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Failure to Disclose Assets in Divorce Cases

Failure to Disclose Assets in Divorce Cases

Posted on September 10th, 2013

SANCTIONS FOR NON-DISCLOSURE OF SEPARATE AND COMMUNITY PROPERTY DURING DISSOLUTION

In the recent case of In re Marriage of Simmons, 215 Cal.App.4th (2013), the court interpreted Family Code § 1101, subsections (g) and (h). According to the statute, one party is entitled to sanctions in the event the other party fails to disclose assets. Under subsection (g), the aggrieved party is entitled to receive one half the value of the undisclosed asset, and under subsection (h), he or she would be entitled to the entire value of the undisclosed asset. The court here determined that the sanctions in this section pertain only to undisclosed community property assets, and not undisclosed separate property assets.

In this case, husband and wife separated after less than two years of marriage. In the husband’s income and expense declaration, he failed to report the balance of his separate property savings account. The wife later found out husband had $245,000 in the account when she obtained the bank statement. Relying on § 1101 (h), the trial court found that the wife was entitled to the full balance of the account as a sanction for nondisclosure. The husband appealed the decision, claiming the statute was only applicable to community property assets.

The California Court of Appeal agreed with the husband, and interpreted § 1101 (h) by considering the intent of the legislature. Since the statute is placed in a section of the code dealing specifically with community property, and because there are other sections of the code providing remedies for nondisclosure of separate property, the court finds the legislature’s intent was to have the statute apply to community property assets only.

This case affects what a party can obtain in the event the other spouse hides assets. The aggrieved party can only be awarded sanctions totaling half or the full value of the asset if it is community property. If the undisclosed property is separate property, the court may only award the aggrieved party sanctions in an amount sufficient to deter repetition of the conduct. Depending on the value of the asset, this difference might be significant.