The Gambling Spouse

From the incessantly advertised fantasy football websites, to online gaming and poker sites, to the lottery, to Indian casinos, and to Las Vegas, providing people with the opportunities to gamble are as widespread throughout society as they have ever been. Many, if not most, people can participate in gambling on a recreational basis. However, there are some people that just don’t know when to fold, when to give up, when to put their wallets away. Before they know it, they are not just gambling away their money, but gambling away their own family’s financial well-being. Some will gamble just their pay check, which is bad enough. Others are willing to dig deeper to “win bigger”, including family fortunes. children’s trust funds and savings accounts. When it comes to Family Law, gambling can carry serious consequences that can greatly affect all the parties involved.

When parties get a divorce, and gambling was a marital issue (shockingly, usually for the detriment), the non-gambling spouse will usually communicate to the court that the gambling spouse gambled away community property funds, and that she now is part of this debt that can be attributed solely to gambling. Believe it or not, the non-gambling spouse usually does not want to have to pay the gambling spouses debts. As a matter of course, all assets and debts that are incurred during marriage are community property. This is the rule per the Family Code, however, that doesn’t mean that there are not exceptions. 

Under Family Code §2625, one particular exception can be found. This exception to the general rule states that:

 

“All separate debts, including those debts incurred by a spouse during marriage and before the date of separation that were not incurred for the benefit of the community, shall be confirmed without offset to the spouse who incurred the debt.” 

 

This exception to the general rule is a notable one, because California is a no-fault state. It usually does not matter what a spouse did or did not do. The judge will not take into account the specific facts on what got the parties there or, more importantly to many clients, “why” they are where they are. You’re there. That’s all that matters to the California Courts. However, with the above exception, the Family Code provides the Court with the power to assign the gambling debts of the community solely to the gambling spouse. Thus, the court would be making a division of the marital assets and debts based on fault, and not equality.

 

FIDUCIARY DUTY OF SPOUSES 

The Family Code is forged in what courts believe to be sound public policy. There is probably no other area of law that is more sensitive to the law and public policy, and, specifically, wanting the most equitable result for all the parties involved. The relationship between the law and society’s interest is a reflection of the role that spouses have in their significant other lives and the integral interest society has in those roles. This interest is a direct reflection on how family law is developed. There is no better demonstration of this then the fact that family law orders can preempt even criminal orders in the court of law. 

Because of this, the courts do no not mess around when it comes to the obligations and mutual respect of two people that are married. This inherent governance of morality is expressly stated in Family Code §721(b):

“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.”

            A spouse that tries and take advantage of the other spouse financially in any way, whether it is misappropriating community funds or the nondisclosure of assets, usually find out that was a very big mistake. These actions are contrary to the very foundations of family law.

 

FELDMAN 

As elaborated above, courts do not take kindly to dishonesty, especially to your spouse.

Being consistent with the policy, the courts passed a bill that is now Family Code § 2100. This section states:

“(a) 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 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.  

(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 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. 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 complete knowledge of the relevant underlying facts.” 

In summary, public policy favors non-adversarial marital dissolutions, for the parties to cooperate as much as possible, and to immediately and accurately disclose all information. As such, the nondisclosure of assets certainly qualifies as dishonesty, which can carry severe penalties. Just ask Aaron Feldman. He found out the consequences of his non-disclosure and breach of fiduciary duty to his wife in his dissolution action. (See Marriage of FELDMAN [(2007) 153 Cal.App.4th 1470]).

Traditionally, before Family Code § 2100, a spouse that did not have access to the material and financial items during the marriage had the right to inquire about all the material assets that that was they knew about, and the knowledgeable spouse had to disclose the information that was requested. This would put the spouse with all the financial access at a very advantageous position. It was very easy to disclose only what they wanted, and the less-knowledgeable spouse would be at their mercy.

            In Feldman, husband Aaron did not disclose many assets, including real estate, businesses, and other financial transactions. His spouse, Elena, through further diligent discovery learned of all these nondisclosures. It was clear Aaron willfully showed a pattern of non-compliance. Elena then filed an application for an order for imposition of monetary sanctions for his willful breach of fiduciary duty, and a to pay her attorney’s fees. And we know what family courts think of the fiduciary duty between spouses. 

            The trial court granted these motions and on appeal, the Appellate Court affirmed the trial court’s granting of these. Elena was awarded $250,000 in sanctions against Aaron for his breach of his fiduciary duty, and an additional $140,000 in attorney’s fees. All told, Aaron had to shell out $390,000 to Elena for his lack of good faith and fair dealing.

            The interesting fact here in Feldman was that these sanctions were not ordered under the Code of Civil Procedure, but under Family Code §271(a), which is the part of the Family Code that deals with breaches of fiduciary duty. 

Going back to the beginning, Family Code §271(a), as made clear in Feldman, will be used against the breaching party when their conduct frustrates the purpose of public policy. By incorporating Feldman, family courts are again resting on their bedrock principles of equity, which also goes back to the important role in the Court’s eyes that a family plays in society.

Moral of the story is to be truthful regarding finances to your spouse (before and after filing for dissolution), as well as the courts. The penalty for this can extreme.

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