Wednesday, November 26, 2014

Moving On
Fiduciary Duty: Marriage as a Business Partnership

Laura Monroe

Since the early twentieth century, marriage has been perceived in the courts as less of an arrangement where the husband is granted all rights and the marital couple is seen as a single entity but instead as an agreement between two separate individuals with equal rights who have certain duties and obligations to each other. Essentially, this view of marriage has fallen more into the class of a business partnership rather than a domestic arrangement. Although different state legislatures interpret this in various ways, the general consensus is that the marital relationship necessary involves a mutual reliance based on confidentiality and trust. In other words, each person is charged with sustaining the other’s interests. Otherwise known as fiduciary duty, this obligation that spouses have to one another is upheld under the law and often comes into play during the process of divorce.

Determining Fiduciary Relationships in State Jurisdictions
The way state courts handle fiduciary duty in the divorce process is often contingent on whether that jurisdiction takes an equitable distribution or community property approach. In equitable distribution jurisdictions, fiduciary duties are not automatically imposed as an automatic process of law. Rather, the courts either undertake a fact-based inquiry to determine whether additional factors above and beyond the marital state justify the imposition of fiduciary duty, or they presume and impose that fiduciary duty outright. Typically, the court will consider factors such as age, education, mental condition, business experience, state of health, and the degree of independence of both parties.

In contrast, state courts that work within a community property system presuppose an implied fiduciary contract between the two parties, which thereby determine each spouse’s rights and obligations. Thus, the fiduciary duty is assumed and automatically dictates how the court will regard individual divorce cases.

Applying Fiduciary Duty in Divorce Law
Once fiduciary duty comes into play in court, its scope is often exceedingly broad and flexible. Fiduciary duty can be applied to virtually every type of financial transaction entered into over the course of a marriage. This would include contracts, estate planning, conveyances of personal and real property, business dealings, stocks and investments, commercial transactions, management of real property, corporate decisions, and even payment of college expenses for children. Courts also vary widely on how they interpret when fiduciary duty begins and ends. Generally, it would extend from the beginning to the end of the marriage, but the starting date can be earlier and may even be extended until some point after the dissolution of the marriage.

Common Violations of Fiduciary Duty and How They’re Resolved in Court
There are many ways in which fiduciary duty can be violated within the marital relationship. Typically, these infractions involve one spouse harming, interfering with, and/or disposing of the other’s property and assets. Some of the circumstances in which courts have found a violation of fiduciary duty include: mismanagement of funds without consent, gifts to a mistress, misrepresentation in the execution of a settlement agreement, and other fraudulent representations.

Court-ordered remedies for these and other violations of fiduciary duty are varied. Usually, remedies involve shifts in the redistribution of equity. Specifically, this can involve actual reimbursements, the awarding of alimony, contract remedies (i.e. suing for breach of contract), judgment-related remedies, and equitable remedies, including accounting actions that determine what money is owned and constructive or resulting trusts through which restitution is ensured.

When fiduciary duty is considered in marriage, it means that spouses have a legal obligation to act in an honest and trustworthy manner when it comes to joint assets and finances. It’s important that marriage partners are aware of these spousal obligations, as violations of fiduciary duty often end up affecting divorce settlements in significant ways.
 

Keywords: fiduciary duty, marital relationship, fiduciary relationships, divorce law, fiduciary duties
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