Community Property Transactions Between Spouses: Heightened Duties and the Presumption of Undue Infuence

COMMUNITY PROPERTY TRANSACTIONS BETWEEN SPOUSES: HEIGHTENED DUTIES AND THE PRESUMPTION OF UNDUE INFLUENCE

California law on the nature of spouses' rights and obligations with respect to management and control of community property has evolved over the last thirty years from less stringent “good faith” standards to heightened “confidential duty” and “fiduciary duty’ standards. Under current law, the duties owed between spouses in transactions between themselves are the same highest duties owed by parties to a fiduciary relationship.

The heightened standard with regard to transactions between spouses is codified inFamily Code Sec. 721(b). The section provides that “in transactions between themselves, a husband and wife are subject to the general rules governing 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.”

Incidental to this fiduciary relationship is a rebuttable presumption of undue influence when one spouse obtains an advantage over the other in a community property transaction--i.e. when one spouse improves his/her position, obtains a favorable opportunity, or otherwise gains, benefits or profits in a community property transaction to the exclusion of the other. Marriage of Haines (1995) 33 CA4th 277, 297, 39 CR2d 673, 686. This presumption arises in connection with any interspousal property transaction in which one spouse obtained an advantage over the other. It is important to note that the presumption arises even if the transaction at issue did not result from fraud, deceit or coercion. Marriage of Mathews (2005) 133 CA4th 624, 629-630, 35 CR3d 1, 4.

The spouse favored by such a transaction has the burden of rebutting the presumption of undue influence. To rebut the presumption, he/she must show that the other spouse entered into the transaction freely and voluntarily, with full knowledge of all the facts, and with a complete understanding of its effect. Marriage of Delaney (2003) 111 CA4th 991, 996-997, 4 CR3d 378, 382. If the spouse who benefited from the transaction fails to demonstrate the foregoing, the transaction may be ignored. For example, if a husband executes a quitclaim deed in favor of his wife that would have the effect of changing the character of the property from community to his wife’s separate property, and his wife fails to overcome the presumption, the court can set aside the deed.

Each spouse’s fiduciary obligations toward the other spouse under Family Code Sec. 721(b) continue after separation in anticipation of dissolution, nullity or legal separation until the date of distribution of the community asset or liability in question. Family Code Sec. 2102(a) and (b). Accordingly, if you have made an interspousal transaction benefiting your spouse during that time, it is advised that you consult with an experienced attorney to determine what avenues of relief you may take to set aside the transaction.

Please note that this article is not legal advice and is not intended as legal advice. The article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This article does not create any attorney-client relationship between you and the Law Offices of Kenneth U. Reyes, P.C. This article is not a solicitation.

Attorney Kenneth Ursua Reyes is a Board Certified Family Law Specialist. He was President of the Philippine American Bar Association. He is a member of both the Family law section and Immigration law section of the Los Angeles County Bar Association. He is a graduate of Southwestern University Law School in Los Angeles and California State University, San Bernardino School of Business Administration. He has extensive former CPA experience prior to law practice. LAW OFFICES OF KENNETH REYES, P.C. is located at 3699 Wilshire Blvd., Suite 700, Los Angeles, CA, 90010. Tel. (213) 388-1611 or e-mail kureyeslaw@gmail.com or visit our website at Kenreyeslaw.com