Mismanagement of Community Assets and the Duty of Full Disclosure Upon Request

Mismanagement of community assets by one spouse alone, entitles the other to reimbursement and an accounting. The other spouse can enforce this remedy even during marriage under Family Code § 1101.

Family Code § 1101 addresses the problem of mismanagement of community property assets during marriage by setting interspousal disclosure and accounting rules. The spouse who has the primary management and control of a community business “may act alone in all transactions, but shall give prior written notice to the other spouse of any sale, lease, exchange, encumbrance or other disposition of all or substantially all of the personal property used in the operation of the business”.

In so far as the duty to act in good faith, the managing spouse has the duty to make full disclosure, upon request, of community property assets and liabilities. Family Code, section 1101(a) provides a remedy during marriage “for breach of the duty imposed by Family Code §§ 1100 or 1102 that results in a substantial impairment to the claimant spouse's present undivided one-half interest in the community estate”. An action under 1101(a) may be brought without filing a petition for dissolution, legal separation, or nullity [Family Code § 1101(f)], but must be brought during marriage “within three years of the date a petitioning spouse had actual knowledge that the transaction or event for which the remedy is being sought occurred” [Family Code § 1101(d)(1)]. An action may also be brought in conjunction with a dissolution, legal separation, or nullity proceeding, or upon the death of a spouse, without regard to the time limits specified in Family Code § 1101(d)(1).

The duty of good faith dealings, with accompanying obligations of accounting and disclosure, continue after separation until the marital property is finally divided. Family Code § 1100(d).