Failing to Disclose Financial Dealings During Divorce May Cost You

                                        

In a recent case, divorce case in California, a  man was ordered to pay his wife nearly $400,000 for failing to update and immediately disclose changes in his financial status during their divorce proceedings.

After 34 years of marriage, the couple separated and dissolution proceedings ensued. The husband, who reported an estimated net worth in excess of $50 million, failed to disclose several significant transactions, including a 1 million dollar bond and a 5 million dollar residence, as well as the formation of various new companies. Despite numerous formal requests for an accounting by the wife, the husband intentionally omitted the transactions from court filings, claiming that because of his vast wealth, the acquisitions were not material. After learning of his dealings, the wife filed a motion for sanctions and the husband was eventually ordered to pay her $140,000 in fees and $250,000 in sanctions.

The husband appealed the decision, arguing that the transactions were made “in the ordinary course of business” and thus, he had no duty to disclose. The Court of Appeal disagreed and the ruling was affirmed.In determining whether the transactions were “material” the court found that although the total dollar amount of the undisclosed assets was significant in view of his wealth, the husband’s actions demonstrated a pattern of nondisclosure and therefore sanctions were appropriate.

In rendering its decision, the court sent a powerful message that material changes in one’s financial dealings must be disclosed promptly and accurately and the failure to do so violates a fiduciary duty which may result in substantial monetary sanctions.