You Can Run But You Can’t Hide – Fiduciary Duty Yields Lottery Proceeds

I remember my first day of Community Property class in law school like it was yesterday. My instructor rattled off a few impressive cases that were “guaranteed” to make the class more than just an entire semester dedicated to which spouse gets the house and which spouse gets the business. Enter In re Marriage of Rossi (2001) 90 Cal.App.4th 34. I think I was already asleep, or partially there, when I was rattled out of my stupor by my professor’s description of the facts in the Rossi case: “because the wife failed to disclose that she won the lottery to the husband during their dissolution of marriage proceedings, rather than awarding the husband his one-half, the husband was awarded ALL of the lottery winnings!” The entire class was flabbergasted.

California is, of course, a community property state. What this means is, in its simplest terms, all property acquired during the duration of a marriage is one-half one spouse’s and one-half the other spouse’s. There are some exceptions to this generalized explanation of community property, and some interesting manifestations currently up on appeal, however, this is the general rule.

Pursuant to California Family Code section 721, spouses owe each other a fiduciary duty in transactions between themselves commensurate with the same rights and duties of non-marital business partners. California Family Code section 1101(h) provides that one possible remedy includes an award to the other spouse of 100 percent, or an amount equal to 100 percent, of any asset undisclosed or transferred in breach of the fiduciary duty. To get an award of 100 percent, the breach of fiduciary duty must have been carried out with fraud, oppression or malice. This may seem like a tough concept to understand, but Rossimakes it easy.

In early November, 1996, while the parties were still married, Denise Rossi entered into a lottery pool at work using community property funds. In December, 1996 Denise was informed that she won the lottery. In January, 1997 Denise then served Thomas with the Petition for Dissolution of Marriage. During the entire dissolution of marriage process, Denise never told Thomas that she had won the lottery. Prior to filing for dissolution of marriage and serving Thomas with the Petition, Denise consulted with the lottery commission on how, essentially, to hide the funds from Thomas and changed her mailing address for receipt of the funds accordingly.

After their divorce was finalized and judgment was entered, a letter was sent to Thomas’s house asking if Denise was interested in a lump sum buy-out of her lottery winnings. This letter was the first time Thomas heard about Denise winning the lottery. Thomas filed a motion to set aside the judgment for dissolution of marriage based on fraud, breach of fiduciary duty and failure to disclose. The court ruled in his favor and awarded Thomas 100 percent of the lottery winnings! The court found that Denise intentionally failed to disclose her lottery winnings in any of the requisite dissolution of marriage documents, thus constituting a breach of her fiduciary duty owed to Thomas. The court also found that Denise intentionally concealed her lottery winnings by consulting the lottery commission on how to hide these funds from Thomas and changing her mailing address so that none of the funds, or correspondence pertaining to these funds, would go to Thomas’s mailing address. As a result, Denise’s conduct fell squarely in line with Family Code sections 721 and 1101(h).

The take home lesson from this case is that there are serious consequences for failing to disclose assets in a dissolution of marriage proceeding. As I have found in my law Family Law practice, it is very hard for parties to lie consistently and they will get caught either by way of their bank statements, credit card statements or, as in Rossi, by way of events relating to their lies that they cannot control. It is best to take the hit up front, disclose all assets and risk giving up one-half to the other spouse than to intentionally fail to disclose and face giving up 100 percent to the other spouse.

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