Many people complain that dishonest spouses are never prosecuted for perjury or otherwise punished for their dishonest actions. Not this time.
In a case called Verduzco v. Werner, the husband, who was a San Diego police officer, was forced to give up his entire Deferred Retirement Option Plan (DROP), even though he ordinarily would have been entitled to at least half of it because California is a community property state. The reason for this draconian punishment was that the court found that the husband had acted with fraud and malice. And Family Code section 1101, subd. (h) basically says that if a spouse violates the “fiduciary duty” owed to the other spouse — and if malice or fraud is committed while committing that breach — the remedy “shall include, but not be limited to, an award to the other spouse of 100 percent” of any asset to which the fiduciary duty breach pertained.
This is confusing, but you may recall the most famous case in the area — the so called lottery case from 2001 called Marriage of Rossi. That’s the case where the wife concealed the fact that she had won the lottery and, as a result, her husband not only got his share of the winnings but the wife’s share as well.
In the Verduzco case, the parties settled their divorce case out of court. They agreed, among other things, that the community estate had an interest in the San Diego City Employees’ Retirement System (“SDCERS”) accrued by the husband through his employment. The parties further agreed that a neutral attorney would prepare a special retirement order needed to get the SDCERS system to actually divide the retirement.
Apparently, sometime after the judgment was entered, the parties agreed to delay preparation of the retirement order until the husband retired. The husband then “voluntarily retired” in 2009 but continued to work for the police department through its Deferred Retirement Option Plan (“DROP”) for another three years until February 2012. During this period, the husband’s work earnings went into the DROP account while he lived off his retirement benefits. The husband “admitted that he did not share any of the community retirement benefits with (the wife) while he was in the DROP program”.
After the husband finally stopped working in 2012, the wife reminded him that the parties still needed to get the retirement order prepared. The husband agreed but asked that someone else (other than the person chosen in the divorce settlement) be the one who prepared the retirement order.
The husband continued to delay. The wife asked him how he was supporting himself, since she could only assume he was not getting any of the retirement pay because the retirement order had not been written up yet. The husband admitted that he had received two retirement checks from the City of San Diego, and this was perfectly acceptable to him because he was paying the wife spousal support and he shouldn’t have to pay her spousal support while not getting the full amount of his retirement because he had to share it with her.
According to the husband, he had received, from the DROP fund, on June 30, 2012, one lump sum of $264,000.00 reduced by $59,000 to account for taxes. This was based on a written request in February, 2012 for the entire amount of the DROP fund. He had then taken $100,000.00, which he estimated was much greater than what the wife could possibly be entitled to, and placed it in an interest-bearing account until the court determined the wife’s share of the employment. The husband stated that he had not given the money to the wife directly because she had failed to file the required paperwork with SDCERS to have the money sent directly to her.
In November, 2012, the court ordered the husband to provide the wife with a draft retirement order prepared by a neutral preparer of his choice, but if the wife did not agree with the use of the husband’s neutral preparer, the parties were to go back to the neutral preparer they had chosen in the divorce paperwork. The deadline for deciding whether to use the husband’s choice of a neutral preparer was December 17, 2012. It was the next day, December 18, 2012, that the wife told the husband she was sticking with the original neutral preparer. But the husband would not sign the paperwork that the original neutral preparer required in order to get started, so the wife filed another motion with the court , this time in February 2013, asking that the court authorize its clerk to sign the husband’s name to the fee agreement required by the neutral preparer. The wife also asked for attorney fees.
The court ruled on July 24, 2013, and it was not pretty. The court found that the husband knew that approximately 60 percent of the DROP lump sum payment he received was community property and those monies should have been addressed in the retirement order. Accordingly, the court found that the husband breached the fiduciary duty he owed to the wife under the Family Code.
The Court found that the husband’s actions “were malicious as defined by Civil code section 3294, in that he acted with a conscious disregard of (the wife’s) rights. The court also found that the husband’s “actions constituted a fraud within the meaning of Civil code section 3294, in that he concealed material facts with the intention of depriving his ex-wife of her property and legal rights”.
The bottom line was that the court awarded the wife 100 percent of the community interest in the DROP funds, which the court anticipated would be 60 percent of the total amount of the funds, or $158,403.00. Further, the husband was ordered to be solely responsible for any tax liabilities he had already paid.
The court also ordered that the wife was also entitled to 100 percent of the community portion of the SDCRS retirement benefits that had already been paid and 100 percent of the ongoing monthly community SDCERS benefits. The court’s decision was based on the fact that the husband had failed to respond to the wife’s “repeated written requests about his monthly SDCERS benefits” and that his actions failed to ensure that the wife was paid her community property share of the SDCRS benefits.
Other punishments were imposed on the husband as well, and he was ordered to pay $42,105.06 in attorney fees, as the court found that “these proceedings would have been completely unnecessary if the husband had simply complied with the terms of the Judgment of dissolution of Marriage”. In other words, if you sign an agreement which is filed with the court and it becomes a court order, you have to obey it.
It is important to note that the appeals court was not impressed by the husband’s decision to put aside $100,000.00 in an interest bearing account. That is because the husband did not put the $100,000.00 in the special account until after the wife filed her motion with the court.
With the assistance of an attorney, the husband appealed, but in a decision issued this past Thursday, the Court of Appeal, in a 39 page decision, unanimously affirmed the trial court’s rulings. The decision was ordered not published, which means it cannot be cited for precedent, but the case is still significant because of the drastic remedies and the fact it stands for the proposition that people have to do what the court tells them to do.
The appeals court decision was authored by Justice Cynthia Aaron. The trial judge was Commissioner Edlene McKenzie.
The Court of Appeal has branches throughout the state. San Diego cases are handled by Division One of the Fourth District, which is located in an office building in downtown San Diego.