California Appellate Lawyer Blog

"It's the bad economy" has become the all-too-frequent, yet mostly accurate, cry heard when a party is called upon to explain the decrease, or even total loss, in value of a disputed asset. In litigation over community assets in a marital dissolution, this explanation may not suffice, as is emphasized in the recent California Court of Appeal, Fourth Appellate District (Division 3) case of Marriage of Margulis (modification filed Sept. 9, 2011) 2011 DJDAR 13821.

The evidence at trial showed that Elaine Margulis, as the non-managing spouse, had no personal knowledge of the extent of the community property at the time of her separation from Alan Margulis. Evidently, Alan as the spouse who managed the community assets, had at one time prepared a list of assets and their approximate values (investment funds purportedly totaling $787,000). Elaine offered this document into evidence to show that substantial community assets under Allen's control had disappeared between separation and trial. While the trial court admitted this document into evidence, it gave this evidence little or no weight. The court thus found that Elaine had failed to carry her burden of proving the values of these investment account assets.

The Court of Appeal disagreed. It found that the evidence introduced by Elaine satisfied her initial burden of showing that Alan controlled community assets of a certain value. The statutory fiduciary duties of disclosure and accounting effectively shifted the burden to Alan to rebut the presumption charging him with the assets listed in this evidence which constituted prima facie evidence of the values stated. (See California Family Code section 721, subdivision (b).) This statute requires the managing spouse to furnish information to the other spouse concerning the disposition of community assets. The trial court here failed to require Alan to trace the missing money to proper expenditures to determine whether he had taken unfair advantaged of her.

While the trial court did find that Alan neglected to maintain proper records, it failed to consider whether Alan had breached additional fiduciary duties that would have allowed Elaine to recover damages under Family Code section 1101, subdivisions (g) and (h) for assets undisclosed or transferred in breach of fiduciary duty.

So it is not enough for a managing spouse to simply say I lost all of that money on bad investments or the investments were victims of the bad economy. The spouse must keep good records of changes in values and details of disposition or else be charged with their prima facie value.