Thursday, April 30, 2009


Donald F. Conviser, a Certified Family Law Specialist, owner of Warner Center Law Offices in Woodland Hills in the San Fernando Valley, serving family law and divorce clients in the Courts of Los Angeles and Ventura County, 818-880-8990, writes:

Divorces used to be sporting events where, if you could find the asset, you get your share; if you could find the income, you get your spousal support and/or child support. Now, there are significant penalties for nondisclosure, as Aaron Feldman so sorely learned. Read on ...

In 1993, the legislature, in its wisdom, passed a bill now codified as Family Code Section 2100, et seq., declaring, among other things:

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

2. 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 divorce or separation, regardless of characterization as separate or community, together with a disclosure of all income and expenses of the parties.

3. 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 isues, each party will have a full and complete knowledge of the relevant underlying facts.

Some parties going through a divorce may be tempted to conceal income or assets. Those parties are penny wise and pound foolish. This article demonstrates why parties should resist the temptation and disclose, and what could happen to a party who conceals.

Marriage of FELDMAN (2007) 153 Cal.App.4th 1470 provides good reasons [390,000 of them] to resist that temptation. Aaron failed to disclose several assets and financial transactions in his Declarations of Disclosure; Elena learned of them through subsequent discovery, including her stumbling on Aaron's acquisition of a home through a deposition of an employee of one of the community businesses, on a 401K plan of Aaron at his deposition, and on theretofore undisclosed businesses through subsequently produced organizational charts.

During the divorce proceedings, Elena filed an application for an order for (1) imposition of monetary sanctions against Aaron for a violation of his fiduciary duty to make financial disclosures to her during the proceedings, and 2) imposition of monetary sanctions requiring Aaron to pay her attorney's fees, based on Family Code sections 1101(g), 2107(c), and 271(a).

The Appellate Court affirmed the trial Court's granting of Elena's Motion awarding Elena $250,000 in sanctions for breach of fiducary duty and $140,000 in attorney's fees.

The Appellate Court addressed the fiduciary duties that parties owe to each other as codified in Family Code section 721(b), stating that their confidential relationship imposes a duty of highest good faith and fair dealing, and that neither shall take unfair advantage of the other. The Court also addressed Family Code section 1100(e), requiring that such 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 assets in which the community has or may have an interest and debts for which the community may be liable, until such time as the assets have been divided by the parties or the Court.

Of significance in the Feldman opinion is that it states that no injury to the other party is required for the trial court to impose sanctions. Family Code section 2107(c) mandates the imposition of sanctions against the party who fails to comply with the disclosure requirements in an amount sufficient to deter repetition of the conduct or comparable conduct, including attorney's fees. That statute does not require that before seeking sanctions for nondisclosure that a party seek further disclosure or bring a motion to compel further responses or preclude evidence. If a party's disclosures fail to meet the statutory requirements for full, accurate and complete disclosure, Feldman shows us the penalty for the risk that the party is taking.

Family Code section 271(a) authorizes the imposition of monetary sanctions against a party to pay attorney's fees and costs when the conduct of the party or his/her attorney frustrates the policy of the law to promote settlement and reduce the cost of litigation by encouraging cooperation.

The lesson: Disclose, fully, as required. Don't conceal; the penalty is designed to deter concealment.

1 comment:

Gary Fong, Author said...

This just published: as far as I know, this is the first Feldman Sanction that has been overturned. I was the appellant facing a $300,000 sanction that opposing party, via her attorney Barbara K. Hammers of Hammers & Baltazar got in lower court, awarded by Commissioner Glenda Veasey. The appeals court overturned it because the plaintiff did not herself comply with her own discovery compliance by not filing a final declaration of disclosure. It's remarkable because the filing of a simple FL-140 and FL-142 form would have changed radically this outcome. This decision got published: