During a dissolution of marriage, financial management is essential to avoiding court imposed sanctions. Parties to a dissolution are required to preserve assets until the court has determined respective interests. At times however, some expenses cannot be postponed until after distribution of the marital assets. There are nevertheless methods that may help a litigant obtain liquidity.
To Prevent Spending
Remind opposing counsel of spousal fiduciary duties. A court may divide community property before trial only in limited circumstances. Upon initiation of dissolution proceedings and before final judgment, Family Code Section 2040 restraining orders prohibit parties from transferring or disposing of property except in the usual course of business or for the necessities of life, without an order of the court or written consent of the other party. Spouses are fiduciaries concerning the management and control of assets. Failing to abide by Section 2040 may be a breach of fiduciary duty claim.
Bring an ex parte request for temporary restraining orders. A party may move for orders enforcing the restraints of Section 2040. As provided in Family Code Section 2045, the court may issue an order restraining any person from transferring or disposing of specific property. To obtain such an order, you will need to show an immediate danger that assets may be lost.
Specific requests for orders concerning third parties. The court’s power to restrain property transfers is not confined to spouses. Pursuant to Family Code Section 2045, the court may issue orders against third persons to enjoin seizure of community property by a judgment creditor. The court may also protect against dissipation of a claimed community interest in a business entity. The California Rules of Court authorize a direct injunction against a third person who is acting as a trustee, agent, custodian, or similar fiduciary with respect to property subject to the marital action.
Utilize the adverse claim procedure to freeze accounts. Under Financial Code Section 1450, accounts may be frozen to prevent dissipation of assets. Banks must freeze specified accounts when an adverse claimant delivers to the bank an affidavit, based on personal knowledge, stating that the account holder is a fiduciary; the adverse claimant has reason to believe the fiduciary will misappropriate the property; and reciting specific facts upon which the adverse claims are founded.
To Obtain Liquidity
Show that prompt liquidation of an asset avoids loss of value. A court may order the liquidation of community assets to avoid unreasonable market or investment risks. Family Code Section 2108 provides that, at any time during the proceeding, the court has authority, on application of a party and for good cause, to order the liquidation of assets so as to avoid unreasonable market or investment risks.
Conduct a mini-trial to determine the nature of an asset. A court may conduct a hearing limited to a decision about the community or separate character of an asset, and the existence of other community assets sufficient to offset any loss the objecting spouse might incur from liquidation and distribution. Lee v. Superior Court, (1976) 63 Cal. App. 3d 705 (1976).
Provide security to protect the objecting party. Similarly, the court in Lee explained that a trial court could, with appropriate safeguards, order one potential community asset be sold and distributed when warranted. A trial court may order the sale of an asset without making factual determinations beyond the value of the asset, provided it requires security sufficient to protect the objecting spouse. A mini-trial may be avoided if security protects the other spouse’s potential interest in the property.
Ask the court to exercise its discretion. Family Code Sections 2010 and 2550 provide courts broad authority to make any orders necessary to achieve an equal allocation of marital property. Pursuant to the California Rules of Court, any suitable process or mode of proceeding may be adopted by the court that is consistent with the spirit of the Family Code and the Rules. A trial court has jurisdiction to inquire into and make orders that are appropriate concerning settlement of property rights. Glade v. Glade, 38 Cal. App. 4th 1441 (1995). Use these sections, together with Lee and Glade, to remind the court of its broad discretion concerning financial matters.
Reach an Agreement
A court must enforce a valid, reasonable financial agreement. One may reduce anxieties, improve trust, and move the case towards settlement by stipulating to a budget or a distribution for specific purposes.
Dissolutions are painful. Measures should be taken to ensure financial surprises are avoided. Communicate effectively. The court will look favorably at good faith efforts to reduce the adversarial nature of most dissolutions.
James Giacchetti is a trial lawyer at McManis Faulkner. His practice involves a wide range of legal areas, including family law, civil rights, administrative law, and criminal defense.