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Financial DisclosureToday, marriage can be as much a business contract as it is a love relationship. In the case of fiduciary duties, what couples do and don’t do matters.
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It's a bad idea to hide your money and not disclose it to your spouse. |
Many spouses may be startled to know they could be saddled with their spouse’s hidden credit card debt or lose their secret savings account if not disclosed to the other. Spouses keep these financial secrets from one another for a variety of reasons, including control, insecurity and punishment. Yet, no matter how one rationalizes their conduct, husbands and wives may find themselves in the midst of legal problems even if they are not getting a divorce. The reality is that disclosure begets trust, nondisclosure leads to mistrust and often results in divorce.
Fiduciary duties arise out of the very act of getting married. Saying "I do" creates a legal relationship between married couples, which includes the right and duty to be forthright and honest with each other in all financial dealings affecting either spouse. It also requires spouses to act in the best interest of the couple as whole, and not merely of self.
For example, if a spouse makes an investment using separate property rather than marital property, especially a winning investment, questions may arise concerning the choice not to invest joint funds. In fact, the duty to fully disclose financial transactions includes both, marital and separate property income, expenses, assets, liabilities and investment opportunities.
In California, community property laws view marriage as a partnership; and just as partners in a business have rights and duties to one another, so do those in marital ones. These include the right to have access and the duty to make available books concerning a financial transaction and when asked to make available true information concerning the parties’ marital assets and debts and all transactions which could affect it. One partner does not have a greater right to these records than the other.
In essence, California law mandates frank communication about finances. Couples can no longer afford to avoid difficult conversations about money. Conflicts over money hold firm at the top of the list of issues contributing to divorce. Whether candid discussions of finances are uncomfortable now or hashed out with attorneys during divorce, full disclosure must be made at some point. Since the fiduciary obligations that arise out of marriage are both rights and duties, each partner should assert his/her own rights to complete understanding of the couple’s finances—sooner rather than later.
All too often, one partner handles the finances, while the other partner abdicates his or her obligation to share in that responsibility. This lack of interest often results in ignorance about shared property and/or debt. While deferring financial dealings to one spouse or the other may not seem like a problem to either party at the time, there can be consequences. Either party can act on behalf of the couple in what is called "equal management and control," but if one acts to the detriment of the couple in order to benefit his/herself, they may have breached their fiduciary duty to the other.
Information that is relevant, important, and affects the other spouse should always be shared in a marital relationship, prompting the question, why would material information be treated differently? Ultimately, the ability and full willingness to disclose financial information is about communication between parties. However, where spouses make agreements when one is without an adequate understanding of the financial facts, the agreement itself is often perceived as a control issue, and it falls apart. The essence of a successful agreement is both parties recognizing the benefit each receives from the other. This takes communication.
To those who might be uncomfortable laying all assets and debts on the table, one thing should be understood and its an ugly truth: whether parted by death or divorce, all relationships ultimately end. In either situation, everyone benefits from there having been open communication within the relationship. So why not talk about it now?
Fiduciary duty holds husbands and wives to a high standard of accountability. At its core, fiduciary duties are about accountability. This body of law in the context of marriages was legislated in order to assure that couples make informed financial decisions and has leveled the playing field for both husbands and wives; and while most couples aren’t looking at legal rights and obligations during marriage, it is irresponsible not to. All things financial—including life, medical and liability insurances, estate planning, taxes, investments, savings and what is done with separate property—have an impact on the community. Therefore, both parties should have input and be informed about all financial decisions made.
A common instance in which many couples find themselves getting into trouble occurs during the home buying process. This is especially applicable in situations where one party has better credit than the other, and a lower interest rate is charged, when the mortgage is in the name of party with better credit. In these cases, the party without the liability is required to sign a Quit Claim Deed in order to close escrow. The expedience of the transaction, instead of an informed decision considering its legal consequences, can result in a loss of significant rights to, and interest in, that property.
When making financial decisions, it is important that couples don’t get tunnel vision with their focus on the end goal, and therefore neglect the potential consequences of their actions and inactions. The legal consequences of every financial choice should involve adequate and fair information to both parties. A few tips for successful adherence to the fiduciary duty are listed below:
Violet P. Woodhouse is a trial attorney, public speaker, best selling author of "Divorce and Money: How To Make The Best Financial Decisions During Divorce" (currently published in its eighth edition), media consultant and national authority on the legal and financial aspects of divorce. She has been named one of the nation’s top 200 financial planners by Worth Magazine for several consecutive years. Woodhouse provides clients with specialized legal representation from Violet P. Woodhouse, a Professional Corporation, located in Newport Beach, Calif. For more information, please visit www.violetwoodhouse.com.
Fiduciary duties arise out of the very act of getting married. Saying "I do" creates a legal relationship between married couples, which includes the right and duty to be forthright and honest with each other in all financial dealings affecting either spouse. It also requires spouses to act in the best interest of the couple as whole, and not merely of self.
For example, if a spouse makes an investment using separate property rather than marital property, especially a winning investment, questions may arise concerning the choice not to invest joint funds. In fact, the duty to fully disclose financial transactions includes both, marital and separate property income, expenses, assets, liabilities and investment opportunities.
In California, community property laws view marriage as a partnership; and just as partners in a business have rights and duties to one another, so do those in marital ones. These include the right to have access and the duty to make available books concerning a financial transaction and when asked to make available true information concerning the parties’ marital assets and debts and all transactions which could affect it. One partner does not have a greater right to these records than the other.
In essence, California law mandates frank communication about finances. Couples can no longer afford to avoid difficult conversations about money. Conflicts over money hold firm at the top of the list of issues contributing to divorce. Whether candid discussions of finances are uncomfortable now or hashed out with attorneys during divorce, full disclosure must be made at some point. Since the fiduciary obligations that arise out of marriage are both rights and duties, each partner should assert his/her own rights to complete understanding of the couple’s finances—sooner rather than later.
All too often, one partner handles the finances, while the other partner abdicates his or her obligation to share in that responsibility. This lack of interest often results in ignorance about shared property and/or debt. While deferring financial dealings to one spouse or the other may not seem like a problem to either party at the time, there can be consequences. Either party can act on behalf of the couple in what is called "equal management and control," but if one acts to the detriment of the couple in order to benefit his/herself, they may have breached their fiduciary duty to the other.
Information that is relevant, important, and affects the other spouse should always be shared in a marital relationship, prompting the question, why would material information be treated differently? Ultimately, the ability and full willingness to disclose financial information is about communication between parties. However, where spouses make agreements when one is without an adequate understanding of the financial facts, the agreement itself is often perceived as a control issue, and it falls apart. The essence of a successful agreement is both parties recognizing the benefit each receives from the other. This takes communication.
To those who might be uncomfortable laying all assets and debts on the table, one thing should be understood and its an ugly truth: whether parted by death or divorce, all relationships ultimately end. In either situation, everyone benefits from there having been open communication within the relationship. So why not talk about it now?
Fiduciary duty holds husbands and wives to a high standard of accountability. At its core, fiduciary duties are about accountability. This body of law in the context of marriages was legislated in order to assure that couples make informed financial decisions and has leveled the playing field for both husbands and wives; and while most couples aren’t looking at legal rights and obligations during marriage, it is irresponsible not to. All things financial—including life, medical and liability insurances, estate planning, taxes, investments, savings and what is done with separate property—have an impact on the community. Therefore, both parties should have input and be informed about all financial decisions made.
A common instance in which many couples find themselves getting into trouble occurs during the home buying process. This is especially applicable in situations where one party has better credit than the other, and a lower interest rate is charged, when the mortgage is in the name of party with better credit. In these cases, the party without the liability is required to sign a Quit Claim Deed in order to close escrow. The expedience of the transaction, instead of an informed decision considering its legal consequences, can result in a loss of significant rights to, and interest in, that property.
When making financial decisions, it is important that couples don’t get tunnel vision with their focus on the end goal, and therefore neglect the potential consequences of their actions and inactions. The legal consequences of every financial choice should involve adequate and fair information to both parties. A few tips for successful adherence to the fiduciary duty are listed below:
- Talk about money. A sort of "state of the union" meeting should occur monthly, quarterly, or at least annually—perhaps over anniversaries. Experts agree that communication is the key to a successful relationship, and this extends to conversations regarding financial issues as well.
- Consider creating a balance sheet. Useful at all times, not just when entering a prenuptial agreement or filing for divorce’ these documents can be a blessing in disguise for happily married couples. Ensuring above-board dealings as they pertain to fiduciary duties and providing proof of full disclosure if later problems should arise, these documents also spark the kind of honest dialogue that is important to any relationship.
- Don’t take a backseat in financial dealings. No savvy businessperson ever relinquishes complete control of something as important as financial decision-making. While it may seem easier to let the spouse who is "better with numbers" handle the finances, spouses should remember that marriage is a business partnership, requiring the participation of both spouses in financial decision-making.
- Don’t feather your own nest. Hiding money can spell disaster when secret accounts are exposed during the discovery process of divorce, whether out of greed, or the thought that it may seem prudent to have funds stashed away "just in case." All assets in a marriage, whether controlled by one or both parties, must be disclosed. Failure to do so in divorce can result in substantial penalties, including sanctions and the loss of the entire asset that might otherwise have been equally divided.
- Don’t hide debts. Carried as secrets from the other spouse, one party often accrues large credit card debt. This debt affects the community’s ability to borrow money. However, married couples have an express legal duty to disclose all assets and liabilities to the other party, regardless of whether the asset or debt is considered separately owned. This includes debts accrued by only one spouse. Unless established legally by agreement, there is no such thing as your credit card debt is yours, and mine is mine.
Violet P. Woodhouse is a trial attorney, public speaker, best selling author of "Divorce and Money: How To Make The Best Financial Decisions During Divorce" (currently published in its eighth edition), media consultant and national authority on the legal and financial aspects of divorce. She has been named one of the nation’s top 200 financial planners by Worth Magazine for several consecutive years. Woodhouse provides clients with specialized legal representation from Violet P. Woodhouse, a Professional Corporation, located in Newport Beach, Calif. For more information, please visit www.violetwoodhouse.com.
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