Sanctions for Non-Disclosure of Spouse’s Separate Property

The California Court of Appeal for the Fourth Appellate District has held that the more stringent sanctions remedy set forth in Family Code section 1101 applies to a spouse’s non-disclosure of community property, but not separate property. In Marriage of Simmons (filed on April 18, 2013), the Court of Appeal ruled that a wife was entitled to sanctions under Family Code sections 271 and 2107 for uncooperative litigation conduct, but not the broader sanctions remedy under Family Code section 1101.

In Simmons, the parties were married for approximately one year, and the divorce proceedings were highly contested and involved hundreds of thousands of dollars in attorneys’ fees. The husband stated in a sworn income and expense declaration that he had approximately $45,000 in bank accounts. After months of contested discovery proceedings, the wife’s attorneys learned that the husband had approximately $245,000 in a bank savings account.

The trial court awarded the entire value of the husband’s savings account to the wife under Family Code section 1101. That statue provides for an award to the aggrieved spouse in the amount of 50% of the undisclosed asset plus attorneys’ fees and court costs, or in the amount of 100% of the undisclosed asset plus attorneys’ fees and court costs where the court finds that the non-disclosure was malicious, oppressive or fraudulent under Civil Code section 3294.

The trial court also awarded the wife monetary sanctions of $150,000 under Family Code sections 271 and 2107 for a portion of her attorneys’ fees incurred in the contested discovery proceedings with the husband. Under sections 271 and 2107, the court may award sanctions based on a party’s uncooperative conduct in discovery or other proceedings.

The Court of Appeal reversed the trial court’s ruling on the approximately $245,000 awarded under section 1101, but affirmed the trial court’s decision on the $150,000 in sanctions under sections 271 and 2107. The appellate court agreed that the monetary sanctions were uncooperative litigation conduct were proper. However, the appellate court held that the sanctions provisions for non-disclosure of assets under section 1101 are available only with respect to community property, and not a spouse’s separate property.

The Simmons decision will likely serve to reinforce the contested nature of discovery proceedings in the family law courts. It is not unusual for one or both spouses to resist disclosure of community and separate property interests unknown to the other spouse, and Simmons indicates that the penalties may in some cases be less severe when the undisclosed asset consists of separate property rather than community property. Of course, in many cases, it may be unclear prior to trial whether certain property can be characterized as entirely separate property. Thus, it will in many cases be particularly important for the parties to engage in thorough discovery, including discovery motions when necessary, in order to fully and fairly account for the parties’ respective property interests.