fax: 415-499-1347 or mail: Lynn Pfeifer, acfls Executive Director, 15 Corrillo Drive, San Rafael, California 94903-3902.

Name: ________________________________________ Phone: _________________

Street Address: _________________________________________________________

City, State, Zip: _________________________________________________________

___ My check payable to acfls for $175 is enclosed.

___ Charge my Visa/Mastercard no. ______________________ Exp. date: _________

Name as it appears on card: ___________________

Signature: ________________________________

Here is one comment from an attendee:

“Steve and Dawn: Thanks again for the great acfls program on January 12. I can honestly say it was the most useful threehour education program of my career. Feldman is complicated, emerging stuff, and you really brought it together.”

John E. Harding, cfls

Presenters and participants enjoy a group bicycle ride after the Feldman seminar. (left to right), Mike Samuels, Tom Woodruff, Vince Jacobs, Ron Granberg and Justin O’Connell.


accountants and experts) can use, update and share the index. Complex case indexes should be prepared in a database program such as Microsoft Access or Filemaker. Indexes prepared in Microsoft Excel may be considered for less demanding cases. Welcome any member of the team to add fields to the index so that all can share the same index and avoiding duplication and reducing costs. The index should include fields such as:

a. Bates #b. Date Receivedc. Document Source (Petitioner,

expert, etc.)d. Topice. Type of Document (e.g., tax

return, so that all tax returns can be located easily)

f. Document Dateg. Flag for High Importance Flag

7. Optional: Instruct your “indexer” how

to hotlink the index to a page in a .pdf file. Example: The index describes a deed. The indexer can hot link the deed to the index so that the attorney can simply click on the line item in the index and the deed is automati-cally opened and shown on screen.

8. Highly Suggested: At Schaefer & Company, we have adopted the 32″ (or larger) Sony Bravia TV (from Costco) as our standard desktop computer monitor. These monitors cost approximately $850 and are particularly useful when working with full page .pdf documents. Tip: In Acrobat, press control plus l (ctrl + l) to toggle into full page view.Anticipate that opposing counsel

will adopt the above steps. Therefore, you should expect to receive CDs containing documents in .pdf format. Some of these documents will need to be printed. Older laser printers print

.pdf files quite slowly. I would suggest that you maintain one or more high-quality laser printers. In our office, we use HP 4350n and HP P3005n printers. 9. Electronic files for large cases can

consume a good part of your server’s hard drive capacity. Today, large hard drives are relatively inexpensive. Plan ahead for hard drive and backup device capacity.

My Rx is intended to assist you in: • meeting fiduciary duty standards

with ease, • finding that needle in the haystack

that is so valuable in a case, and • enabling your extended team to

achieve more for less. If you have questions or observa-

tions, I will be attending the ACFLS Spring Seminar in March and would enjoy meeting you then. ■


2008 Annual ACFLS Spring Seminar &Family Law Council of Community Property States Symposium

March 13-16, 2008 Palm Springs Hilton Resort

400 East Tahquitz Canyon Way, Palm Springs, California 92262-6605

Earn up to 14 Hours of California MCLE and Family Law Specialization Credit

AssociAtion of certified fAmily lAw speciAlists

Register online at www.acfls.org or use registration form on next page.

This year’s Saturday and Sunday morning Spring Seminar panels present an in-depth look at spousal support law and practice, moderated by California Court of Appeal Justice Donald B. King (Retired). Panels end at 1 p.m., so that you’ll have free time to enjoy Palm Springs.Saturday morning:• Spousal Support: The Historical Perspective and the

Future Vision (James E. Hennenhoefer, CFLS & Diana Richmond, CFLS)

• How to Prove the Elements: Differences in Temporary v. Permanent Spousal Support and Burdens of Proof

(Ron Granberg, CFLS & Robert Blevans, CFLS)• Modifications, Step-downs & Terminations of Spousal

Support (Garrett Dailey, CFLS)Sunday morning:• Income v. Cash Flow Available for Spousal Support

(Stephen J. Wagner, CFLS & Cynthia V. Craig, CPA)• Taxation Issues Relative to Spousal Support Orders

(Sally White, CPA)• Collection of Spousal Support from Retirement Income

Streams / Murray (Ann Fallon, CFLS & James M. Crawford, Esq.)

Delegates from each of the participating community property states will give presenta-tions on the uneasy relationship in their states between the perspective of estate planners and that of family lawyers on community property issues. Member states take turns hosting this annual symposium – this year is California’s turn to offer hospitality to our out-of-state colleagues. Nancie Yomtov, CFLS will

make the California presentation.There are vast differences in community

property law between the nine American com-munity property states, so each year’s state delegate presentations on that year’s issue trigger creative thinking, shatter assumptions and inspire new approaches and arguments.

This year’s agenda includes a Thursday evening “get acquainted” cocktail party at the

Hilton, Friday topic presentations by delegates, and a Saturday afternoon informal roundtable discussion of new developments in each of the community property states.

Don’t miss this opportunity to network with colleagues from the other community property states, and to compare and contrast California law and practice with what happens in the other community property states.

20th Annual Family Law Council of Community Property States SymposiumMarch 13-15, 2008

Family Law Attorneys’ Perspectives on the Impact of Estate Planners’ Efforts with Respect to Community Property

6 hours California MCLE and Family Law Specialization Credit (Friday program)

2008 Annual ACFLS Spring SeminarMarch 14-16, 2008

Spousal Support: Everything the Family Law Practitioner Should Know, and More!

8 hours California MCLE and Family Law Specialization Credit

ACFLS is proud to present the 20th Annual Family Law Council of Community Property States Symposium, in conjunction with our annual Spring Seminar.

Join us in Palm Springs when delegates from each participating community property state compare and contrast how family lawyers in each state view the impact of estate planning. Stay for our Spring Seminar for an in-depth examination of spousal support.

ACFLS offers a discount for those who enroll in both events.

We’ve also planned a Friday night poolside cocktail party in a private home, and a Saturday night dinner at Wally’s Desert Turtle (www.wallys-desert-turtle.com). Shuttles will take you from the Hilton to each off-site event.

The dinner sold out early last year – book early to ensure that you get seats.


2008 Annual ACFLS Spring Seminar&

Family Law Council of Community Property States SymposiumHotel Reservations: The Hilton Palm Springs Resort is located in the heart of beautiful downtown Palm Springs, walking distance to shops, restaurants, galleries and museums. Contact the resort directly by February 15th, 2008 to secure the ACFLS group rate of $168 for single room, $198 for junior suite, $298 for executive suite, or $398 for presidential suite. After February 15, 2008, your reservation will be on a “space available” basis only and rack rates may apply. Phone: 760-320-6868 (ask for in-house reservations), fax: 760-320-2126, email: [email protected]

Seminar & Symposium Information: Registration fees includes all written materials, refreshment breaks, and breakfast on both days. Friday evening cocktail party at private residence, 6:00 - 9:00 p.m. Ample hors d’oeuvres and beverages will be served, so no need to make dinner plans! Shuttle transportation to and from the hotel will be provided. Saturday night dinner at Wally’s Desert Turtle, 6:30 p.m. cocktails and 7:30 p.m. dinner. Transportation will be provided to and from the restaurant departing at 5:45 p.m. Seating is limited, so reserve your space early. See www.acfls.org or email [email protected] for additional information.

ACFLS member pricing:

ACFLS Spring Seminar $375 per person

Family Law Council of Community Property States Symposium $250 per person

ACFLS Spring Seminar & Family Law Council of Community Property States Symposium $450 per person

Non-member pricing:

ACFLS Spring Seminar $425 per person

Family Law Council of Community Property States Symposium $250 per person

ACFLS Spring Seminar & Family Law Council of Community Property States Symposium $500 per person

Event pricing:

Dinner on Saturday night $125 per person (No. of persons attending _______ × $125) = ______________

Cocktail party on Friday night $ 45 per person (No. of persons attending _______ × $ 45) = ______________

Total enclosed $ __________________

Seminar & Symposium Registration: Go to www.acfls.org and follow the links to register. It’s simple as 1-2-3! Alternately, you may register by fax: 415-499-1347; mail: return this form to Lynn Pfeifer, acfls Executive Director, 15 Corrillo Drive, San Rafael, California 94903-3902; or phone: 415-499-1610.

Name: _________________________________________________________________________________________________

Firm: __________________________________________________________________________________________________

Address: ________________________________________________ City: _________________State: ______ Zip:__________

Email: ________________________________________________ Phone: __________________Fax: ____________________

❏ I’m enclosing a check for $ ___________________ payable to ACFLS.

❏ I prefer to pay by MasterCard or Visa: ___________________________________ Expiration date: ____________________

Name as it appears on credit card: _______________________________ Signature: __________________________________

How Long After Separation Are Parties Under Fiduciary Disclosure Duties?

Before Judgment:Family Code §721(b): In trans-

actions between themselves, spouses are “subject to the general rules governing fiduciary relation-ships which control the actions of persons occupying confidential relations with each other,” which “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(b): Spouses are under fiduciary disclosure duties “including, but not limited, to the following: (1) Providing each spouse access at all times to any books kept regard-ing a transaction for the purposes of inspection and copying. (2) Rendering upon request, true and full information of all things affecting any transaction which concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property trans-actions. (3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which con-cerns the community property.”

They are also obligated to provide the other spouse with:(1) Without demand, any informa-tion concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties

under the partnership agreement or this chapter; and(2) On demand, any other informa-tion concerning the partnership’s business and affairs, except to the extent the demand or the infor-mation demanded is unreasonable or otherwise improper under the circumstances.”

Family Code §1100(e): The interspousal duties in the manage-ment and control of community assets continues “until such time as the assets and liabilities have been divided by the parties or by a court.”

Family Code §2102(a): Par-ties are subject to “the standards provided in Section 721, as to all activities that affect the assets and liabilities of the other party,” including those stated in the sec-tion, “from the date of separation to the date of the distribution of the community or quasi-commu-nity asset or liability in question.”

Family Code §2102(c): Par-ties are “subject to the standards provided in Section 721 as to all issues relating to the support and fees, including immediate, full, and accurate disclosure of all mate-rial facts and information regard-ing the income or expenses of the party” “(f)rom the date of separa-tion to the date of a valid, enforce-able, and binding resolution of all issues relating child or spousal support and professional fees.

Post-Judgment:Family Code §2102(b): Par-

ties are “subject to the standards

provided in Section 721 as to all activities that affect the assets or liabilities of the other party” “(f)rom the date that a valid, enforceable, and binding resolu-tion of the disposition of the asset or liability in question is reached, until the asset or liability has actu-ally been distributed.”

Family Code §2102(c): Par-ties are “subject to the standards provided in Section 721 as to all issues relating to the support and fees, including immediate, full, and accurate disclosure of all mate-rial facts and information regard-ing the income or expenses of the party” “(f)rom the date of separa-tion to the date of a valid, enforce-able, and binding resolution of all issues relating child or spousal support and professional fees.”

The Bottom Line:Fiduciary disclosure obligations

continue until child support ends and spousal support terminates. They also continue as to any assets co-owned after judgment until such assets are sold or divided in kind, and until any asset over which one spouse retains control post-judgment, such as retirement benefits or stock options, have been distributed and one spouse’s interest is no longer under the other’s control. After judgment, as long as one spouse has con-trol over the other spouse’s inter-est in any asset or owes a support obligation of any kind, fiduciary disclosure obligations follow that control or support duty.




The panel also observed that (c)onsistent with these fiduciary obligations, section

2100, subdivision (c) provides that “a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a proceeding for dissolution of marriage or legal separation of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties.” This disclosure duty is ongoing, as section 2100 provides that “each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any mate-rial changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the relevant underlying facts.” (§2100, subd. (c), italics added.)

To implement the disclosure obligation, the Family Code requires the service of a preliminary and final declaration of disclosure “[i]n order to provide full and accurate disclosure of all assets and liabilities in which one or both parties may have an interest. . . .” (§2103.) Specifically, “the preliminary declaration of disclosure shall set forth with sufficient particularity,” to the extent that “a person of reasonable and ordinary intelli-gence can ascertain [them],” “[t]he identity of all assets in which the declarant has or may have an interest and all liabilities for which the declarant is or may be liable, regardless of the characterization of the asset or liability as community, quasi-community, or separate.” (§2104, subd. (c)(1).) It also shall include “[t]he declarant’s per-centage of ownership in each asset and percentage of obligation for each liability where property is not solely owned by one or both of the parties.” (§2104, subd. (c)(2).)

Finally, it said that Section 2107, subdivision (c) requires the trial court

to impose monetary sanctions and award reasonable attorney fees if a party fails to comply with any portion of the chapter of the Family Code that deals with spouse’s fiduciary duty of disclosure during dissolution proceedings, i.e., sections 2100 to 2113. The statute provides, “If a party fails to comply with any provision of this chapter, the court shall, in addition to any other remedy provided by law, impose money sanctions against the noncomplying party. Sanctions shall be in an amount sufficient to deter repetition of the conduct or comparable conduct, and shall include reasonable attorney’s fees, costs incurred, or both, unless the court finds that the noncomplying party acted with substan-tial justification or that other circumstances make the imposition of the sanction unjust.” (§2107, subd. (c).) The panel also cited Fam. Code §271. However, it noted

in Footnote 6 that although the trial court held that its order was supported by Fam. Code §1101(g), because “the sanctions

award (including the payment of attorney fees) is well-sup-ported by the authority provided in section 2107, subdivision (c) and section 271, subdivision (a), we need not, and do not, discuss whether the award of attorney fees might also prop-erly be premised on section 1101, subdivision (g).” Thus, it affirmed only the applicability of sanctions under Fam. Code §2107(c) and attorney fees under §271.

The Court’s Holdings: After setting out the statutes under which the trial court made its order, the appellate court then discussed how those statutes applied to the conduct in which the trial court had determined Aaron had engaged. Before doing so, however, it addressed a procedural issue that Aaron had raised in his opposition to the appeal.

Standard of appeal: It first discussed the standard of appeal of an order for sanctions under Fam. Code §2107. Analogizing to the standard of review of Fam. Code §271 and civil discovery abuse cases, which are decided under the abuse of discretion standard, the panel held that the standard of review of an award of sanctions under Fam. Code §2107(c) is abuse of discretion. It also noted that it was the first court to decide the issue. That issue having been decided, the court then turned to Aaron’s challenges to the trial court’s interpretation of the fiduciary dis-closure sanction statute – and disagreed with him on all of them.

Sanctions are available without a showing of harm: Aaron argued that “sanctions may not be imposed on a spouse who breaches his fiduciary duty of disclosure if the other party fails to establish any harm result-ing from the breach.” The panel flatly dis-agreed. It reasoned simply that neither Fam. Code §271 nor §2107(c) “sets forth any requirement of separate injury to the com-plaining spouse as a precondition to the imposition of sanctions.” It also said that the purpose of the sanctions statute was to penalize nondisclosure, not redress the other party’s injury: Section 2107, subdivision (c) indicates that sanctions

are to be imposed to effectuate compliance with the laws that require spouses to make disclosure to each other. (See § 2107, subd. (c) [referring to sanctions imposed to “deter repetition” of conduct that “fails to comply” with the disclosure requirements].) The statute is not aimed at redressing an actual injury. Section 271, subdivision (a) authorizes sanctions to advance the policy of promot-ing settlement of litigation and encouraging cooperation of the litigants. This statute, too, does not require any actual injury.

Indeed, as expressed in section 2100, subdivision (b),

Feldman, GrayContinued from page 5

Neither Fam. Code §271

nor §2107(c) “sets forth any requirement of separate injury to the complaining

spouse as a precondition to the imposition of sanctions.” The

purpose of the sanctions statute was to penalize nondisclosure,

not redress the other party’s injury.



the Legislature has indicated that “[s]ound public policy . . . favors the reduction of the adversarial nature of marital dissolution and the attendant costs by foster-ing full disclosure and cooperative discovery.” In light of this legislatively expressed intention, the authority to impose sanctions for nondisclosure is plainly aimed at effectuating the goal of reducing the adversarial nature of marital dissolution rather than at redressing any actual harm inflicted on the complaining spouse. Emphasis in original.This holding is extremely important. In enforcing the lan-

guage and intent of the disclosure statues, the Fourth District clearly states the law that the party against whom sanctions

are sought bears the burden to demonstrate his or her

compliance with the fiduciary discov-

ery obligations; the party seek-ing to enforce the other’s dis-closure duties is not required to establish how he or she

was harmed by that noncompli-

ance. This hold-ing is in complete

accord with the Legisla-tive policy statement in Fam.

Code §2100(c), which requires prompt, complete and volun-tarily disclosure of all material facts and information regarding the parties’ assets, debts and income prior to settlement or trial in order to effectuate public policy “to marshal, preserve, and protect community and quasi-community assets and liabilities that exist at the date of separation so as to avoid dissipation of the community estate before distribution, (2) to ensure fair and sufficient child and spousal support awards, and (3) to achieve a division of community and quasi-community assets and liabili-ties on the dissolution or nullity of marriage or legal separation of the parties as provided under California law.” Thus, according to the Fourth District – and the terms of Fam. Code §2107(c) – any violation of the fiduciary disclosure obligations is sanction-able even if that nondisclosure did not harm the other spouse.

No prior request is necessary before imposition of sanc-tions: Aaron next argued that because Fam. Code §2107(a) requires a party wanting either to compel the other to file dis-closure declarations or to obtain further particularity in those already provided to bring a motion to compel them, the court erred in imposing sanctions against him under §2107(c) because Elena had neither demanded further information nor brought a motion under §2107(a). Again, the court disagreed. Reasoning that §2107(c)’s terms “simply do not require that before seeking sanctions for nondisclosure a party (1) seek

further disclosure and (2) bring a motion to either compel further responses or preclude evidence,” the panel held that sanctions under §2107(c) are “independent” of the remedies under §2107(a). Thus, a party can bring a motion for sanctions under §2107(c) without having made any other attempts to obtain the information from the other side – although, as discussed below, Elena’s requests for information certainly helped her demonstrate Aaron’s nondisclosure and supported the trial court’s sanction order.

Having dealt with Aaron’s arguments contesting the way in which the trial court interpreted Fam. Code §2107, the court then turned to his claims regarding the specific ways in which the court had applied those provisions to the claimed nondis-closures.

The Israeli bond: Aaron served Elena with his Schedule of Assets and Debts on November 24, 2003. In his pleadings on appeal, he did not dispute that in that Schedule, he had failed to list a $1 million bond that he had purchased from the Israeli government in October 2003. He had purchased it with funds borrowed from Bank Leumi in Israel and had pledged the bond as collateral for the loan. Aaron also failed to disclose the loan. Also, although Elena had served him with a document produc-tion request asking for all bond certificates and any documents evidencing loans, he produced no documents concerning either the bond or the loan either in his response or in his supplemen-tal production in January 2004. In addition, during his January 2004 deposition, in response to a direct question on the subject Aaron stated that he had no personal loans from Bank Leumi.

On appeal, Aaron argued that the disclosure statutes did not require him to disclose either the bond or the loan because the amount of the loan offset the value of the bond and thus they had no “net effect” on his net worth. The appellate panel dis-agreed with him yet again, holding that Fam. Code §2102(a)(1)’s dis-closure obliga-tion contained no exception for debts and assets that off-set each other. It held that the statute required him to disclose all assets and liabilities and said that the trial court had agreed with Elena that Aaron had breached his disclosure duty, concluding that the nondisclosure of the Israeli bond

was part of a “clear pattern that [Aaron] has no intentions of complying with the policy . . . that this information is to be shared from the very beginning.” The trial court also found that Aaron’s conduct was intentional, that he was “trying to circumvent the process, hide the ball,” and it stated that “[g]o fish, you figure it out, is not acceptable.”The panel agreed with the trial court. It also noted that

“Aaron also claims that he ‘misspoke’ when he stated at his

The party against

whom sanctions are sought bears the burden to demonstrate his or her

compliance with the fiduciary discovery obligations; the party seeking to enforce the other’s

disclosure duties is not required to establish how he or she was harmed by that non-

compliance.A party

can bring a motion for sanctions

under §2107(c) without having made any other attempts to obtain the information from the

other side.


deposition that he had no personal debt to Bank Leumi.” The panel did not buy it. It said that “the trial court explained that in light of the other nondisclosures detailed in the sanctions motion, it was rejecting Aaron’s explanation that the failure to disclose the Israeli bond and the Bank Leumi loan was a mere oversight. The trial court’s inference is reasonable, and in light of the standard of review we will not disturb it.”

Calumet Avenue residence: When Elena’s attorney asked for an update to Aaron’s his Schedule of Assets and Debts, Aaron’s attorney replied by letter “stating that ‘[Aaron], along with his son Dan, recently moved to a residence on Calumet Street [sic] in the Birdrock area of La Jolla. [Aaron] is leasing the residence for $15,000 a month. Otherwise, we are not aware of any substantial changes that warrant an update of [Aaron’s] Income and Expense Declaration or further correc-tions to his Schedule of Assets and Debts.’ ” Note that this was a response from Aaron’s attorney, not Aaron personally. The following day, however, during the deposition of one of Sunroad Holding, Inc.’s senior vice-president, Elena learned that an entity created by Sunroad Holding – Calumet Real Estate Holdings, LLC – had actually purchased the Calumet Avenue residence for $5,797,500 in cash. According to Aaron’s briefing, he finally produced documents regarding this trans-action almost three months later, on June 28, 2004, and in his September 2004 income and expense declaration, he disclosed that he personally pays the property taxes, insurance and maintenance on the Calumet Avenue property. The appel-late court summarized the issue by saying that (i)n short, Aaron caused one of the Sunroad entities

to buy the Calumet Avenue property, he made the prop-erty into his personal residence, and he funded the pur-chase with funds that because they came from one of the Sunroad entities, could possibly be characterized as community property. However, Aaron told Elena in the April 1, 2004 letter only that he was leasing a residence for $15,000 per month. The April 1, 2004, letter was from Aaron’s attorney, but the

court treated it as a disclosure – or non-disclosure – by Aaron himself, and it formed the basis for the determination that Aaron breached his fiduciary duty.

Elena argued that Aaron’s “selective disclosure of the nature of the transaction” was “inconsistent with Aaron’s fidu-ciary obligation toward her.” The trial court agreed, “citing the transaction involving the Calumet Avenue property as one example of Aaron’s pattern of nondisclosure,” and the appel-late court affirmed. Aaron argued that “he complied with his fiduciary obligation because he ‘disclosed the acquisition of the Calumet Avenue property within one month of the close of escrow.’” The appellate court disagreed yet again, holding that Aaron did not disclose the transaction; instead Elena

stumbled upon the fact of the transaction while depos-ing Tronboll. Indeed, Elena may never have found out about the transaction had her attorney not asked the appropriate question of Tronboll. Based on the content of the April 1, 2004 letter, the trial court could reason-ably conclude that contrary to his fiduciary duty of dis-closure, Aaron was attempting to hide or delay Elena’s discovery of the fact that he had used possible com-

munity property assets to buy a house in which he was residing. Indeed, the trial court could reasonably assume that absent Elena’s discovery of the true facts, Aaron intended to maintain that he was merely leasing his residence from an unrelated third party. Aaron’s con-duct was inconsistent with his duty under section 1100, subdivision (e), which gave him an obligation ‘to make full disclosure to the other spouse of all material facts and information regarding the existence, characteriza-tion, and valuation of all assets in which the community has or may have an interest.’ Emphasis in original.The court came to this conclusion even though the parties

were disputing the character of the Sunroad entities; the fact that Elena was claiming a com-munity interest in the entities was sufficient for the court to hold that Aaron had a duty to disclose all information regarding those entities under Fam. Code §1100(e). Also, this emphasizes the importance of deposing other parties with knowl-edge of the business. Had Elena’s attorney not asked the right questions, said the court, she may never have discovered that Aaron was not being forthcoming about the house.

Note that the court also held that by failing to be forthcom-ing regarding the actual nature of the transaction, Aaron had breached the disclosure duty of Fam. Code §1100(e), not that of the post-separation disclosure statutes in Fam. Code §2100 et seq. However, it held that this breach was still subject to sanctions under Fam. Code §2107(c), which provides remedies “(i)f a party fails to comply with any provision of this chapter.”

What is a “material fact?” In the first instance of interpre-tation of this phrase, the court also held that “(i)n at least two separate respects, the transaction involving the Calumet Avenue property was a ‘material fact,’ giving Aaron a duty to disclose it under section 1100, subdivision (e).” The first reason was that “Elena is claiming that the Sunroad entities are com-munity assets.” Therefore, “(i)n order for Elena to trace those community assets, she needs to obtain information about whether, post-separation, Aaron used any of those alleged com-munity assets to capitalize new companies.” It then concluded that for these reasons, “the fact that Aaron took approximately $6 million from one of the other Sunroad entities and used it to capitalize Calumet Real Estate Holdings, LLC (and to purchase a personal residence in the name of that company) is a material fact concerning the community assets. Aaron accordingly had a duty of candor regarding that transaction.”

The second reason that the court held that the information Continued on page 1�

Any busi-ness transaction

that could affect the other spouse’s ability to present her case

regarding the business’s character must be

disclosed.


Feldman, GrayContinued from page 1�

was “material” was that “in the division of community prop-erty, Elena may attempt to claim reimbursement for any post-separation benefit that Aaron obtained from the use of com-munity property.” Therefore, “(t)he knowledge that Aaron is living in a house that was bought with alleged community assets would be material information to Elena because it would allow her to evaluate whether, post-separation, Aaron has used community property for his personal benefit under circum-stances that would give rise to an obligation to reimburse the community.” In other words, because she was claiming that Sunroad had a community component, anything involving Aaron’s management of the businesses after separation was relevant to her ability to trace community property into other assets, and thus “material” for disclosure purposes. Thus, all business transactions must be disclosed as long as there is any chance the community has an interest in the business.

No “ordinary course of business” defense: In a footnote, the court rejected Aaron’s argument that he did not have to disclose information about the Calumet Avenue purchase “because the purchase of real estate is the type of transac-tion that the Sunroad entities carry out in the ordinary course

of business, and that, in fact, during the marriage, he

had purchased the family’s personal

residences through the Sunroad enti-ties.” Reject-ing this argu-ment, the panel said “(a)s we have explained, the transaction

involving the Cal-umet Avenue prop-

erty is material to this litigation because

(1) Elena must know about it to be able to trace alleged

community assets and (2) Elena must know about it to deter-mine if the community is entitled to reimbursement. On these two grounds, the transaction involving the Calumet Avenue property is distinguishable from a transaction in the ordinary course of business of the Sunroad entities. . . .” Emphasis added.

So, any business transaction that could affect the other spouse’s ability to present her case regarding the business’s character must be disclosed. The court concluded that for these reasons, “Aaron breached his duty to disclose by attempt-ing to hide its existence in the April 1, 2004 letter.” Again, that letter was written by Aaron’s attorney, probably repeating the information Aaron provided. Yet, it breached Aaron’s fiduciary disclosure duty. Clearly, attorneys need to be very careful when they state facts in a letter to opposing counsel.

The 401k account: In his Schedule of Assets and Debts, Aaron stated that he did not have any retirement or pension

assets. He also produced no documents in response to Elena’s request for production of documents relating to his pension plans and retirement and investment programs, either in his ini-tial production or in his supplemental production. Similarly, in response to form interrogatories, Aaron stated that he had no interest in any retirement plan; however, during his deposition, when Aaron was asked why, according to his disclosures, he did not participate in the Sunroad entities’ 401(k) plan, he stated that he probably did participate. At Elena’s request, he subse-quently produced information about his 401(k) account, show-ing that he had an account in the amount of $8,679.20. That may have been pocket change to Aaron and the omission a mere oversight, but the trial court held that it was sufficient to breach his fiduciary disclosure duty, and the Fourth District agreed.

Aaron’s “pattern of misconduct:” Aaron conceded that he had not disclosed the 401(k) account and that he had received account statements, “but he explained that he did not review the statements and that no contribution had been made to the account for 12 years.” However, the trial court felt that the failure to disclose the account “was another instance of Aaron’s breach of his duty of disclosure, and it cited the omis-sion of the 401(k) account as part of Aaron’s pattern of miscon-duct.” The appellate panel said that “(i)n light of the facts in the record, we conclude that the trial court did not abuse its discretion in concluding that Aaron’s lack of candor about the transaction involving the Calumet Avenue property was part of a pattern of nondisclosure that warranted the imposition of sanctions.” In other words, although each nondisclosure was sanctionable, the pattern of nondisclosure was also sanction-able – or at least supported the amount of sanctions.

In Footnote 14, the court agreed with the trial court that “the nondisclosure of the 401(k) account was part of a pattern of nondisclosure. Although the amount of the account may not be significant standing alone, the trial court was within its discretion to conclude that taken together with Aaron’s other nondisclosures, Aaron’s nondisclosure of the 401(k) account demonstrated a pattern of misconduct that justified the impo-sition of sanctions.” Certainly the cumulative effect of Aaron’s nondisclosures heightened the court’s suspicion of his behav-ior and supported the sanctions order; although in theory one fiduciary duty violation would have been sanctionable, it is impossible to know if one additional nondisclosure pushed the court to order sanctions.

It doesn’t matter if the other spouse already has the infor-mation: Aaron also argued that he did not breach his fiduciary duty by failing to disclose the 401(k) account “because Elena had been secretly copying financial documents during their marriage and as a result she had copies of certain account state-ments from 1998 through 2000 for the 401(k) account, which she produced to Aaron on April 29, 2004.” However, the panel held the fact that the other spouse already knows the infor-mation does not relieve a party from his disclosure obligation, particularly when he is in the better position to know the facts and obtain the information. It said that as to Elena’s knowledge, (w)e do not view this fact as in any way exonerative

of Aaron’s failure to disclose the information about the 401(k) account on the Schedule or to produce documents concerning the account in response to Elena’s request for

Although

each nondisclo-sure was sanctionable,

the pattern of nondisclo-sure was also sanctionable

– or at least supported the amount of

sanctions.



production. The 401(k) account is clearly one of Aaron’s assets and may be community property. He was thus required to disclose it in the Schedule and to disclose it upon request from Elena. (See §§ 2102, subd. (a)(1), 2104, subd. (c)(1), 1100, subd. (e), 721, subd. (b)(2).) ‘[A] spouse who is in a superior position to obtain records or information from which an asset can be valued and can reasonably do so must acquire and disclose such infor-mation to the other spouse’ and should not expect the spouse who is not in a superior position to search for

the information. (Brewer & Federici, supra, 93

Cal.App.4th at p. 1348.) . . . In

sum, Aaron had a fidu-ciary duty to disclose the existence of the 401(k) account on the Sched-

ule in the first place

without prod-ding from Elena

and to produce rele-vant documents upon

Elena’s request.” Emphasis added.Clearly, each spouse’s disclosure obligation is a stand-alone

duty to provide full information, not simply to provide informa-tion that the other party does not have.

Advising clients to copy documents before separating: In addition, the court said that if Elena had not copied documents before separation, she may never have found out about the undisclosed assets at all. Thus, the court condoned one party’s surreptitious copying of documents before separation. It said that (i)f Elena had not, without Aaron’s knowledge,

obtained statements from the 401(k) account, Elena may never have found out about the account, and her attorney may not have known to ask Aaron about this asset during the deposition. . . . The trial court might reasonably have inferred that Elena’s demonstrated knowledge of the 401(k) account was what prompted Aaron to finally admit to the existence of the asset and that Aaron’s conduct was not consistent with his fiduciary duty of disclosure.If Aaron was attempting to state an unclean hands defense,

it was not only irrelevant to his fiduciary duty, but we now have appellate court approval for that time-honored advice to clients: copy everything you can get your hands on before you leave the family residence!

The value of the undisclosed asset is irrelevant: The panel also held that it does not matter how much the undisclosed asset is worth in relationship to the entire estate; its nondisclo-sure is still a breach of duty. In footnote 14, the court rejected Aaron’s argument that “in light of his wealth, the $8,679.20 in the 401(k) account was immaterial and thus he did not breach a duty to Elena by not disclosing it.”

Several months delay in disclosing new Sunroad entities was too long: The court then held that the trial court was within its discretion to hold that Aaron breached his obligation to give “an immediate, full, and accurate update or augmenta-tion to the extent there have been any material changes” as to his assets and liabilities by failing to disclose new Sunroad enti-ties for “several months” after they came into existence. It cited “several instances of documented nondisclosure of new Sun-road entities that the trial court reasonably could have relied upon to support its decision to order sanctions,” as follows: In February 2004, Elena’s attorney asked “if there

have been any financial changes with regard to [Aaron], including the acquisition of any new interests in prop-erties, either personal or business in nature.” In June 2004, Elena’s attorney asked if there had been “any changes to [Aaron’s] income or assets, whether person-ally or through Sunroad Holding Corporation or any other subsidiary corporation” and whether “[Aaron] has created any new corporations or subsidiary corpo-rations.” Despite these requests, Aaron did not disclose the existence of Inmobiliaria or the loan to it.

. . . . On January 25, 2005, Aaron produced corporate orga-

nizational charts for the Sunroad entities dated December 31, 2004. Despite the fact that Aaron has admitted that new organizational charts are created on a quarterly basis, this was Aaron’s first production of organizational charts since December 2003 when he produced organi-zational charts dated September 30, 2003.Upon reviewing the new charts, Elena noticed that nine

new entities were listed. Several rounds of correspondence between Elena’s and Aaron’s attorneys followed between Janu-ary 28, 2005, and May 16, 2005, as Elena attempted to obtain detailed information about the new entities. Like lnmobiliaria, several of the companies were associated with automo-bile dealerships in Mexico. Another two of the new enti-ties owned real property in Chula Vista, and still another owned land in San Diego. Six of the com-panies were incorporated in June or July 2004, one was incorporated in August 2004, one was incorporated in January 2005, and one was still in the process of being incorporated as of February 2005.

Thus, several of these new entities had been in existence for several months before Aaron disclosed their existence by producing updated organizational charts in January 2005.

Each spouse’s disclo-

sure obligation is a stand-alone duty to pro-

vide full information, not simply to provide infor-mation that the other

party does not have.

It does not matter

how much the undisclosed asset is

worth in relationship to the entire estate; its nondisclosure is

still a breach of duty.



As we have explained, Aaron was under a duty, among other things, to give “an immediate, full, and accurate update or augmentation to the extent there have been any material changes” as to his assets and liabilities (& 2102, subd. (a)(l )). Under section 1100, subdivision (e), Aaron had an obligation “to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest.” (See also § 721, subd. (b)(2) [requiring a spouse to provide upon request “true and full information . . . affect-

ing any transaction which concerns the community

property”].) Further, based on the inquiry

of Elena’s attorneys in June 2004 as to whether “[Aaron] has cre-ated any new corporations or subsidiary corporations,”

Aaron knew that Elena was inter-

ested in receiving updates concerning

the creation of any new Sunroad entities.

On these facts, the trial court was within its discretion to conclude that Aaron’s tardy disclosure of the new entities was another instance of Aaron’s pattern of noncompliance with the statutory policy of disclosure.

No exception for business transactions: Here were the facts regarding the additional Sunroad entities and transactions giving rise to the sanctions: Two of the Sunroad entities owned by Aaron

created the Mexican subsidiary lnmobiliaria Camino del Sol, S de R.L. de C.V. lnmobiliaria) at some point in 2003. Inmobiliaria was formed to own land for an auto dealership in Mexico City. Sunroad Auto Hold-ing Corporation loaned $2.52 million to lnmobiliaria, evidenced by an October 23, 2003 promissory note signed by Aaron.

Aaron makes conflicting statements about the date on which Inmobiliaria was formed. Aaron’s appellate briefing states that the company was formed in October 2003, but a letter in the record written by Aaron’s attorney states that the company was incorporated on January 22, 2003.

In October 2003 and January 2004, Aaron responded to Elena’s request for production which sought, among other things, (1) articles of incorporation and similar documents for the Sunroad entities and (2) evidence of any loans to the Sunroad entities. Aaron did not produce any documents concerning Inmobiliaria.

In February 2004, Elena’s attorney asked “if there have been any financial changes with regard to [Aaron], including the acquisition of any new interests in prop-erties, either personal or business in nature.” In June 2004, Elena’s attorney asked if there had been “any changes to [Aaron’s] income or assets, whether person-ally or through Sunroad Holding Corporation or any other subsidiary corporation” and whether “[Aaron] has created any new corporations or subsidiary corpo-rations.” Despite these requests, Aaron did not disclose the existence of Inmobiliaria or the loan to it.

Further, until he produced a copy of the promissory note in August 2004, Aaron did not produce documents concerning lnmobiliaria or evidencing the $2.52 million loan to it. The existence of lnmobiliaria was also not disclosed on the organizational chart of the Sunroad entities that Aaron produced in December 2003, even though it clearly existed at that time.

. . . . In Elena’s July 2005 supplemental declaration in

support of the sanctions motion, she described several new Sunroad entities that she had learned of in January 2005, although they were formed several months earlier.

On January 25, 2005, Aaron produced corporate orga-nizational charts for the Sunroad entities dated December 31, 2004. Despite the fact that Aaron has admitted that new organizational charts are created on a quarterly basis, this was Aaron’s first production of organizational charts since December 2003 when he produced organi-zational charts dated September 30, 2003.

Upon reviewing the new charts, Elena noticed that nine new entities were listed. Several rounds of corre-spondence between Elena’s and Aaron’s attorneys followed between January 28, 2005, and May 16, 2005, as Elena attempted to obtain detailed information about the new entities. Like Inmobili-aria, several of the compa-nies were associ-ated with automobile dealerships in Mexico. Another two of the new enti-ties owned real property in Chula Vista, and still another owned land in San Diego. Six of the companies were incorporated in June or July 2004, one was incorporated in August 2004, one was incorporated in January 2005, and one was still in the process of being incorporated as of February 2005.

Thus, several of these new entities had been in exis-tence for several months before Aaron disclosed their

Aaron breached his

obligation to give “an immediate, full, and accurate

update or augmentation to the extent there have been

any material changes” as to his assets and liabilities by failing to disclose new Sunroad entities

for “several months” after they came into

existence.

The court also emphasized

the importance of putting the other party

on notice that disclosure will be expected, and held

that a spouse must disclosed information about any

business even potentially owned by the community.



existence by producing updated organizational charts in January 2005.The panel agreed with the trial court that Aaron had

breached his fiduciary disclosure obligation with regard to these new entities. It said that (a)s we have explained, Aaron was under a duty,

among other things, to give “an immediate, full, and accurate update or augmentation to the extent there have been any material changes” as to his assets and liabilities (§ 2102, subd. (a)(1)). Under section 1100, subdivision (e), Aaron had an obligation “to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest.” (See also § 721, subd. (b)(2) [requiring a spouse to provide upon request “true and full information affecting any transaction which con-cerns the community property”].) Further, based on the inquiry of Elena’s attorneys in June 2004 as to whether “[Aaron] has created any new corporations or subsidiary corporations,” Aaron knew that Elena was interested in receiving updates concerning the creation of any new Sunroad entities.In his defense, Aaron argued that he was not required to

disclose information regarding new Sunroad entities or the loan transactions between them “because they were ‘standard business transaction[s].’ Specifically, Aaron disputes that ‘every transaction’ of a business must be reported under section 2102, ‘even when the transactions are within the “ordinary course of business” of the reported asset.’” However, once again the court disagreed. It said that (d)espite Aaron’s argument to the contrary, this stat-

ute does not contain an exception that exempts a spouse from having to disclose transactions “in the ordinary course of business.” Aaron points out that section 2102, subdivision (a)(2) refers to disclosures that must be made only when “outside the ordinary course of busi-ness.” However, that provision describes the circum-stances in which one spouse must disclose a post-sepa-ration business opportunity to the other spouse prior to the transaction so that the spouse may decide whether to participate in the opportunity. Under the statute, a spouse is required to give prior written disclosure with respect to a “significant business activity outside the ordinary course of business.” (Ibid., italics added.)

The issue here is not whether Aaron was required to disclose the various activities of Sunroad Holdings before they occurred. Elena’s motion for sanctions is not based on Aaron’s failure to disclose business oppor-tunities before the Sunroad entities took advantage of them. Instead, the request for sanctions was warranted because he failed, even when Elena made it clear that she desired the information, “to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest.” (§ 1100, subd. (e).) FN17 As the spouse involved in running the Sunroad entities, Aaron was

in a superior position to obtain information about those entities and was thus obligated to disclose material information regarding them to Elena.

. . . . We agree with Aaron that as a matter of common

sense, a spouse who runs a business is not under a duty to sua sponte update every insignificant occurrence in the operation of a business. We note as well that the statutes refer to the immediate disclosure of ‘material changes’ and ‘material facts and information.’ (§§ 2100, subd. (c), 2102, subd. (a), 1100, subd. (e).) However, as we will explain, the facts here clearly justify the trial court’s exercise of its discretion to conclude that the existence of Inmobiliaria, the $2.52 million loan, and the creation of the entities shown on the December 31, 2005 organizational chart were items that Aaron had a duty to promptly disclose.The court also emphasized the importance of putting the

other party on notice that disclosure will be expected, and held that a spouse must disclosed information about any business even potentially owned by the community. It said that (s)ignificantly, with respect to the creation of the

new entities, because Elena specifically asked about the creation of any new corporations or subsidiary corpora-tions in June 2004, Aaron was on notice that the crea-tion of the entities reflected on the December 31, 2004 organiza-tional charts was a significant event that he should promptly disclose. Further, any spouse seek-ing to ascer-tain the value of a commu-nity business and to trace com-munity assets would reasonably need to know of the existence of all of the business entities existing at the time of separation and the creation of any new post-separation entities. With respect to Inmobiliaria, Elena served a request for production seeking documents that encompassed evidence of the creation of new Sunroad entities and any loans made by those entities. These requests put Aaron on notice that he had a duty to disclose the information. Emphasis added.In sum, requests for information sufficient to trigger non-

disclosure sanctions include specific but informal requests, request for compliance with disclosure duties, request for production of documents on the issue, and simply the need to know to adequately present the parties’ case. According to the Feldman court, the other spouse has a duty to disclose

Requests for information

sufficient to trigger nondisclosure sanctions

include specific but informal requests, request for compliance with disclosure duties, request for production of documents

on the issue, and simply the need to know to ade-

quately present the parties’ case.



anything the other spouse “would reasonably need to know” to “ascertain the value of a community business and to trace community assets.” It concluded that the request for sanctions was warranted because he

failed, even when Elena made it clear that she desired the information, ‘to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest.’ (§ 1100, subd. (e).) As the spouse involved in running the Sunroad entities, Aaron was in a superior position to obtain information about those entities and was thus obligated to disclose material information regarding them to Elena.The form of the business is relevant to the disclosures

required: The court said in Footnote 18 that “(i)t is signifi-cant that the Sunroad entities are privately held corporations. Because of their privately held status, information regarding them is not available to Elena, but it is available to Aaron as a

shareholder and manager of the company, giving him

a duty to obtain that information in carry-

ing out his duty to provide disclosure about commu-nity assets.” In support of this statement, it cited Marriage of Brewer &

Federici (2001) 93 Cal.App.4th 1334,

113 Cal.Rptr.2d 849 [the spouse in a superior

position to obtain infor-mation has a duty to do so] and

Marriage of Heggie (2002) 99 Cal.App.4th 28, 120 Cal.Rptr.2d 707 [because the value of the stock of a public company was publicly available information, spouse did not breach duty by failing to disclose the value].

It does not matter that the business entity holds title to the undisclosed asset: Aaron argued that because he did not personally own any of the assets owned by the Sunroad entities, he did not have a fiduciary duty to disclose their existence. He acknowledged that he was the sole owner of both the parent company and all Sunroad subsidiary entities, but argued that “because section 1100, subdivision (d) ‘allows the spouse who is managing and controlling the asset to act alone in all transaction[s] except those which would result in a liquidation of the business[,] Aaron’s conduct [in not disclosing some of Sunroad’s assets] was consistent with his fiduciary duties.’” However, the court disagreed with him yet again. The fact that a legal entity such as a corporation actually owns the assets does not excuse the party owning the shares or

other interest in the asset from disclosing details about the entity. In Footnote 19, the court said that (t)he issue of which assets must be disclosed under

section 2102 is a distinct issue from whether one spouse is permitted exclusive management and control of the assets of a business owned by the community. Section 2102, subdivision (a)(1) requires ‘[t]he accurate and complete disclosure of all assets and liabilities in which the party has or may have an interest or obliga-tion’ and imposes a duty to immediately, fully and accu-rately update the disclosure upon a material change. Aaron breached that duty of disclosure when, despite Elena’s request for the information, he failed to disclose documents concerning Inmobiliaria and the formation of new Sunroad entities.Thus, the authorization in Fam. Code §2100(d) for primary

management and control of a community business does not excuse a party from disclosing all material facts and informa-tion regarding that business as a community or potentially community asset.

Aaron also argued that because a Sunroad entity actually purchased the Calumet Avenue house, and he was only a shareholder of Sunroad, he was not obligated to disclose that Sunroad owned the house. Not unexpectedly, Aaron lost again on that argument. The court said that (w)e acknowledge the distinction between a share-

holder and a corporation, and we recognize that a listing of the corporation’s assets need not be provided when section 2102, subdivision (a)(1) and section 2104, subdi-vision (c) call for a party to disclose ‘assets in which [the party] has or may have an interest.’ However, different statutory provisions obligate a spouse to disclose infor-mation concerning all community assets, not just assets directly held by the spouse as an individual. Specifically, under section 1100, subdivision (e), Aaron had an obli-gation ‘to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest.’ The transac-tion involving the Calumet Avenue property is clearly relevant to understand ‘the existence, characterization, and valuation of all assets in which the community has or may have an interest.’ (Ibid.) The bottom line is that all information regarding the assets

owned by a corporation is necessary to value the community interest in the corporation.

§271 fees are available at any stage of the proceedings: Finally, the court turned to the trial court’s attorney fee award under Fam. Code §271. Aaron argued that the court could not impose sanctions under that section until the end of the case, but this argument failed. Finding that “(t)he text of section 271 contains no requirement that the trial court impose the sanc-tion at the end of the lawsuit,” the court said that trial courts must apply that statute as written, to further its stated purpose of promoting settlement: Indeed, the only procedural requirement in the

statute is that an award of attorney fees and costs as a sanction may be imposed “only after notice to the party

The fact that a legal

entity such as a corporation actually

owns the assets does not excuse the party owning the

shares or other interest in the asset from disclosing

details about the entity.


against whom the sanction is proposed to be imposed and opportunity for that party to be heard.” (§ 271, subd. (b).) Further, as we have stated, section 271 is meant to “advance[ ] the policy of the law ‘to promote settlement and to encourage cooperation which will reduce the cost of litigation.’ ”(Petropoulos, supra, 91 Cal.App.4th at p. 177, 110 Cal.Rptr.2d 111.) As a matter of logic, to promote cooperation a trial court must be able to apply sanctions during the course of the litigation when the uncooperative conduct arises in order to encourage better behavior as the litigation progresses.The court therefore concluded that “based on the statutory lan-

guage and the express purpose of section 271, a trial court may impose sanctions under section 271 before the end of the lawsuit.”

The statutes mean what they say: The bottom line of Feldman is that the fiduciary disclosure statutes (and Fam. Code §271) mean exactly what they say. In spite of the fact that many of those statutes have been in the Family Code for over a decade, Feldman is the first case on many of these enforce-ment issues and the first case to uphold significant sanctions against a nondisclosing party. It may be that the Feldmans were the first to have sufficient funds to litigate and appeal this issue and the amount of money at stake was great enough (and the nondisclosures egregious enough) that Elena was suf-ficiently motivated to pursue Aaron’s breaches of his fiduciary disclosure duty by way of an enforcement motion. Even then, the court published the opinion only after the urging of ACFLS and the Northern California Chapter of American Academy of Matrimonial Lawyers.

As an affirmance, many of Feldman’s holdings are determi-nations that the trial court’s decisions were within its discre-tion, which does not give us exact parameters of issues such as

what is “material” or when an operating spouse need

not disclose “normal business activities.”

However, they are still extremely significant. It is also criti-cal to under-stand that even though the Feldman’s estate is exten-

sive, the court’s holdings apply to

every dissolution case – or other case in

which fiduciary disclosure duties apply – regardless of the size of the community or separate estate.

Feldman is not only an extremely useful case for parties attempting to obtain information from the opposing party, but it should also be required reading for every family law litigant. Fam. Code §2100 et seq. apply to disclosures of income and expense information for purposes of setting support, so even parties to post-judgment support modification motions are

subject to sanctions for nondisclosure. What is more, both Fam. Code §1100(e) and §2102 impose fiduciary disclosure obliga-tions on parties not only until assets are divided but until they are “distributed,” even though they may have been adjudicated. Thus, parties who continue to co-own formerly community assets after judgment will still be subject to the full panoply of disclosure obligations regarding those assets. This duty would also apply to deferred benefits such as retirement ben-efits that are not “dis-tributed” until some-time well after judgment. Every client whose retirement ben-efits are subject to a judgment or other order deferring their distribution until they become pay-able is subject to sanctions for failure to immediately inform the other spouse of anything that might be relevant to that asset, probably including any change in the employee spouse’s job situations.

Fiduciary disclosure obligations permeate every single aspect of every single family law case. Feldman makes clear that even if a party delays for a couple of months disclosing a change in an existing asset, he or she is subject to sanctions under Fam. Code §2107(c) in an amount sufficient to deter repetition of the nondisclosure as well as an order for payment of the other party’s attorney fees under that section as well as Fam. Code §271. Unintentional nondisclosures are sanc-tionable, as are misstatements of fact in one attorney’s letter to opposing counsel.

The only rule regarding family law disclosures is this: tell the client at the first interview about the disclosure duties, disclose everything early in the case, update the information promptly and err on the side of over-disclosing. After Feldman, there is simply no excuse for any family law attorney’s failing to have a systematic method in place in his or her office to make it simple and routine to do so, and to keep the burden on the client to provide the information. Such a system is discussed in another article in this issue. ■

Based on the statutory

language and the express purpose of

section 271, a trial court may impose sanctions

under section 271 before the end of

the lawsuit.

Even if a party delays

for a couple of months disclosing a change in

an existing asset, he or she is subject to sanctions under

Fam. Code §2107(c) in an amount sufficient to deter repetition of the nondisclosure as well as an order for payment of the other party’s

attorney fees under that section as well as Fam.

Code §271.

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Fall 2007, No . 8 acfls Newsletter

Introductory Comments: The history of interspousal fiduciary duties is discussed in great detail in Complex Issues in California Family Law, supra, Fiduciary Duties – Nature and Extent, Volume A, “Understanding Interspousal Fiduciary Duties in Current Family Law Practice,” Chapters A2 and A3. In §A1:02, the authors summarize the creation of the current interspousal duties as follows: Modern spouses owe each other a fiduciary duty

of “loyalty,” “care” and “disclosure.” The impact of the principle and application of these spousal fiduciary duties to the practice of family law is just now being felt by most members of the family law bar and bench, even though these duties have been present during all or part of the last three centuries. Recent cases such as In re Marriage of Haines (1995) 33 C.A.4th 277, 39 C.R.2d 673, and In re Marriage of Delaney (2003) 111 C.A.4th 991, 4 C.R.3d 378, have helped bring the issue to the forefront. As important as these cases are, they are but the tip of the iceberg.

The 1991 passage of SB 716 (Roberti) had a major impact on family law by amending what is now Family Code §§721(b) and 1100(e) (fiduciary duty in the man-agement and control of community property), effec-tive January 1, 1992. In 1992, the Legislature passed and the governor signed into law AB 1396 (Speier) and AB 1437 (Speier), both effective January 1, 1993, enact-ing current Family Code §2120 et seq. (set-aside stat-ues) and Family Code §2100 et seq. (disclosure statutes), respectively. This legislation affected spousal fiduciary duties before and after the date of separation. Yet, now more than a decade later, the effect of that legislation is just now being understood by most of the family law community.. . . .

The family law bar and bench have not begun to understand that the duties set forth in Family Code §2102 are sua sponte rather than “upon request,” as are the requirements of Family Code §1100(e). The failure to comply with the section 2102 duties mandates the imposition of “money sanctions” pursuant to Family Code §210�(c)), which provides that “(i)f a party fails to comply with any provision of this chapter, the court shall, in addition to any other remedy provided by law, impose money sanctions against the noncomplying party. Sanctions shall be in an amount sufficient to deter repetition of the conduct or compar-able conduct, and shall include reasonable attorney’s fees, costs incurred, or both, unless the court finds that the noncomplying party acted with substantial justification or that other circumstances make the imposition of the sanction unjust.” Emphasis added. In 2007, 15 years after the effective date of SB 716’s amend-

ment to Fam. Code §1100(e), In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 64 Cal.Rptr.3d 292 became the first published case to discuss the enforcement of spouses’ post-

separation disclosure obligations. In essence, Feldman, which is discussed below, holds that the statutes stating the post-separation disclosure obligations mean what they say, and so do the statutes that provide penalties for noncompliance with those disclosure obligations.3

Interspousal post-separation disclosure duties have been slow to catch on with the family law bench and bar. However, in light of Feldman’s clear analysis and holdings, the family law community will become increasingly aware of the importance of post-separation disclosure obligations and the penalty for not complying with them.

The Family Code, in essence, provides for a “reverse dis-covery” process in family law matters. Spouses must provide material facts and information to the other sua sponte (without request). Under the Civil Discovery Act (detailed below), there is no affirmative duty to voluntarily provide information. In family law, however, codified public policy and its implement-ing statutes mandate the disclosure of “all material facts and information” sua sponte or upon request, depending upon the statute in question.

Unlike traditional “formal discovery,” the Family Code per-mits “informal discovery” based upon spouses’ fiduciary duties and disclosure obligations to each other. This informal discov-ery is much different and, in most circumstances, much preferable to formal discovery under the Civil Discovery Act. Under the rules of formal discovery, often the practitioner must know enough information to ask the right question; if the right question is not asked, the right answer is not provided. Using informal discovery the practitioner does not need know the facts to make an intelligent request. Rather, he or she need only request all material facts and information or wait for the sua sponte obligation to provide such information to occur. The burden is on the other party to produce information volun-tarily (or in a few cases, after request), not on the requesting party to ask the right question.

Family law courts have begun to adopt the philosophy that there will not be “trial by ambush” in family law matters. The “game” that is often played in formal discovery is “hide the ball” or “go fish.” This same game is played far too often in family law matters. This gamesmanship was addressed by the court in Feldman, at 1483: The trial court agreed, concluding that the nondis-

closure of the Israeli bond was part of a “clear pattern that [Aaron] has no intentions of complying with the policy . . . that this information is to be shared from the very beginning.” The trial court also found that Aaron’s conduct was intentional, that he was “trying to circumvent the process, hide the ball,” and it stated that “[g]o fish, you figure it out, is not acceptable.” Emphasis added.Hopefully, cases such as Feldman, articles such as the ones

found in this Newsletter and publications such as Complex Issues will further the awareness and education of the family law bench and bar. “ ‘[T]rying to circumvent the process, hide the ball’ and saying “[g]o fish, you figure it out,” is no longer acceptable” in family law proceedings. Explaining why this is the case is the purpose of this particular Newsletter issue and part of the purpose of this article.

Discovery, WagnerContinued from page 1


Continued on page 2�

Informal Discovery Pursuant to the Family Code: The first step in analyzing the benefits of informal discovery is to start with the codified public policy statement in Fam. Code §2100.

Fam. Code §2100 sets forth the codified public policy as follows:

The Legislature finds and declares the following:(a) It is the policy of the State of California (1) to marshal, pre-

serve, and protect community and quasi-community assets and liabilities that exist at the date of separation so as to avoid dissipation of the community estate before distri-bution, (2) to ensure fair and sufficient child and spousal support awards, and (3) to achieve a division of community and quasi-community assets and liabilities on the dissolu-tion or nullity of marriage or legal separation of the parties as provided under California law.

(b) Sound public policy further favors the reduction of the adversarial nature of marital dissolution and the attendant costs by fostering full disclosure and cooperative discovery.

(c) In order to promote this public policy, a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a proceeding for dissolution of mar-riage or legal separation of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties. Moreover, each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any mate-rial changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the relevant underlying facts. Emphasis added.This codified public policy makes clear that mandated

full disclosure aids settlement and that settlement is a strong public policy goal. Disclosure

also reduces the adversar-ial nature of marital dis-

solution and the cost thereof. Fam. Code

§2100, like the United States Con-stitution and Bill of Rights are to federal law, is the guiding light that sets forth the fun-

damental principles upon which family

law’s unique “reverse discovery” is based.

When the court must inter-pret the meaning of other dis-

closure statutes that implement public policy, its starting point is §2100.

The timing of the mandated disclosures varies depending upon the specific code section in question. For example, Fam. Code §2105 requires the service of a Final Declaration of Dis-

closure no later than 45 days before the first assigned trial date. In contrast, Fam. Code §2102 requires the sua sponte disclo-sure of information commencing with the date of separation, and Fam. Code §1100(e) requires disclosure “upon request.”

In Schnabel v. Superior Court (Schnabel) (1993) 5 Cal.4th 704, 21 Cal.Rptr.2d 200, decided on July 22, 1993, the Cali-fornia Supreme Court had the rare opportunity to comment on this public policy within the first eight months of its effective date. The high Court held that a spouse had the right to information regarding a corporation in which the community owned a minority of the shares, both as a shareholder and because the other spouse owed a duty to provide the infor-mation. Here is what it said: At the outset, we note that information about the

value of community assets and the parties’ financial status is clearly relevant to the spouse’s interests in obtaining a fair division of those assets and fair attorney fee and spousal support (and, in other cases, child sup-port) awards. Moreover, at least as to a division of assets and child and spousal support awards, those interests are strongly protected by California law. The Legis-lature has recently declared: ‘It is the policy of the State of California (1) to marshal, preserve, and protect community and quasi-community assets and liabilities that exist at the date of separation so as to avoid dissipa-tion of the community estate prior to distribution, (2) to ensure fair and sufficient child and spousal support awards, and (3) to achieve a division of community and quasi-community assets and liabilities upon the dissolution of marriage as provided for under Cali-fornia law. [¶] . . . [¶] In order to promote this public policy, a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of the dissolution of marriage action, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties.’ (Civ. Code, §4800.10 [now Family Code §2100], subd. (a), eff. Jan. 1, 1993.) [Ed. Note: This section was amended, effective January 1, 2003. The section set forth above is the current form of the section set forth in Schnabel.]

This policy is further emphasized by Civil Code §4800.11 [now Family Code §2120], subdivision (a)(1), also effective January 1, 1993: ‘The State of California has a strong policy of ensuring the division of commu-nity and quasi-community property in the dissolution of a marriage as set forth in Section 4800, and of providing for fair and sufficient child and spousal support awards. These policy goals can only be implemented with full disclosure of community, quasi-community, and sepa-rate assets, liabilities, income and expenses, as pro-vided for in Section 4800.10, and decisions freely and knowingly made.’

. . . . Furthermore, each spouse has a fiduciary duty to the

other in managing community property, which ‘duty

The Family Code,

in essence, provides for a “reverse discovery”

process in family law matters. Spouses must

provide material facts and information to the other

sua sponte (without request).


includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valua-tion of all assets in which the community has or may have an interest . . . , and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request.’ (Civ. Code, §5125 [now Family Code §1100], subd. (e), italics added.) The italicized language makes clear that each spouse is entitled to complete disclo-sure of all relevant information to allow an indepen-dent review of the marital property and financial status of the spouses. (See also Civ. Code, §§4800.10, 4800.11, subd. (a)(1), and 5103 [now Family Code §721], subd. (b).) Whatever right Terry has to inspect records of the corporation, Marilyn also has, either indirectly through Terry, or directly, as in this case, by means of third party discovery. It follows that if Terry has a right to inspect any corporate records, he cannot, consistent with his fiduciary duty, refuse to cooperate in obtaining for Marilyn those records that are rele-vant to this proceeding.

. . . . We need not precisely define the shareholder right

of inspection in all situations. This is a marriage dis-solution proceeding, not a shareholder inspection action. The shareholder rights support Marilyn’s claim to third party discovery, but Marilyn’s rights here and another shareholder’s rights in other situations are not necessarily coextensive. Our resolution of this issue rests on the combination of Marilyn’s need to discover the records, the legislatively declared policy in favor of disclosure, and the shareholder right of inspection. Given the strong public policy in favor of fair child and spousal support awards and a fair division of commu-nity assets, we believe that the ‘accounting books and records’ discoverable in this proceeding should be con-strued to encompass the records reasonably related to this purpose. Schnabel, at 711, 714-717 (emphasis added).Thus, in 1993, approximately 15 years before Feldman was

decided, both the Legislature and California Supreme Court made clear that the “strong public policy” of this state is that spouses must immediately, fully and completely disclose all material facts and information. This obligation of disclosure may be sua sponte or “upon request,” but it does exist and is becoming firmly implemented in the day-to-day practice of family law, in no small measure due to cases such as Feldman and Schnabel. However, the same public policy considera-tions do not apply to formal discovery.

If the codified public policy statements in Fam. Code §2100 are a guiding light similar to the fundamental statements in the U.S. Constitution, then other provisions of the Family Code are “implementation statutes,” similar to legislation passed by Congress that implement the Constitution’s purpose and spirit. These statutes include Fam. Code §§721(b), 1100(e),

2102, 2104 and 2105. Further sections provide penalties for the failure to abide by the letter and/or spirit of the implemen-tation statutes. These sections include §§2107(c)) and 1100(g) and (h). These implementation and penalty statutes are dis-cussed next.

Fam. Code §721: Perhaps the most important implemen-tation statute is Fam. Code §721(b), because it states the stan-dards by which spouses must conduct themselves in honoring their pre-separation and post-separation disclosure obligations. It incorporates the provisions of the Revised Uniform Partner-ship Act (RUPA) found in Corp. Code §§16000 et seq. The fact that spouses owe each other a fiduciary duty is the reason that informal discovery is most often superior to formal discovery. Fiduciaries are afforded different rights and are under differ-ent obligations than non-fiduciary civil litigants. Thus, family law litigants have better discovery and enforcement rights by virtue of the Family Code discovery statutes than do “regular” civil litigants under the Civil Discovery Act.

While §721(b) on its face applies only to interspousal trans-actions, by its incorporation by reference into Fam. Code §§1100(e), 1101(g) and (h) and 2102, it affects most post- separation disclosure or remedy statutes. §721(b) provides:(a) Subject to sub-

division (b), either hus-band or wife may enter into any transac-tion with the other, or with any other person, respecting prop-erty, which either might if unmarried.

(b) Except as provided in Sec-tions 143, 144, 146, 16040, and 16047 of the Probate Code, in transactions between themselves, a husband and wife are subject to the general rules governing fiduciary rela-tionships 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. This confidential relation-ship is a fiduciary relationship subject to the same rights and duties of nonmarital business partners, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, including, but not limited to, the following:

(1) Providing each spouse access at all times to any books kept regarding a transaction for the purposes of inspec-tion and copying.

(2) Rendering upon request, true and full information of all things affecting any transaction which concerns the community property. Nothing in this section is intended to impose a duty for either spouse to keep detailed books and records of community property transactions.

Discovery, WagnerContinued from page 2�

If the codified public

policy statements in Fam. Code §2100 are a guid-ing light similar to the funda-mental statements in the U.S.

Constitution, then other provisions of the Family Code are “imple-mentation statutes,” similar to legislation passed by Congress

that implement the Con-stitution’s purpose

and spirit.


(3) Accounting to the spouse, and holding as a trustee, any benefit or profit derived from any transaction by one spouse without the consent of the other spouse which concerns the community property. Emphasis added.[NOTE: Section 2 of Chapter 310 reads as follows: “It is the

intent of the Legislature in enacting this act to clarify that Sec-tion 721 of the Family Code provides that the fiduciary relation-ship between spouses includes all of the same rights and duties in the management of community property as the rights and duties of unmarried business partners managing partnership property, as provided in Sections 16403, 16404, and 16503 of the Corporations Code, and to abrogate the ruling in In re Marriage of Duffy (2001) 91 Cal.App.4th 923, to the extent that it is in conflict with this clarification.” Emphasis added.]

This section not only sets forth the interspousal fiduciary duty standard, but in subdivision (b), addresses some of the “reverse discovery” rights by mandating “rendering upon request, true and full information of all things affecting” community property and the right to an accounting under certain circum-stances. In addition, it incorporates by reference key provisions of RUPA. These provisions, which are detailed next, are not found in the formal discovery authorized under the Civil Discovery Act.

Corp. Code §16403 (incorporated by reference by Fam. Code §721): This section states the disclosure duties owed by nonmarital partners to each other. Those duties are made appli-cable to spouses by incorporation in Fam. Code §721(b), and its provisions are similar to those stated in that subdivision.4 (a) A partnership shall keep its books and records, if any, at its

chief executive office. (b) A partnership shall provide partners and their agents and

attorneys access to its books and records. It shall provide former partners and their agents and attorneys access to books and records pertaining to the period during which they were partners. The right of access provides the oppor-tunity to inspect and copy books and records during ordi-nary business hours. A partnership may impose a reason-able charge, covering the costs of labor and material, for copies of documents furnished.

(c) Each partner and the partnership shall furnish to a partner, and to the legal representative of a deceased partner or partner under legal disability, both of the following:

(1) Without demand, any information concerning the part-nership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties under the partnership agreement or this chapter; and

(2) On demand, any other information concerning the partner-ship’s business and affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances. Emphasis added.Corp. Code §16404 (incorporated by reference by Fam.

Code §721): This section states the duty of loyalty and care owed between nonmarital partners. It is applicable to spouses by incorporation in §721(b). (a) The fiduciary duties a partner owes to the partnership and

the other partners are the duty of loyalty and the duty of care set forth in subdivisions (b) and (c).

(b) A partner’s duty of loyalty to the partnership and the other partners includes all of the following:

(1) To account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property or information, including the appropriation of a partner-ship opportunity.

(2) To refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership.

(3) To refrain from competing with the partnership in the conduct of the partnership business before the dissolu-tion of the partnership.

(c) A partner’s duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

(d) A partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.

(e) A partner does not violate a duty or obligation under this chapter or under the partnership agreement merely because the partner’s conduct furthers the partner’s own interest.

(f) A partner may lend money to and transact other business with the partnership, and as to each loan or transaction, the rights and obligations of the partner regarding perfor-mance or enforcement are the same as those of a person who is not a partner, subject to other applicable law.

(g) This section applies to a person winding up the partnership business as the personal or legal representative of the last surviving partner as if the person were a partner. Emphasis added.The incorporation by reference of Corp. Code §§16403 and

16404 into Fam. Code §721(b) occurred with the passage of SB 1936, effective January 1, 2003. For a detailed analysis of why the rights and duties of nonmarital partners applied to spouses prior to the effective date of SB 1936, see Volume A, section A2.08[8] of Complex Issues, supra, and the 2007 and 2008 supplements thereto.5

Fam. Code §1100(e): Fam. Code §1100(e) sets forth the duty owed between spouses in the management and control of community property. This section specifically incorporates the duties set forth in Fam. Code §721(b), which includes Corp. Code §§16403 and 16404. §1100(e) provides:(e) Each spouse shall act with respect to the other spouse in

the management and control of the community assets and liabilities in accordance with the general rules gov-erning fiduciary relationships which control the actions of persons having relationships of personal confidence as specified in Section 721, until such time as the assets and liabilities have been divided by the parties or by a court. This duty includes the obligation to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest and debts for which the community is or may



be liable, and to provide equal access to all information, records, and books that pertain to the value and character of those assets and debts, upon request. Emphasis added.As discussed later in this article, the Feldman court

placed great emphasis on the request Mrs. Feldman made under §1100(e). In addition,

the Supreme Court in Schnabel emphasized

the importance of §1100(e) in arriv-ing at its hold-ing, as addressed above. Fam. Code §1100(e), particularly when com-bined with

§721(b)(2) and (3), may be the

single most impor-tant informal discov-

ery tool available to the family law practitioner. It

also may be the single most distinguishing characteristic between formal and informal discovery.

Fam. Code §2101: This section defines key terms relating to post-separation disclosure obligations. Included in the defi-nitions of “asset” and “liability” is both “currently existing or contingent” assets and liabilities. Thus, spouses are required to disclose contingent assets (and liabilities). §2101 provides:

Unless the provision or context otherwise requires, the following definitions apply to this chapter:(a) “Asset” includes, but is not limited to, any real or personal

property of any nature, whether tangible or intangible, and whether currently existing or contingent.

(b) “Default judgment” does not include a stipulated judgment or any judgment pursuant to a marital settlement agreement.

(c) “Earnings and accumulations” includes income from whatever source derived, as provided in Section 4058.

(d) “Expenses” includes, but is not limited to, all personal living expenses, but does not include business-related expenses.

(e) “Income and expense declaration” includes the Income and Expense Declaration forms approved for use by the Judicial Council, and any other financial statement that is approved for use by the Judicial Council in lieu of the Income and Expense Declaration, if the financial statement form satisfies all other applicable criteria.

(f) “Liability” includes, but is not limited to, any debt or obligation, whether currently existing or contingent. Emphasis added.A contingent liability/asset is defined by Black’s Law Dic-

tionary as a liability/asset that will arise only if a specific event happens; a liability/asset that depends on the occurrence of a future and uncertain event.

Fam. Code §2102: Fam. Code §2102 sets forth the sua sponte obligations of spouses post-separation. This section states as follows:(a) From the date of separation to the date of the distribu-

tion of the community or quasi-community asset or liability in question, each party is subject to the standards provided in Section 721, as to all activities that affect the assets and liabilities of the other party, including, but not limited to, the following activities:

(1) The accurate and complete disclosure of all assets and lia-bilities in which the party has or may have an interest or obligation and all current earnings, accumulations, and expenses, including an immediate, full, and accurate update or augmentation to the extent there have been any material changes.

(2) The accurate and complete written disclosure of any investment opportunity, business opportunity, or other income-producing opportunity that presents itself after the date of separation, but that results from any investment, significant business activity outside the ordinary course of business, or other income-producing opportunity of either spouse from the date of marriage to the date of separation, inclusive. The written disclosure shall be made in sufficient time for the other spouse to make an informed decision as to whether he or she desires to participate in the invest-ment opportunity, business, or other potential income- producing opportunity, and for the court to resolve any dispute regarding the right of the other spouse to partici-pate in the opportunity. In the event of nondisclosure of an investment opportunity, the division of any gain resulting from that opportunity is governed by the standard provided in Section 2556.

(3) The operation or management of a business or an interest in a business in which the community may have an interest.

(b) From the date that a valid, enforceable, and binding resolution of the disposition of the asset or liability in question is reached, until the asset or liability has actually been distributed, each party is subject to the standards provided in Section 721 as to all activities that affect the assets or liabilities of the other party. Once a particular asset or liability has been distributed, the duties and standards set forth in Section 721 shall end as to that asset or liability.

(c) From the date of separation to the date of a valid, enforce-able, and binding resolution of all issues relating to child or spousal support and professional fees, each party is subject to the standards provided in Section 721 as to all issues relating to the support and fees, including immedi-ate, full, and accurate disclosure of all material facts and information regarding the income or expenses of the party. Emphasis added.As detailed below, the Feldman court broadly interpreted

§2102’s provisions. Among other things, it held that under §2102, business transactions, even those inside a corporate entity and “in the ordinary course of business” must still be disclosed sua sponte, because §2102 “does not contain an exception that exempts a spouse from having to disclose trans-actions ‘in the ordinary course of business.’” Under formal


Fam. Code §1100(e),

particularly when combined with §721(b)(2)

and (3), may be the single most important informal discovery tool available to the family law practitioner. It also may be the

single most distinguishing characteristic between

formal and informal discovery.


discovery provisions, as detailed below, a party is certainly not required to comply with similar provisions.

Fam. Code §2102 is not the only sua sponte provision of the Family Code. §§2104 and 2105 also mandate sua sponte disclosure. These statutes are detailed next. Nothing like these sua sponte statutes appear in the Civil Discovery Act.

Fam. Code §2104: This section sets forth the require-ments for Preliminary Disclosure Declarations. It provides:(a) After or concurrently with service of the petition for dis-

solution or nullity of marriage or legal separation of the parties, each party shall serve on the other party a prelimi-nary declaration of disclosure, executed under penalty of perjury on a form prescribed by the Judicial Council. The commission of perjury on the preliminary declaration of disclosure may be grounds for setting aside the judg-ment, or any part or parts thereof, pursuant to Chapter 10 (commencing with Section 2120), in addition to any and all other remedies, civil or criminal, that otherwise are available under law for the commission of perjury.

(b) The preliminary declaration of disclosure shall not be filed with the court, except on court order; however, the parties shall file proof of service of the preliminary declaration of disclosure with the court.

(c) The preliminary declaration of disclosure shall set forth with sufficient particularity, that a person of reasonable and ordinary intelligence can ascertain, all of the following:

(1) The identity of all assets in which the declarant has or may have an interest and all liabilities for which the declarant is or may be liable, regardless of the characterization of the asset or liability as community, quasi-community, or separate.

(2) The declarant’s percentage of ownership in each asset and percentage of obligation for each liability where property is not solely owned by one or both of the parties. The prelimi-nary declaration may also set forth the declarant’s character-ization of each asset or liability.

(d) A declarant may amend his or her preliminary declaration of disclosure without leave of the court. Proof of service of any amendment shall be filed with the court.

(e) Along with the preliminary declaration of disclosure, each party shall provide the other party with a completed income and expense declaration unless an income and expense declaration has already been provided and is current and valid. Emphasis added.Fam. Code §2105: Fam. Code §2105 sets forth the require-

ments for Final Disclosure Declarations and waivers thereof. This section provides:(a) Except by court order for good cause, before or at the time

the parties enter into an agreement for the resolution of property or support issues other than pendente lite support, or, if the case goes to trial, no later than 45 days before the first assigned trial date, each party, or the attorney for the party in this matter, shall serve on the other party a final declaration of disclosure and a current income and expense declaration, executed under penalty of per-jury on a form prescribed by the Judicial Council, unless the parties mutually waive the final declaration of disclo-sure. The commission of perjury on the final declaration of disclosure by a party may be grounds for setting aside

the judgment, or any part or parts thereof, pursuant to Chapter 10 (commencing with Section 2120), in addition to any and all other remedies, civil or criminal, that otherwise are available under law for the commission of perjury.

(b) The final declaration of disclosure shall include all of the following information:

(1) All material facts and information regarding the charac-terization of all assets and liabilities.

(2) 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.

(3) All material facts and information regarding the amounts of all obligations that are contended to be community obligations or for which it is contended the community has liability.

(4) All material facts and information regarding the earnings, accumulations, and expenses of each party that have been set forth in the income and expense declaration.

(c) In making an order setting aside a judgment for failure to comply with this section, the court may limit the set aside to those portions of the judgment materially affected by the nondisclosure.

(d) The parties may stip-ulate to a mutual waiver of the requirements of subdivi-sion (a) con-cerning the final dec-laration of disclosure, by execution of a waiver under pen-alty of perjury entered into in open court or by separate stipulation. The waiver shall include all of the following representations:

(1) Both parties have complied with Section 2104 and the pre-liminary declarations of disclosure have been completed and exchanged.

(2) Both parties have completed and exchanged a current income and expense declaration that includes all material facts and information regarding that party’s earnings, accumulations, and expenses.

(3) Both parties have fully complied with Section 2102 and have fully augmented the preliminary declarations of dis-closure, including disclosure of all material facts and infor-mation regarding the characterization of all assets and liabilities, the valuation of all assets that are contended to be community property or in which it is contended the community has an interest, and the amounts of all obliga-tions that are contended to be community obligations or for which it is contended the community has liability.


Under §2102, business

transactions, even those inside a corporate entity

and “in the ordinary course of business” must still be disclosed

sua sponte, because §2102 “does not contain an exception that exempts a spouse from having

to disclose transactions ‘in the ordinary course of

business.’”



(4) The waiver is knowingly, intelligently, and voluntarily entered into by each of the parties.

(5) Each party understands that this waiver does not limit the legal disclosure obligations of the parties, but rather is a statement under penalty of perjury that those obligations have been fulfilled. Each party further understands that noncompliance with those obligations will result in the court setting aside the judgment. Emphasis added.The Final Declaration of Disclosure must contain the

same information required by Fam. Code §1100(e) (an “upon request” statute) and more.

Therefore, a spouse may obtain all material

facts and informa-tion regarding the identity of assets and liabilities, their charac-terization and valuation and the other par-ty’s income and

expenses “upon request” at any

time or without request (sua sponte)

not later than 45 days prior to the first assigned trial

date. Again, nothing even close to these requirements can be found in the Civil Discovery Act.

Fam. Code §2107: The court is required to impose “money sanctions” against a party who violates his or her disclosure obligations. Those sanctions must include not only profes-sional fees, but money sanctions sufficient to deter the same or similar conduct in the future. This section and Fam. Code §271 were the legal bases for the imposition of money sanc-tions ($250,000) and professional fees ($140,000) in Feldman. This section provides:(a) If one party fails to serve on the other party a preliminary

declaration of disclosure under Section 2104 or a final declaration of disclosure under Section 2105, or fails to provide the information required in the respective decla-rations with sufficient particularity, and if the other party has served the respective declaration of disclosure on the noncomplying party, the complying party may, within a reasonable time, request preparation of the appropriate declaration of disclosure or further particularity.

(b) If the noncomplying party fails to comply with a request under subdivision (a), the complying party may do either or both of the following:

(1) File a motion to compel a further response.(2) File a motion for an order preventing the noncomplying

party from presenting evidence on issues that should have been covered in the declaration of disclosure.

(c) If a party fails to comply with any provision of this chapter,

the court shall, in addition to any other remedy provided by law, impose money sanctions against the noncomplying party. Sanctions shall be in an amount sufficient to deter repetition of the conduct or comparable conduct, and shall include reasonable attorney’s fees, costs incurred, or both, unless the court finds that the noncomplying party acted with substantial justification or that other circumstances make the imposition of the sanction unjust.

(d) If a court enters a judgment when the parties have failed to comply with all disclosure requirements of this chapter, the court shall set aside the judgment. The failure to com-ply with the disclosure requirements does not constitute harmless error.

(e) Upon the motion to set aside judgment, the court may order the parties to provide the preliminary and final declarations of disclosure that were exchanged between them. Absent a court order to the contrary, the disclosure declarations shall not be filed with the court and shall be returned to the parties. Emphasis added.In addition to the money sanctions mandated by §2107(c),

§2107(b) provides for an evidentiary sanction. While the Civil Discovery Act also mandates sanctions for

the violation of the act, which can include money sanctions, it does not include the “deter repetition” provisions of §2107(c) and, as a practical matter, will not result in sanctions as great as under the Family Code. How great can sanctions be under the Family Code? The answer lies in Feldman, which is discussed next.

In re Marriage of Feldman, the First Case to Address Post-separation Disclosure Obligations and Money Sanc-tions Pursuant to Fam. Code §2107(c): The first published opinion to discuss the scope of post-separation disclosure in connection with money sanctions pursuant to Fam. Code §2107(c) is In re Marriage of Feldman (2007) 153 Cal.App.4th 1470, 64 Cal.Rptr.3d 29. Feldman will likely become a semi-nal case and the foundation of future post-separation dis-closure enforcement opinions. Most certainly it is a water-shed case, a turning point in the history of enforcement of fiduciary duties. It is the first case to discuss post-separation duties and sanctions other than in a set-aside context.

Dawn Gray has written an article for this Newsletter solely dedicated to analyzing the Feldman opinion. Therefore, the analysis of Feldman in this article is intended to serve only as a foundation for forming the distinction between formal and informal discovery, and the benefits and detriments of one over the other.

Feldman affirmed the trial court’s order imposing $250,000 in money sanctions and $140,000 in attorney fees on the hus-band, Aaron Feldman. During the marriage, Aaron created a large number of privately-held companies of substantial value. The characterization as community or separate property and the value of those companies were disputed. Wife, Elena Feld-man, alleged in a Notice of Motion to enforce fiduciary duties that Aaron failed to disclose material facts and information and various financial transactions, including the purchase of a per-sonal residence through one of his companies. The trial court (the Honorable Randa Trapp) found that Aaron intentionally sought to circumvent the disclosure process and frustrated

Feldman affirmed the

trial court’s order imposing $250,000 in money sanctions

and $140,000 in attorney fees on the husband.


the policy of promoting settlement. The court concluded that Aaron failed to meet his disclosure obligations under Fam. Code §§1100(e), 2100(c), 2102(a), 2104(c)(1) and 2104(c)(2).

Among the other Feldman holdings, the Fourth District held that the trial court did not abuse its discretion, in impos-ing money sanctions under Fam. Code §§271(a) and 2107(c) and that Wife need not prove any injury to move for money sanctions.

The Feldman court affirmed the trial court’s finding that Aaron violated his duties under Fam. Code §1100(e). In this regard the court held that (i)n short, Aaron caused one of the Sunroad entities

to buy the Calumet Avenue property, he made the prop-erty into his personal residence, and he funded the pur-chase with funds that because they came from one of the Sunroad entities, could possibly be characterized as community property. However, Aaron told Elena in the April 1, 2004 letter only that he was leasing a residence for $15,000 per month. Elena argued that Aaron’s selective disclosure of the nature of the transaction involving the Calumet Avenue property was incon-sistent with Aaron’s fiduciary obligation toward her. The trial court agreed, citing the transaction involv-ing the Calumet Avenue property as one example of Aaron’s pattern of nondisclosure. Aaron argues that he complied with his fiduciary obligation because he “disclosed the acquisition of the Calumet Avenue prop-erty within one month of the close of escrow.” We dis-agree. Significantly, Aaron did not disclose the trans-action; instead Elena stumbled upon the fact of the transaction while deposing Tronboll. Indeed, Elena may never have found out about the transaction had her attorney not asked the appropriate question of Tronboll. Based on the content of the April 1, 2004 letter, the trial court could reasonably conclude that contrary to his fiduciary duty of disclosure, Aaron was attempting to hide or delay Elena’s discovery of the fact that he had used possible community property assets to buy a house in which he was residing. Indeed, the trial court could reasonably assume that absent Elena’s discovery of the true facts, Aaron intended to main-tain that he was merely leasing his residence from an unrelated third party. Aaron’s conduct was inconsis-tent with his duty under section 1100, subdivision (e), which gave him an obligation “to make full disclosure to the other spouse of all material facts and information regarding the existence, characterization, and valuation of all assets in which the community has or may have an interest.” Feldman at 1484-1485 (emphasis added).The foregoing is critical in comparing the advantages of

informal discovery to formal discovery. The Feldman court notes that “Elena may never have found out about the trans-action had her attorney not asked the appropriate question of Tronboll.” The key feature of formal discovery is knowing enough to ask the right question to get the right answer. If the practitioner does not know enough, she will not get the right answer unless she “stumbles upon the fact.” Feldman makes clear that this type of conduct is contrary to the public policy

of this state. In doing so, the court explained that Aaron has a “duty of candor” under §1100(e): In at least two separate respects, the transaction

involving the Calumet Avenue property was a “material fact,” giving Aaron a duty to disclose it under section 1100, subdivision (e). First, Elena is claiming that the Sunroad entities are community assets. In order for Elena to trace those community assets, she needs to obtain information about whether, post-separation, Aaron used any of those alleged community assets to capitalize new companies. Thus, the fact that Aaron took approximately $6 million from one of the other Sunroad entities and used it to capitalize Calumet Real Estate Holdings, LLC (and to purchase a personal resi-dence in the name of that company) is a material fact concerning the community assets. Aaron accord-ingly had a duty of candor regarding that transaction. Second, in the division of community property, Elena may attempt to claim reimbursement for any post-separation benefit that Aaron obtained from the use of community property. (See In re Marriage of Watts (1985) 171 Cal.App.3d 366, 374.) The knowledge that Aaron is living in a house that was bought with alleged community assets would be material information to Elena because it would allow her to evaluate whether, post-separation, Aaron has used community property for his personal benefit under circumstances that would give rise to an obligation to reimburse the community. N12 In light of the facts in the record, we conclude that the trial court did not abuse its discretion in concluding that Aaron’s lack of candor about the transaction involv-ing the Calumet Avenue property was part of a pattern of nondisclosure that warranted the imposition of sanc-tions. N13 Feldman, at 1485-1486 (emphasis added).The Feldman court emphasized that if the material facts

and information in question affect characterization, such as tracing funds from one entity to another or the right of reim-bursement (Watts credits), a spouse has a “duty of candor regarding the transaction” even if the transaction occurred within an entity and in the ordinary course of business. The court discussed this in footnotes 12 and 13, as follows:N12 Aaron argues that he did not have to disclose the

transaction involving the Calumet Avenue property because the purchase of real estate is the type of


The key feature

of formal discovery is knowing enough to

ask the right question to get the right answer. If the practitioner does not know

enough, she will not get the right answer unless

she “stumbles upon the fact.”



transaction that the Sunroad entities carry out in the ordinary course of business, and that, in fact, during the marriage, he had purchased the family’s personal residences through the Sunroad entities. We reject Aaron’s argument. As we have explained, the transac-tion involving the Calumet Avenue property is mate-rial to this litigation because (1) Elena must know about it to be able to trace alleged community assets and (2) Elena must know about it to determine if the community is entitled to reimbursement. On these two grounds, the transaction involving the Calumet Avenue property is distinguishable from a transac-tion in the ordinary course of business of the Sunroad entities, and Aaron breached his duty to disclose by attempting to hide its existence in the April 1, 2004 letter. Emphasis added. . . .

N13 Relying on the fact that section 2102, subdivision (a)(1) and section 2104, subdivision (c)(1) call upon a spouse

to disclose only “assets in which [the spouse]

has or may have an interest,” Aaron

argues at length that he was not obligated to disclose the transaction involving the Calumet

Avenue prop-erty because

that property was an asset of

the Sunroad entities, and was thus not one of

his personal assets. Further, he argues that the trial court and Elena have confused Aaron as an individual with Aaron as a shareholder of the Sunroad entities. We acknowledge the distinction between a shareholder and a corporation, and we recognize that a listing of the corporation’s assets need not be provided when section 2102, subdivision (a)(1) and section 2104, subdivision (c) call for a party to disclose “assets in which [the party] has or may have an interest.” However, different statu-tory provisions obligate a spouse to disclose informa-tion concerning all community assets, not just assets directly held by the spouse as an individual. Specifi-cally, under section 1100, subdivision (e), Aaron had an obligation “to make full disclosure to the other spouse of all material facts and information regard-ing the existence, characterization, and valuation of all assets in which the community has or may have an interest.” The transaction involving the Calumet Avenue property is clearly relevant to understand “the

existence, characterization, and valuation of all assets in which the community has or may have an interest.” (Ibid.) Emphasis added. The court, in footnote 12, takes the first step in defining

“material facts and information” by stating that the transaction is material to the case because Elena needs to know about it so she can trace funds and seek reimbursement. If the fact or information assists in the tracing or reimbursement analysis, it is material and subject to the duty of condor and sua sponte disclosure. Certainly there is no such duty of sua sponte candor under the Civil Discovery Act.

The court continued its analysis by discussing the non-disclosure of an $8,000 401(k) account: On appeal Aaron argues that he did not breach his

fiduciary duty to Elena by not disclosing the 401(k) account, because Elena had been secretly copying finan-cial documents during their marriage and as a result she had copies of certain account statements from 1998 through 2000 for the 401(k) account, which she pro-duced to Aaron on April 29, 2004. We do not view this fact as in any way exonerative of Aaron’s failure to disclose the information about the 401(k) account on the Schedule or to produce documents concern-ing the account in response to Elena’s request for pro-duction. The 401(k) account is clearly one of Aaron’s assets and may be community property. He was thus required to disclose it in the Schedule and to disclose it upon request from Elena. (See §§2102, subd. (a)(1), 2104, subd. (c)(1), 1100, subd. (e), 721, subd. (b)(2).) “[A]spouse who is in a superior position to obtain records or information from which an asset can be valued and can reasonably do so must acquire and disclose such information to the other spouse” and should not expect the spouse who is not in a supe-rior position to search for the information. (Brewer & Federici, supra, 93 Cal.App.4th at p. 1348.) If Elena had not, without Aaron’s knowledge, obtained state-ments from the 401(k) account, Elena may **never** have found out about the account, and her attorney may not have known to ask Aaron about this asset during the deposition. We note that in November 2003 when Aaron omitted the 401(k) account from the Schedule, and in January 2004 when he omitted the account state-ments from his supplemental document production, Aaron likely did not know that Elena had any account statements. In contrast, at the time of his deposition in July 2004 when he admitted to the 401(k) account, Aaron did know that Elena had the documents, as she had produced them in April 2004. The trial court might reasonably have inferred that Elena’s demon-strated knowledge of the 401(k) account was what prompted Aaron to finally admit to the existence of the asset and that Aaron’s conduct was not consis-tent with his fiduciary duty of disclosure. N14 In sum, Aaron had a fiduciary duty to disclose the existence of the 401(k) account on the Schedule in the first place without prodding from Elena and to produce relevant documents upon Elena’s request. The trial court reason-

If thefact or infor

mation assists in the tracing or reim

bursement analysis, it is material and subject to

the duty of condor and sua sponte

disclosure.


ably concluded that Aaron breached that duty by not disclosing the existence of the 401(k) account until July 2004 in response to an inquiry during his deposition. Feldman, at 1487-1488 (emphasis added).Therefore, while a spouse is required to “only” disclose

material facts and information regarding characterization, valuation, income and expenses, a spouse must disclose the identity of all assets and liabilities, regardless of how imma-terial the asset or liability is in relationship to the size of the estate and regardless of whether it is alleged to be commu-nity or separate property.

The court also applies the “superior position” analysis of a set-aside case, Brewer & Federici, to the post-separation dis-closure analysis. “ ‘A spouse who is in a superior position to obtain records or information . . . must acquire and disclose such information to the other spouse’ and should not expect the spouse who is not in a superior position to search for the information.” This is consistent with the high court’s analysis in Schnabel, supra.

This is The fundamenTal concepT of informal discovery and illustrates what is perhaps the main advantage of informal discovery over formal discovery – a spouse has a duTy To obTain maTerial facTs and informaTion so ThaT The oTher spouse does noT have To search for The informaTion. Certainly, this is not the fundamental principle behind the Civil Discovery Act.

The Feldman court continued its analysis of Aaron’s con-tention that he did not need to disclose that which occurred in the normal course of business: Thus, several of these new entities had been in exis-

tence for several months before Aaron disclosed their existence by producing updated organizational charts in January 2005. As we have explained, Aaron was under a duty, among other things, to give “an imme-diate, full, and accurate update or augmentation to the extent there have been any material changes” as to his assets and liabilities (§2102, subd. (a)(1)). Under section 1100, subdivision (e), Aaron had an obliga-tion “to make full disclosure to the other spouse of all material facts and information regarding the exis-tence, characterization, and valuation of all assets in which the community has or may have an interest.” (See also §721, subd. (b)(2) [requiring a spouse to pro-vide upon request “true and full information affecting any transaction which concerns the community prop-erty”].) Further, based on the inquiry of Elena’s attor-neys in June 2004 as to whether “[Aaron] has created any new corporations or subsidiary corporations,” Aaron knew that Elena was interested in receiving updates concerning the creation of any new Sunroad entities. Feldman, at 1491 (emphasis added).Note that the court links Fam. Code §§1100(e) and 721(b)(2).

These two statutes are powerful disclosure statutes. Feldman is the first case to address these them in concert. The court continued this analysis by saying: On these facts, the trial court was within its discre-

tion to conclude that Aaron’s tardy disclosure of the new entities was another instance of Aaron’s pattern of non-

compliance with the statutory policy of disclosure. Aaron argues that he was not required to disclose the existence of Inmobiliaria, the $2.52 million loan, or the creation of the new entities, because they were “standard busi-ness transaction[s].” Specifically, Aaron disputes that “every transaction” of a business must be reported under section 2102, “even when the transactions are within the ‘ordinary course of business’ of the reported asset.” Aaron relies on section 2102 for his argument. That sec-tion provides: “(a) From the date of separation to the date of the distribution of the community or quasi-commu-nity asset or liability in question, each party is subject to the standards provided in Section 721, as to all activi-ties that affect the assets and liabilities of the other party, including, but not limited to, the following activ-ities: “(1) The accurate and complete disclosure of all assets and liabilities in which the party has or may have an interest or obligation and all current earnings, accu-mulations, and expenses, including an immediate, full, and accurate update or augmentation to the extent there have been any material changes. “(2) The accurate and complete written disclosure of any investment opportu-nity, business opportunity, or other income-producing opportunity that presents itself after the date of separation, but that results from any investment, sig-nificant busi-ness activity outside the ordinary course of business, or other income- producing opportunity of either spouse from the date of marriage to the date of separation, inclusive. The written disclosure shall be made in sufficient time for the other spouse to make an informed decision as to whether he or she desires to participate in the invest-ment opportunity, business, or other potential income-producing opportunity, and for the court to resolve any dispute regarding the right of the other spouse to partic-ipate in the opportunity. In the event of nondisclosure of an investment opportunity, the division of any gain resulting from that opportunity is governed by the stan-dard provided in Section 2556. “(3) The operation or management of a business or an interest in a business in which the community may have an interest. “(b) From the date that a valid, enforceable, and binding resolution of the disposition of the asset or liability in question is reached, until the asset or liability has actually been distributed, each party is subject to the standards


A spouse who is

in a superior position to obtain records or

information must acquire and disclose such information to the other spouse and should not expect the spouse who is

not in a superior position to search for the

information.


provided in Section 721 as to all activities that affect the assets or liabilities of the other party. Once a particular asset or liability has been distributed, the duties and standards set forth in Section 721 shall end as to that asset or liability.” Despite Aaron’s argu-ment to the contrary, this statute does not contain an exception that exempts a spouse from having to dis-close transactions “in the ordinary course of busi-ness.” Aaron points out that section 2102, subdivision (a)(2) refers to disclosures that must be made only when “outside the ordinary course of business.” However, that provision describes the circumstances in which one spouse must disclose a post-separation business opportunity to the other spouse prior to the transac-tion so that the spouse may decide whether to partici-pate in the opportunity. Under the statute, a spouse is required to give prior written disclosure with respect to a “significant business activity outside the ordinary course of business.” (Ibid., italics added.) The issue here

is not whether Aaron was required to disclose

the various activ-ities of Sun-

road Holdings before they occurred. Elena’s motion for sanctions is not based on Aaron’s

failure to dis-close business

opportunities before the Sun-

road entities took advantage of them. Instead,

the request for sanctions was warranted because he failed, even when Elena made it clear that she desired the information, “to make full disclosure to the other spouse of all material facts and information regard-ing the existence, characterization, and valuation of all assets in which the community has or may have an interest.” (§1100, subd. (e).) N17 As the spouse involved in running the Sunroad entities, Aaron was in a supe-rior position to obtain information about those entities and was thus obligated to disclose material information regarding them to Elena. N18 Feldman, at 1491-1492 (emphasis added).The Feldman court clearly holds that the mandate to dis-

close all material facts and information regarding assets and liabilities in which the community “has or may have an inter-est” includes assets and liabilities held inside an entity, such as corporations, partnerships and limited liability entities. Thus, when complying with post-separation disclosure

obligations, a spouse must disclose not only the fact that he or she owns shares of stock in XYZ Corporation, but also the assets and liabilities of that entity.6 The court further addresses this concept in footnote 19, below.

Footnotes 17 and 18, referenced above, state:N17 Citing Gale v. Superior Court (2004) 122 Cal.App.4th

1388, 1393, Aaron argues that he was not required to disclose the business dealings of the Sunroad entities that he made in “the ordinary course of business.” Gale is not on point. It addresses whether an automatic restraining order prevents a spouse, who runs a family owned real estate investment business, from selling one of the properties in the “ ‘usual course of business.’ ” (Ibid.) Here, the issue is not whether Aaron was autho-rized to conduct ordinary business on behalf of the Sunroad entities, it was whether Aaron was required to disclose such business transactions, immediately, fully and accurately, to the extent they impacted his assets and liabilities. Emphasis added.

N18 It is significant that the Sunroad entities are pri-vately held corporations. Because of their privately held status, information regarding them is not avail-able to Elena, but it is available to Aaron as a share-holder and manager of the company, giving him a duty to obtain that information in carrying out his duty to provide disclosure about community assets. (See Brewer & Federici, supra, 93 Cal.App.4th at p. 1348 [the spouse in a superior position to obtain information has a duty to do so]; In re Marriage of Heggie (2002) 99 Cal.App.4th 28, 34 [because the value of the stock of a public company was publicly available information, spouse did not breach duty by failing to disclose the value].) Emphasis added.The Feldman court continued the analysis:

We agree with Aaron that as a matter of common sense, a spouse who runs a business is not under a duty to sua sponte update every insignificant occur-rence in the operation of a business. We note as well that the statutes refer to the immediate disclosure of “material changes” and “material facts and informa-tion.” (§§2100, subd. (c), 2102, subd. (a), 1100, subd. (e).) However, as we will explain, the facts here clearly justify the trial court’s exercise of its discretion to conclude that the existence of Inmobiliaria, the $2.52 million loan, and the creation of the entities shown on the December 31, 2005 organizational chart were items that Aaron had a duty to promptly disclose. N19 Feldman, at 1493 (emphasis added).Footnote 19 states:

N19 Aaron argues that because he personally did not own any of the Sunroad Holding assets, including its numer-ous subsidiary entities, he did not have a duty to dis-close their existence. Although acknowledging that he was 100 percent owner of Sunroad Holding and the other Sunroad entities, Aaron argues that because section 1100, subdivision (d) “allows the spouse who is managing and controlling the asset to act alone in all transaction[s] except those which would result in a liquidation of the


Even though informal

discovery is usually supe-rior to formal discovery, there

is a place for formal discovery in many family law cases. As detailed below, certain discovery can only be accomplished through the Civil Dis-covery Act. Also, all formal discovery

must be provided under penalty of perjury, which is not true

for all forms of informal discovery.


business[,] Aaron’s conduct [in not disclosing some of Sunroad’s assets] was consistent with his fiduciary duties.” We reject this argument. The issue of which assets must be disclosed under section 2102 is a dis-tinct issue from whether one spouse is permitted exclusive management and control of the assets of a business owned by the community. Section 2102, sub-division (a)(1) requires “[t]he accurate and complete disclosure of all assets and liabilities in which the party has or may have an interest or obligation” and imposes a duty to immediately, fully and accurately update the disclosure upon a material change. Aaron breached that duty of disclosure when, despite Elena’s request for the information, he failed to disclose docu-ments concerning Inmobiliaria and the formation of new Sunroad entities. Emphasis added.The court continued:

Significantly, with respect to the creation of the new entities, because Elena specifically asked about the creation of any new corporations or subsidiary corpora-tions in June 2004, Aaron was on notice that the crea-tion of the entities reflected on the December 31, 2004 organizational charts was a significant event that he should promptly disclose. Further, any spouse seeking to ascertain the value of a community business and to trace community assets would reasonably need to know of the existence of all of the business entities existing at the time of separation and the creation of any new post-separation entities. With respect to Inmobiliaria, Elena served a request for production seeking documents that encompassed evidence of the creation of new Sunroad entities and any loans made by those entities. These requests put Aaron on notice that he had a duty to disclose the information. N20 Feldman, at 1493 (emphasis added). Of course, even if Elena had not “specifically asked about

the creation of any new corporation” Aaron would still have been required to disclose such creation because if a §1100(e) or §721(b)(2) request had been made, and a request was made under §1100(e). Footnote 20 states:N20 Aaron argues that he has complied with his disclo-

sure obligations because he has produced extensive documentation, and that the parties have hired a joint appraiser regarding the value of Sunroad businesses and a joint financial expert to determine monies avail-able for support. These facts do not persuade us that the trial court abused its discretion in imposing sanc-tions. First, the trial court reasonably concluded that the documentation Aaron provided did not suffi-ciently fulfill his fiduciary duty of disclosure because the undisclosed items noted by the trial court were not contained in that production, namely, informa-tion about the Calumet Avenue property, information about the Israeli bond, information about the 401(k) account, and information about Inmobiliaria. Second, the parties retained the appraiser and financial expert after most of the conduct by Aaron that gave rise to the sanctions, and after Elena filed the application for sanc-

tions. Thus, Aaron’s agreement to the appraiser and financial expert is not relevant to whether his conduct during the relevant time frame warranted the imposi-tion of sanctions. Feldman, at 1493 (emphasis added).In summary, Feldman and Schnabel make clear that under

the post-separation disclosure statutes,• The disclosure duty may be sua sponte or “upon request,” but it does exist and is becoming firmly implemented in the day-to-day practice of family law, in no small regard because of cases such as Feldman and Schnabel.

• The Family Code, in essence, provides for a “reverse discov-ery” process in family law cases requiring spouses to provide material facts and information to one another sua sponte.

• A spouse may not attempt to “circumvent the process,” “hide the ball,” and tell his or her spouse to “go fish,” or “you figure it out.”

• Business transactions, even those inside a corporate entity and “in the ordinary course of business,” must still be disclosed voluntarily.

• The key feature of formal discov-ery is knowing enough to ask the right ques-tion to get the right answer. If the practitioner does not know enough to do so, he or she will not get the right answer unless he or she “stum-bles upon the fact.” Feldman makes clear that this type of conduct is contrary to the public policy of this state.

• If the material facts and information in question affect char-acterization, such as allowing a spouse to trace funds from one entity to another or establish a right of reimbursement (Watts credits), a spouse has a “duty of candor regarding the trans-action” even if it occurred within a business entity and in the ordinary course of business.

• A spouse who is in a superior position to obtain records or information must acquire and disclose such information to the other spouse and cannot demand that the spouse who is not in a superior position to search for the information.

• When complying with post-separation disclosure obliga-tions, a spouse must disclose not only the fact that he or she has an interest in an entity, but also the assets and liabilities of that entity.

• “Each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the rele-vant underlying facts.”

These principles make clear why informal discovery under Continued on page 3�

Informal discovery under

the Family Code has no cutoff date. Rather, the duty to disclose

continues right up to trial, during trial and beyond the entry of

judgment.


the Family Code is usually superior to formal discovery under the Civil Code. The Civil Discovery Act is analyzed next.

Informal Discovery Provisions Compared to the Civil Discovery Act: At the outset, it should be made clear that even though informal discovery is usually superior to formal discovery, there is a place for formal discovery in many family law cases. As detailed below, certain discovery can only be accomplished through the Civil Discovery Act. Also, all formal discovery must be provided under penalty of perjury, which is not true for all forms of informal discovery.

Thus, the issue is not all or nothing, one type of discovery or the other. Rather, the key is using sound judgment in deter-mining if and when to use formal discovery. As an example, one discovery “game plan” includes obtaining material facts

and information through the use of informal discov-

ery, starting early in the case. Then,

toward the end of the case, using formal discov-ery to: (1) verify under penalty of perjury the material facts and information

provided through informal discov-

ery through deposi-tions, interrogatories

and/or request for admis-sions; and (2) obtain disclosure

of expert witnesses. Of course, there are a multitude of other ways to combine informal and formal discovery.

Set forth below are portions of the Civil Discovery Act that both authorize and restrict the scope, nature and extent of formal discovery. To aid the reader in comparing the benefits and detriments of formal versus informal discovery, after each section is a comparison to the corresponding requirements of the Family Code. This analysis will focus primarily on deposi-tions, interrogatories and the production of documents.

A word on the importance, or lack thereof, of obtaining material facts and information under the penalty of perjury. The obvious benefit to obtaining information under oath is the ability to have the District Attorney file criminal charges for vio-lation of the Penal Code. However, this is very unlikely to occur, and is therefore not truly a deterrent to misrepresentations.

For a spouse to violate his or her fiduciary duty, he or she does not need to make a perjurious statement. A breach of the interspousal disclosure duty, as illustrated in Feldman, can occur by nondisclosure and by not immediately, fully and accu-rately disclosing information. The defective writing could be an answer to interrogatory or production of documents, or it could be in the form of a letter from the responding spouse’s counsel. Perjury is not the guarantor of truth; the fear of

being punished is supposed to be. Most litigants will pay more heed to fiduciary obligations if they understand that the penalty for failing to meet them will be significant money sanctions and professional fees rather than the potential of being prosecuted for perjury.

A. Types of Formal Discovery: CCP §2019.010 autho-rizes the following types of formal discovery:(a) Oral and written depositions;(b) Interrogatories to a party;(c) Inspections of documents, things, and places;(d) Physical and mental examinations;(e) Requests for admissions; and(f) Simultaneous exchanges of expert trial witness information.

By contrast, the Family Code does not authorize any par-ticular method by which informal discovery shall be accom-plished. The Judicial Council has adopted a one-page form for the Preliminary and Final Disclosure Declarations and Fam. Code §2105(d) states what must be included in the waiver of a Final Disclosure Declaration. Otherwise, however, there is no particular method specified for complying with the disclosure obligations. Thus, formal discovery has a better structure as to the type of discovery permitted.

B. Scope of Formal Discovery: CCP §2017.010 delineates allowable discovery: Unless otherwise limited by order of the court in

accordance with this title, any party may obtain discov-ery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action or to the determination of any motion made in that action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discov-ery of admissible evidence. Discovery may relate to the claim or defense of the party seeking discovery or of any other party to the action. Discovery may be obtained of the identity and location of persons having knowledge of any discoverable matter, as well as of the existence, description, nature, custody, condition, and location of any document, tangible thing, or land or other property.Under the Family Code, the only limitation placed on infor-

mal discovery is that the facts and information being requested must be “material.” All material facts and information must be provided under informal discovery as to the (1) existence of assets and liabilities; (2) characterization as community or separate property; (3) valuation; (4) income; and (5) expenses of the parties.

C. Limits on the Use of Formal Discovery: CCP §2019.030 sets forth, in pertinent part, the limits on formal discovery as follows:(a) The court shall restrict the frequency or extent of use of a

discovery method provided in Section 2019.010 if it deter-mines either of the following:

(1) The discovery sought is unreasonably cumulative or dupli-cative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive.

(2) The selected method of discovery is unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, and the importance of the issues at stake in the litigation. Emphasis added.

Discovery, WagnerContinued from page 3�

A party wishing

to receive material facts and information

may do so by letter (usually a §1100(e) request) and the other party is under a “duty

of candor” to provide the information

requested.


This is where the informal discovery under the Family Code races past the benefits of formal discovery. Feldman makes two very important points in this regard: (1) spouses must dis-close all material facts and information, even if known by the other; and (2) the spouse who is in a superior position to obtain records or information must acquire and disclose such informa-tion to the other spouse and cannot expect the spouse who is not in a superior position to search for the information.

The fact that informal discovery is unduly burdensome or expensive is not a defense to complying with the post- separation disclosure duty. However, because a spouse has an obligation to disclose to the other all material facts and information, a reasonable argument can be made that the community should bear the professional fees incurred for such a disclosure, at least as to community assets, liabilities, income and expenses.

D. Cutoff Date Using Formal Discovery: CCP §2024.020 places a “cutoff” date on formal discovery as follows:(a) Except as otherwise provided in this chapter, any party

shall be entitled as a matter of right to complete discov-ery proceedings on or before the 30th day, and to have motions concerning discovery heard on or before the 15th day, before the date initially set for the trial of the action.

(b) Except as provided in Section 2024. 050, a continuance or postponement of the trial date does not operate to reopen discovery proceedings. Emphasis added.Informal discovery under the Family Code has no cutoff

date. Rather, the duty to disclose continues right up to trial, during trial and beyond the entry of judgment. Fam. Code §2102(a) provides “[f]rom the date of separation to the date of the distribution of the community or quasi-community asset or liability in question, each party is subject to the standards provided in Section 721, as to all activities that affect the assets and liabilities of the other party . . .” and §2102(c) provides “[f]rom the date of separation to the date of a valid, enforce-able, and binding resolution of all issues relating to child or spousal support and professional fees, each party is subject to the standards provided in Section 721 as to all issues relat-ing to the support and fees. . . .” Thus, the duties of disclosure continue long past the discovery cutoff date under the Civil Discovery Act.

E. Use of Depositions Pursuant to Formal Discovery: CCP §2025.010 et seq. sets forth the conditions upon which a party may be deposed. However, CCP §2025.420 permits a court to issue a protective order upon a notice of motion. It may impose restrictions ranging from limiting the scope of the deposition to prohibiting it from taking place altogether.

The Family Code does not authorize depositions. Thus, if oral testimony is important to a case, and most often it is, formal discovery must be used in conjunction with informal discovery. Often the best way to do so is to accumulate as much informal discovery, say under Fam. Code §1100(e), and then “clean up” the unresolved issues and confirm the material facts and information, under the penalty of perjury, at the deposition. Keep in mind that informal discovery is not responded to under penalty of perjury, except for the Income and Expense Declara-tion, Schedule of Assets and Debts, Preliminary Declaration of Disclosure and the Final Declaration of Disclosure.

F. Use of Interrogatories Pursuant to Formal Discovery: CCP §2030.010 authorizes the use of written interrogatories. However, CCP §2030.030 limits the use of interrogatories as follows:(a) A party may propound to another party either or both of

the following:(1) Thirty-five specially prepared interrogatories that are

relevant to the subject matter of the pending action.(2) Any additional number of official form interrogatories,

as described in Chapter 17 (commencing with Section 2033.710), that are relevant to the subject matter of the pending action.

(b) Except as provided in Section 2030.070, no party shall, as a matter of right, propound to any other party more than 35 specially prepared interrogatories. If the initial set of interrogatories does not exhaust this limit, the balance may be propounded in subsequent sets.

(c) Unless a declaration as described in Section 2030.050 has been made, a party need only respond to the first 35 specially prepared interrogatories served, if that party states an objection to the balance, under Sec-tion 2030.240, on the ground that the limit has been exceeded. Emphasis added.CCP §2030.040 sets forth conditions upon which more

than 35 interrogatories may be propounded as follows: (a) Subject to the right of the

responding party to seek a protective order under Sec-tion 2030.090, any party who attaches a supporting declaration as described in Section 2030.050 may propound a greater num-ber of specially prepared interroga-tories to another party if this greater number is warranted because of any of the following:

(1) The complexity or the quantity of the existing and potential issues in the particular case.

(2) The financial burden on a party entailed in conducting the discovery by oral deposition.

(3) The expedience of using this method of discovery to provide to the responding party the opportunity to conduct an inquiry, investigation, or search of files or records to supply the information sought.

(b) If the responding party seeks a protective order on the ground that the number of specially prepared interrogato-ries is unwarranted, the propounding party shall have the burden of justifying the number of these interrogatories. Emphasis added.


The court’s authority

to impose a protective order on information

obtained through formal discovery over the objection of one of the parties may be vastly

different than when a party seeks to obtain information that belongs to that party through a process other

than formal pretrial discovery.


By contrast, the Family Code does not authorize the use of interrogatories. However, as in Feldman, a party wishing to receive material facts and information may do so by letter (usually a §1100(e) request) and the other party is under a “duty of candor” to provide the information requested. More-over, the Family Code places no limitations on the amount of requests that can be made. The replies are not under oath, but the Feldman court had no problem finding a breach of duty as a result of an unverified letter being sent by Aaron’s attorney that did not fully and accurately answer Elena’s request for material facts and information.

G. Issuance of a Protective Order (Interrogatories): CCP §2030.090 permits a party to obtain a protective order relating to the answering of interrogatories as, in pertinent part, follows:(b) The court, for good cause shown, may make any order that

justice requires to protect any party or other natural person or organization from unwarranted annoyance, embar-rassment, or oppression, or undue burden and expense. This protective order may include, but is not limited to, one or more of the following directions:

(1) That the set of interrogatories, or particular interrogatories in the set, need not be answered.

. . . .(4) That the response be made only on specified terms and

conditions. Emphasis added.Fam. Code §2111 provides that “(a) disclosure required

by this chapter does not abro-gate the attorney work

product privilege or impede the power

of the court to issue protective orders.” Empha-sis added. The question is, what is the court’s author-ity to impose a

protective order prohibiting the

dissemination of information obtained

through informal discov-ery, when that information

belongs to the party requesting it?The discussion of protective orders is beyond the scope of

this article. However, the family law bar and bench need to be aware that the court’s authority to impose a protective order on information obtained through formal discovery over the objec-tion of one of the parties may be vastly different than when a party seeks to obtain information that belongs to that party through a process other than formal pretrial discovery.

As detailed in Chapter B12 of Volume B of Complex Issues, supra, in Seattle Times Co. v. Rhinehart (1984) 467 US 20,

the U.S. Supreme Court dealt with the constitutionality of a Washington discovery statute and also a statute authoriz-ing the court to issue a protective order. The Court framed the issue as “whether parties to civil litigation have a First Amendment right to disseminate, in advance of trial, informa-tion gained through the pretrial discovery process.” The high Court noted that Washington’s “Rule 26(c) is typical of the provisions adopted in many States” (California’s versions appli-cable to the various discovery methods are virtually identical), and that these rules authorize expansive pretrial discovery on issues which may be private or intimate along with “that to which no privacy interests attach,” as long as the informa-tion “appears reasonably calculated to lead to the discovery of admissible evidence.” It held that a rule that authorizes dissemination of any of this information absent proof of a compelling government interest to limit it as proposed by the defendant “would impose an unwarranted restriction on the duty and discretion of a trial court to oversee the discovery process.”

The Court concluded that “(t)here is an opportunity, there-fore, for litigants to obtain – incidentally or purposefully – information that not only is irrelevant but if publicly released could be damaging to reputation and privacy. The govern-ment clearly has a substantial interest in preventing this sort of abuse of its processes.” Emphasis added. It held that the Washington protective order statute required no height-ened First Amendment scrutiny, because the statute follows the FRCP and “confers broad discretion on the trial court to decide when a protective order is appropriate and what degree of protection is required. . . .”

The Court observed that the public may have an interest in knowing the information discovered, but said that “(i)t does not necessarily follow, however, that a litigant has an unre-strained right to dissemination information that has been obtained through pretrial discovery.” Emphasis added. It held that a litigant has no First Amendment right of access to information made available through the “Legislative grace” of discovery statutes; “(t)hus, continued court control over the discovered information does not raise the same spec-ter of government censorship that such control might suggest in other situations.” It also said that “it is significant to note that an order prohibiting dissemination of discovered infor-mation before trial is not the kind of classic prior restraint that requires exacting First Amendment scrutiny,” citing Gannett Co. V. DePasquale (1979) 443 US 358. It also held that the party may disseminate the identical information covered by the protective order as long as the information is gained through means independent of the court’s processes.

This case illustrates the different treatment of the same information obtained by different means. While the court can constitutionally restrict the dissemination of informa-tion obtained through formal discovery processes, which are conferred by statute pursuant to “legislative grace,” the same information obtained through means indepen-dent of the court processes are not subject to any dissemi-nation restrictions. Thus, another advantage to using informal discovery involves the court’s ability, or lack thereof, to impose a protective order over a party’s objection.


The Family Code

mandates the disclo-sure of all material facts and information and this

requirement includes “the mak-ing of a compilation, abstract,

audit, or summary of or from the documents” if that is required

to fulfill a spouse’s post-separation disclosure

requirements.


H. Limitation on Request for Augmentation of Pre-vious Answers (Interrogatories): CCP §2030.070 allows “follow up” or request for augmented answers to previously answered interrogatories, albeit in a limited fashion:(a) In addition to the number of interrogatories permitted by

Sections 2030.030 and 2030.040, a party may propound a supplemental interrogatory to elicit any later acquired information bearing on all answers previously made by any party in response to interrogatories.

(b) A party may propound a supplemental interrogatory twice before the initial setting of a trial date, and, subject to the time limits on discovery proceedings and motions provided in Chapter 8 (commencing with Section 2024.010), once after the initial setting of a trial date.

(c) Notwithstanding subdivisions (a) and (b), on motion, for good cause shown, the court may grant leave to a party to propound an additional number of supplemental interroga-tories. Emphasis added.There is no such limitation when using informal discovery.

To the contrary, the Family Code mandates the immediate, full and accurate update and augmentation of a previous disclosure, sua sponte, even after judgment is entered (Fam. Code §2102). This is one of the primary benefits of the use of informal discovery.

I. Requesting Compilations or Summaries Pursuant to Formal Discovery: CCP §2030.230 severely restricts one party’s ability to require the other party to prepare a compila-tion or summary: If the answer to an interrogatory would necessi-

tate the preparation or the making of a compilation, abstract, audit, or summary of or from the documents of the party to whom the interrogatory is directed, and if the burden or expense of preparing or making it would be substantially the same for the party pro-pounding the interrogatory as for the responding party, it is a sufficient answer to that interrogatory to refer to this section and to specify the writings from which the answer may be derived or ascertained. This specification shall be in sufficient detail to permit the propounding party to locate and to identify, as readily as the responding party can, the documents from which the answer may be ascertained. The responding party shall then afford to the propounding party a reasonable opportunity to examine, audit, or inspect these docu-ments and to make copies, compilations, abstracts, or summaries of them. Emphasis added.In sharp contrast, the Family Code mandates the disclosure

of all material facts and information and this requirement includes “the making of a compilation, abstract, audit, or summary of or from the documents” if that is required to fulfill a spouse’s post-separation disclosure requirements. Fam. Code §721(b)(2) and (3) require each spouse to “render[] true and full information” and to “account[] to the spouse” under certain circumstances. Corp. Code §16404 also requires an accounting under certain circumstances.

It is critical to understand that fulfilling the obligation to provide all material facts and information rarely can be accom-plished simply by attaching documents to the Judicial Counsel

form. Rather, at a minimum, a narrative is almost always neces-sary to adequately provide all material facts and information regarding the characterization and valuation of assets. This may well include “the making of a compilation, abstract, audit, or summary of or from the documents.” The use of informal dis-covery is clearly superior than formal discovery in this regard.

J. No Affirmative Duty to Update or Augment Answers to Interrogatories: In sharp contrast to the mandated duty to update informal disclosures under the Family Code, a party responding to formal discovery is only required to provide such information as is available at the time interrogatory answers are prepared. There is no duty to update or amend the answers, either to correct errors or to include new information discov-ered later. Biles v. Exxon Mobile Corp. (2004) 124 Cal.App.4th 1315, 22 Cal. Rptr.3d 282. In Brown v. Turner Construction Co. (2005) 127 Cal.App.4th 1334, 1339, the court referred to the “‘urban legend’ that ‘a responding party has an affirmative duty to supplement responses to interrogatories if and when new information comes into that party’s possession. . . .’ ”

K. Waiver of Right to Compel (Interrogatories): CCP §2030.300 permits the propounding party to file a motion to compel answers to inter-rogatories. However, this right is waived if the motion is not filed within 45 days. §2030.300(c) provides: Unless

notice of this motion is given within 45 days of the service of the response, or any supplemen-tal response, or on or before any specific later date to which the propounding party and the respond-ing party have agreed in writing, the propounding party waives any right to compel a further response to the interrogatories. Emphasis added.In contrast, a party cannot waive the right to a Prelimi-

nary Disclosure Declaration or the right to the disclosure of all material facts and information. What the party can waive (under Fam. Code §2105(d)) is the use of the Judicial Council form. However, each party must still swear under penalty of perjury that he or she has still disclosed all material facts and information in one manner or another. §2105(d) provides:(d) The parties may stipulate to a mutual waiver of the

requirements of subdivision (a) concerning the final declaration of disclosure, by execution of a waiver under penalty of perjury entered into in open court or by separate stipulation. The waiver shall include all of the following representations:

(1) Both parties have complied with Section 2104 and the Continued on page 42

Fulfilling the obligation to

provide all material facts and information rarely can be accom-

plished simply by attach-ing documents to the

Judicial Counsel form.


preliminary declarations of disclosure have been completed and exchanged.

(2) Both parties have completed and exchanged a current income and expense declaration that includes all material facts and information regarding that party’s earnings, accumulations, and expenses.

(3) Both parties have fully complied with Section 2102 and have fully augmented the preliminary declarations of disclosure, including disclosure of all material facts and information regarding the characterization of all assets and liabilities, the valuation of all assets that are con-tended to be community property or in which it is con-tended the community has an interest, and the amounts of all obligations that are contended to be community obligations or for which it is contended the community has liability.

(4) The waiver is knowingly, intelligently, and voluntarily entered into by each of the parties.

(5) Each party understands that this waiver does not limit the legal disclosure obligations of the parties, but rather is a statement under penalty of perjury that those obligations have been fulfilled. Each party further understands that

noncompliance with those obligations will result

in the court setting aside the judgment.

Emphasis added.L. Use of

Request for Production of Documents Pursuant to Formal Dis-covery: CCP

§2031.010 autho-rizes a demand

for production of documents. However,

CCP §2031.060 sets forth the terms and conditions for a

protective order, in pertinent part, as follows:(b) The court, for good cause shown, may make any order that

justice requires to protect any party or other natural person or organization from unwarranted annoyance, embarrass-ment, or oppression, or undue burden and expense. This protective order may include, but is not limited to, one or more of the following directions:

(1) That all or some of the items or categories of items in the inspection demand need not be produced or made available at all.

. . . . (4) That the inspection be made only on specified terms and

conditions. Emphasis added.Under the Family Code, there is no limitation on the

production of documents so long as the document provides

material facts and information regarding the existence of assets and liabilities, the characterization and valuation of assets, or the income or expenses of the parties.

M. Limitation on Request for Augmentation of Previous Production of Documents: Although there is no affirmative duty to update or augment answers to interrogatories, CCP §2031.050 allows “follow up” or “update” requests for produc-tion of documents in a limited fashion:(a) In addition to the inspection demands permitted by this

chapter, a party may propound a supplemental demand to inspect any later acquired or discovered documents, tangible things, or land or other property that are in the possession, custody, or control of the party on whom the demand is made.

(b) A party may propound a supplemental inspection demand twice before the initial setting of a trial date, and, subject to the time limits on discovery proceedings and motions provided in Chapter 8 (commencing with Section 2024.010), once after the initial setting of a trial date.

(c) Notwithstanding subdivisions (a) and (b), on motion, for good cause shown, the court may grant leave to a party to propound an additional number of supplemental demands for inspection. Emphasis added.N. Issuance of a Protective Order (Production of

Documents): CCP §2031.060 authorized the issuance of a pro-tective order restricting or eliminating the right to obtain the documents requested. This section provides, in pertinent part:(b) The court, for good cause shown, may make any order that

justice requires to protect any party or other natural person or organization from unwarranted annoyance, embarrass-ment, or oppression, or undue burden and expense. This protective order may include, but is not limited to, one or more of the following directions:

(1) That all or some of the items or categories of items in the inspection demand need not be produced or made available at all.

. . . .(4) That the inspection be made only on specified terms and

conditions. . . . .(6) That the items produced be sealed and thereafter opened

only on order of the court.As discussed in the section addressing interrogatories,

above, the augmentation of disclosures under the Family Code is not only mandatory, but it must be done immedi-ately, fully and accurately. The discussion, above, regarding protective orders is equally applicable to the production of documents.

O. Waiver of Right to Compel the Production of Documents: CCP §2031.310 permits the requesting party to move for an order compelling further responses. However, the right to do so can be waived. CCP §2031.310(c) provides: Unless notice of this motion is given within 45 days of

the service of the response, or any supplemental response, or on or before any specific later date to which the demand-ing party and the responding party have agreed in writing, the demanding party waives any right to compel a fur-ther response to the inspection demand. Emphasis added.


While the Civil Discovery

Act also mandates sanc-tions for the violation of the

Act that can include money sanc-tions, it does not include the “deter

repetition” provisions of §2107(c) and, as a practical matter, will not result in sanctions as great as under the Fam-

ily Code. In addition, Fam. Code §2107(b) authorizes evidentiary

sanctions for noncompliance with a spouse’s disclo-

sure duties.


As noted above in the discussion regarding compelling further answers to interrogatories, under informal discovery a party cannot waive the right to the other party’s disclosure of all material facts and information.

P. Mandatory Attorney Fees Pursuant to Formal Dis-covery: All of the formal discovery sections have a “prevailing party” section for attorney fees. While the Civil Discovery Act also mandates sanctions for the violation of the Act that can include money sanctions, it does not include the “deter repeti-tion” provisions of §2107(c) and, as a practical matter, will not result in sanctions as great as under the Family Code. In addi-tion, Fam. Code §2107(b) authorizes evidentiary sanctions for noncompliance with a spouse’s disclosure duties.

Q. Authorized Method of Enforcement: All of the formal discovery sections provide the method by which an aggrieved party may seek redress: a Notice of Motion. The propounding party may seek an order by motion to require the responding party to respond or further respond. The responding party may file a motion to seek protective orders from the court.

In contrast, no Family Code section expressly authorizes the enforcement of the various post-separation duties of disclo-sure by way of a Notice of Motion or an Order to Show Cause. However, Feldman is now the authority for the proposition that a Notice of Motion is a proper method of enforcement of post-separation disclosure obligations.7

Summary: In summary, subject to the comments below, the use of informal discovery offers the family law practitioner a superior method of obtaining material facts and information, for the following reasons:

• Even though informal discovery is usually superior to formal discovery, there is a place for formal discovery in many family law cases. Certain discovery can only be accomplished through the Civil Discovery Act. Thus, the issue is not whether to use one type of discovery instead of the other; the key is using sound judgment in determining if and when to use formal discovery.

• CCP §2019.010 summarizes the types of formal discovery available. In contrast, the Family Code does not set forth any particular method by which informal discovery must be accomplished.

• CCP §2017.010 provides that any party can obtain discovery on any relevant matter . . . if the matter either is itself admis-sible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence. In contrast, under the Family Code, the only limitation on information discovery is that the requested facts and information are “material.” This is much broader than the scope of formal discovery.

• CCP §2019.030 says that the court shall restrict discovery if it determines that the discovery sought is unreasonably cumulative, burdensome, expensive or is obtainable from a more convenient source. In contrast, the Family Code and Feldman make clear that spouses must disclose all material facts and information (even if known by the other spouse) and the spouse who is in a superior position to obtain records or information must acquire and disclose such information to the other spouse and should not expect the other spouse to search for the information.

• CCP §2020.020 places a cutoff date on formal discovery.

In contrast, there is no cutoff date for disclosure obligations under the Family Code. The duty to disclose continues right up to trial, during trial and beyond the entry of judgment.• CCP §2030.030 generally limits the number of interrogato-ries propounded to 35. When using informal discovery under the Family Code, however, a party can request disclosure as many times as they deem necessary. When a party makes a §1100 (e) request, the other party is under a duty of candor when providing the information requested. Further, most objections to interrogatory questions served under the Civil Discovery Act are not valid objections to informal discovery requests.

• CCP §2030.090 permits a party to obtain a protective order affecting the answer to interrogatories to prevent unwarranted embarrassment, annoyance, oppression, or undue burden and expense. Fam. Code §2111 provides that nothing in the Family Code is intended to impede the court’s right to issue protective orders. However, no court has ruled on its authority to impose a protective order prohibiting the dissemination of informa-tion obtained through infor-mal discovery, when that information belongs to the party requesting it. Thus, the court’s ability to impose a protec-tive order on the dissemina-tion of informa-tion obtained through infor-mal discovery may be vastly dif-ferent than its abil-ity to limit the use of information obtained through formal pretrial discov-ery over a party’s objection. For this reason alone, there may be an advantage to using informal discovery.

• CCP §2030.070 allows requests for augmented or updated answers to interrogatories albeit in a limited fashion. There is no such limitation under the Family Code. To the contrary, the Family Code mandates the immediate, full and accurate update and augmentation of a previous disclosure without request, even after the entry of judgment.

• CCP §2030.230 severely restricts a party’s ability to require the other to prepare a compilation or summary. In contrast, the Family Code mandates the disclosure of all material facts and information and this requirement includes the “making of a compilation, abstract, audit, or summary of or from the documents” if necessary to fulfill a spouse’s post-separation disclosure obligations. At a minimum, a narrative is almost always required to provide all material facts and information regarding the characterization and valuation of assets.

• CCP §2030.300 permits the propounding party to file a motion to compel answers to interrogatories. However, this right is waived if a motion is not filed within 45 days of the service of the response. In contrast, under the Family Code, a


The times, they are

a changin’. When a careful analysis is made

of the advantages and dis-advantages of using informal discovery over formal discov-ery, it is clear that informal

discovery will normally be the better way to

proceed.


party cannot waive the right to a Preliminary Declaration of Disclosure or the right to the disclosure of all material facts and information.

• Unlike formal discovery under the Civil Discovery Act, under the Family Code there is no limitation on requests for the production of documents as long as they provide material facts and information regarding the existence of assets and liabilities, the characterization and valuation of assets, or the income and expenses of the parties.

• Under the Civil Discovery Act, there is no duty to update or amend answers to responses either to correct errors or to include information discovered at a later date. In contrast, the Family Code mandates the immediate, full and accurate augmentation of previous disclosures.

• While the Civil Discovery Act has a prevailing party section for attorney fees and also mandates sanctions for the violation of the Civil Discovery act, it does not include the “deter repe-tition” provision of Family Code Section 2107 (c) and, as a practical matter, will not result in sanctions as great as would be available under the Family Code.

• All of the formal discovery sections specifically authorize the use of a Notice of Motion to enforce or resist formal dis-covery. While the Family Code does not specifically authorize such a motion, Feldman is authority for the use of a Notice of Motion to enforce breaches of fiduciary duties.

Formal discovery has certain advantages over informal dis-covery, one of which is famil-

iarity. Most family law practitioners have

“grown up” using formal discovery. Informal discov-ery is somewhat foreign to most practitioners. The same is true for the family law bench.

However, “the times, they are

a changin’.” When a careful analysis is

made of the advantages and disadvantages of using

informal discovery over formal discovery, it is clear that infor-mal discovery will normally be the better way to proceed.

Conclusion: Feldman has brought to the forefront the abil-ity to enforce post-separation disclosure obligations by Notice of Motion. As a result, the family law bench is educating itself on enforcement rights and obligations. The concept is still some-what foreign, but is miles ahead in the spring of 2008 from where it was in the spring of 2007. By using informal discovery and filing motions to enforce disclosure obligations, the family law practitioner will further educate the family law bench.

It won’t be long before the publication of the next post-

separation disclosure obligation enforcement case. That case will bring these issues further to the forefront. Motions for sanc-tions will be “the new wave.” This new wave will no doubt be subject to abuse; however, as with most “hot” issues, a settling in process will occur. This author predicts that by the spring of 2010, conducting informal discovery and enforcing noncompli-ance by way of a Feldman motion will be commonplace. By 2015, it will be second nature to the family law community.

When Feldman motions catch on, request for money sanc-tions will be coming fast and furious. That means that most of the family law community will face the possibility of explain-ing to a client why a §2107(c) money sanction request is being made for “something called a breach of duty.” He or she must develop an office “game plan” of not only how to demand material facts and information from the other party, but more importantly, how to make sure his or her client complies with the post-separation disclosure fiduciary duties.8

I welcome any and all comments, questions and especially constructive criticism. Please email me at [email protected].

Endnotes:

1 Stephen James Wagner is a Certified Family Law Specialist and a partner in the Sacramento law firm of Dick & Wagner, specializing in complex family law matters, including issues relating to fiduciary duties, asset characterization, tracings, business valuations, and support. Mr. Wagner entered private practice in 1975. He is a Diplomat of the American College of Family Trial Attorneys and a past member of the permanent faculty of the ABA’s eight-day Annual Family Law Trial Advocacy Institute (1999-2007). In 2006, he was selected as the Southern California Chapter of the American Acad-emy of Matrimonial Lawyers’ Family Law Person of the Year. He is a member of the Hall of Fame of the Association of Certified Family Law Specialists (2003), and has presented more than 150 CLE programs since 1980. He is a coauthor, along with Dawn Gray, of the LexisNexis publication, Complex Issues in California Family Law. They have written the series to provide the family law bar and bench with the most in-depth analysis available of complex family law issues. Each volume comprehensively addresses its topic, including its historical origin, modern application and its practical effect on the practice of family law. Each volume includes proposals for a legislative change, if deemed necessary. Existing topics include Fiduciary Duties (two volumes), Tracing, Transmutations, Equitable Apportionment (two volumes) and Business Valuation (two volumes). A volume addressing support, fees and sanctions will be released in the summer of 2008. Mr. Wagner is also a consultant to Kirkland, Lurvey, Richmond & Wagner, California Family Law Practice and Procedure, 2nd ed., California Family Law Monthly, and Denner, Kolodny & Wagner, California Family Law Litigation Guide–Strategy, Planning and Preparation for Depositions, Hearings and Trial (Matthew Bender). He formerly chaired the Family Law Section of the California State Bar (1992–1993) and is a past chair of the Sacramento County Bar Association (2000). He is also a Fellow of the American Academy of Matrimonial Lawyers and International Academy of Matrimonial Lawyers. He has been selected for each edition of Best Lawyers in America since 1987.

2 Feldman was originally issued on July 20, 2007, as an unpub-lished opinion. At the request of ACFLS and others, the court ordered the opinion published on August 8, 2007.


Most of the family law

community will face the possibility of explaining to a

client why a §2107(c) money sanc-tion request is being made for “some-

thing called a breach of duty.” He or she must develop an office “game plan” of not only how to demand material facts and information from the other party, but

more importantly, how to make sure his or her client complies

with the post-separation disclosure fiduciary

duties.


Collaborative Practice California’s Beyond the Basics:

Building on Our Core StrengthsCollaborative Practice California’s third annual

conference-celebration, Beyond the Basics: Building on Our Core Strengths is fast approaching. Join your colleagues, as well as mental health prac-titioners and financial professionals in the family law field, for this stimulating and diverse program.

The April 25–27, 2008 event will be held at the

historic Claremont Resort and Spa in Berkeley. In addition to spectacular views from this hillside hotel, high points include: two Pre-Conference Institutes to choose from, including one on divorce taxation; fourteen workshops and three plenary sessions involving a number of acfls members and other experts on topics ranging from practice in the gay and lesbian community, non-adversarial communication skills, strengthening parenting skills, spiritual values and negotiation issues.

A reception, delicious meals, and a terrific Saturday evening with a renowned Bay Area dance band round out the celebration.

For more information, contact Suzan Barrie Aiken 415-380-7900, [email protected]. Additional information and conference regis-tration will be available shortly on the CP Cal website: www.cpcal.com.

3 This author argued at the trial court level the motion for sanc-tions and fees on behalf of Mrs. Feldman. Sandra J. Morris, CFLS practicing in San Diego, was lead counsel. Mark M. Gloven, Stephen Temko (who also represented her at the appellate level) and Tamatha Clemens were also on Mrs. Feldman’s legal team. Dawn Gray, ACFLS, assisted in the preparation of the pleadings at the trial court level.

4 For an in-depth analysis of the similarities and differences between the duties set forth in the Family Code and the Corporations Code, see Volume A, Chapter A7 of Gray & Wagner, Complex Issues in California Family Law, Fiduciary Duties – Nature and Extent, Understanding Interspousal Fiduciary Duties in Current Family Law Practice.

5 As detailed in Complex Issues, supra, the legislative history of SB 716 (which amended Family Code §721(b), effective January 1, 1992) is discussed in the legislative history of SB 1936 (effective January 1, 2003). SB 1936 was passed in response to In re Marriage of Duffy (2001) 91 Cal.App.4th 923, where the Second District held that in 1991, when the legislature eliminated from the original version of SB 716 the phrase “but not limited to,” the legislature evidenced its intent not to impose a duty of care on spouses, but to limit the duty between spouses to those specified in section 721(b). The holding in Duffy does not discuss the expressed statement by the legislature that the intent of SB 716 (effective January 1, 1992) in amending 721(b) was to establish that the rights and duties inherent in a husband-wife fiduciary relationship are identical to those in nonmarital business partnerships. Nonetheless, the Legislature did make that finding.

The August 12, 2002, Senate Report on SB 1936 included the following statement

In 1991, the Legislature passed SB 716 (Roberti), providing that husbands and wives are subject to the general rules govern-ing fiduciary relationships. That bill, enacted as Family Code Section 721, established that the rights and duties inherent in a husband-wife fiduciary relationship are identical to those in nonmarital business partnerships.” Emphasis added.

6 This can often be accomplished, at least in part, by providing a balance sheet for the entity. Of course, while providing a balance sheet may satisfy the disclosure of the existence of assets and liabilities, it is highly unlikely that it will satisfy the requirement to disclose all material facts and information of such assets and liabilities, including, but certainly not limited to, such facts as the address of real estate, account numbers and the like.

7 In Volume B, Chapter B11 of Gray & Wagner, Complex Issues in California Family Law, Fiduciary Duties – A Practical Approach: Handling Fiduciary Duty Issues in the DaytoDay Practice of Family Law, the authors present a detailed analysis of the authority of the ability to enforce a breach of duty by motion pre-Feldman.

8 Volume B, Chapter B10 of Gray & Wagner, Complex Issues in California Family Law, Fiduciary Duties – A Practical Approach: Handling Fiduciary Duty Issues in the DaytoDay Practice of Family Law, provides a sample “game plan,” including sample forms and letters in the appendix. ■


Welcome to Our New MembersAdrienne LiebmanBennett & Erdman5670 Wilshire Blvd., Suite 1400Los Angeles, CA 90036(323) [email protected]

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The Public Policy Behind All Family Code Disclosure Requirements

(1) To marshal, preserve, and protect community and quasi-community assets and liabilities that exist at the date of separation so as to avoid dissipation of the community estate before distribution

(2) To ensure fair and sufficient child and spousal support awards, and

(3) To achieve a division of community and quasi-community assets and liabilities on the dissolution or nullity of marriage or legal separation of the parties as provided under California law.

(4) To reduce the adversarial nature of marital dissolution and the attendant costs by foster-ing full disclosure and cooperative discovery.

“In order to promote this public policy, a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a pro-ceeding for dissolution of marriage or legal sepa-ration of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the par-ties. Moreover, each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and com-plete knowledge of the relevant underlying facts.”

I just have to be honest. I think Dec-larations of Disclosure are a hassle and my life was a lot more enjoyable before it became mandatory to exchange them over and over again. I knew these were my feeling immediately and the tasks surrounding the Declarations of Dis-closure at once joined the ranks of my other dreaded activities, such as writ-ing CYA letters, going through the eight garbage bags full of documents assem-bled by my devastated client and her three best friends, making calls to cli-ents asking them to pay my outstanding bill, arguing over minutiae like whether the drop-off for visitation should be at 7:30 or 7:45 and defending a deposition where the main topic is every check a party has written over the last five years.

The whole disclosure morass clev-erly distracts us by directing our focus onto the dreaded forms, when really the hassle of the forms is just the superficial, candy coating on the outside of a messy, multi-layered mélange of liability for our clients and ourselves. I keep myself awake at night going around and around about things like whether or not my cli-ent’s discovery of an inexpensive gas sta-tion near the family residence should be disclosed as a community opportunity. Did I sufficiently inspire fear in the heart of that client who seemed disinclined to list every single kitchen utensil on her Declaration of Disclosure? Couldn’t one argue that my client’s decision to go with satellite instead of cable during the mar-riage was a breach of his fiduciary duty?

What about my own life? There are tons of little papers, decisions and thoughts I have that I do not explicitly discuss with my husband. How can I tell this kind, trusting man how I have wronged him? If I cannot live up to the standard of a fiduciary or a prudent

investor, knowing all that I do, how can I begin to expect my clients to do so, espe-cially when they never had one clue that this was expected of them during their marriage? Then again, what kind of fool commingles community and separate property during a loving marriage? Once a person has made the mistake of living his or her life forgetting that the bitter end of their marriage is inevitable, how can any sympathy be expected from us? Then we are supposed to figure out whether their living life, writing checks and having conversations in the kitchen heinously violated their fiduciary duties or accidentally fulfilled them. It’s too much.

Maybe my real problem with all of this is that it is so frustrating to me that all of us – attorneys, the legislature and the courts – keep trying to make things

more fair, more efficient and more com-plete, but our efforts seem to result in only making things more complicated and more expensive. Certainly none of us disagrees with the premise that par-ties ought to disclose all relevant infor-mation about the community estate to the other, but have the disclosure forms and statutes really increased the amount of disclosure? Sometimes I think that the disclosure statutes have made no difference at all, just like I do not believe that good faith statutes lead to good faith or evidence statutes lead to better evidence or rules about civil-ity between lawyers lead to civility. To the extent that our system works, in the end it is not the legislation that makes people disclose or act in good faith or behave in a civil manner. It is the indi-viduals that are part of the system who believe in disclosure and good faith and civility and act accordingly.

On the other hand, we sure do think about disclosure a lot more than we used to and that thinking has translated into more and clearer discussions with our clients and with each other. The vast majority of us have always had the good sense and integrity to understand how to advise our clients to behave in a way that will result in as solid a result as possible, and we do not need statutes or legislation to make sure that we act and advise our clients appropriately. However, anything that makes us think through our clients’ obligations to each other and our obligations to our clients probably makes it all work better, and that is really what we all want.

Oops, I just remembered that I didn’t tell my husband about that $4.00 I gave to the homeless guy in front of the court-house yesterday. I better go do that or I’ll forget. ■

DISCLOSUREHeidi S. Tuffias, j.d., cfls

Brentwood (Los Angeles)

[email protected] www.familylawsolutions.com

Heidi Tuffias has been a Certified Family Law Specialist since 1995.

She practices in Brentwood. Heidi enjoys all aspects of family law

and intends to be a family lawyer for a long time.



Membership ApplicationLynn Pfeifer, acfls Executive Director

15 Corrillo Drive, San Rafael, CA 94903-3902Membership applications should be mailed to the acfls Executive Director at the above address. Please complete the following information and enclose your check payable to acfls as follows:

$250 for single membership; $175 for each subsequent membership from the same firm.

Firm: _________________________________________________________ Name: ________________________________________________________

Address: _______________________________________________________ City/State/Zip: __________________________________________________

Telephone: _____________________________________________________ Fax: __________________________________________________________

Email: ________________________________________________________ Web Site: ______________________________________________________

Date Certified by BLS: ____________________________________________ SBN: _________________________________________________________

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Lynn Pfeifer, acfls Executive Director 15 Corrillo DriveSan Rafael, CA 94903-3902

NEWSLETTER

2008 Board of DirectorsPresident Sharon A. Bryan Moore Bryan & Schroff21515 Hawthorne Blvd., Suite 490Torrance, CA 90503 310-540-8855Fax: 310-316-1307 [email protected]: Joseph J. Bell Law Office of Joseph J. Bell350 Crown Point Cir., Suite 250Grass Valley, CA 95945 530-272-7477Fax: 530-272-7340 [email protected]: Michael B. Samuels 1120 Nye St., Suite 250San Rafael, CA 94901415-258-9064Fax: 415-258-9074 [email protected]: Robert J. Friedman Law Offices of Robert J. Friedman9454 Wilshire Blvd., Suite 500Beverly Hills, CA 90212 310-273-2959Fax: 310-273-2855 [email protected]

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Central California Chair:David J. BorgesBorges Law Corp.350 Castaic Ave.Shell Beach, CA [email protected] Coordinator: Caralisa P. Hughes510 N. 3rd St.San Jose, CA 95112408-289-8400Fax: [email protected] Coordinator:Carol DelzerFamily Law Center, APC1722 Professional Dr.Sacramento, CA 95825916-649-0555Fax: [email protected] President: H. Vincent Jacobs Hiroshima Jacobs Roth

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