Presumption of Undue Influence In A Transfer Amongst Spouses
Juries and marriages are two areas of life that the law does not like peering into. Many decisions refer to both of these as “black boxes” where we don’t particularly care what went in them, we only care what comes out, unless it is egregious. There are very limited exceptions to this rule for juries, and many more for marriages. However, generally speaking, most people assume that spouses are free to negotiate amongst themselves regarding property. While that is generally true, that does not mean that there aren’t certain restrictions.
Family Code section 721 “imposes a duty of the highest good faith and fair dealing on each spouse.” Thus, according to this Family Code section, spouses are not to take unfair advantage of each other. In the case In re Marriage of Fossum (2011) 191 Cal.App.4th 336 the court found that when a transaction between spouses advantages one spouse or hurts another, a rebuttable presumption of undue influence is created under Family Code section 721. To rebut this presumption, the spouse that benefited from the transaction must show that the other spouse acted freely and voluntarily with full knowledge of all facts and with a complete understanding of the effect of the transaction.
This Family Code section was historically used to invalidate otherwise valid transmutation of separate property into community property or valid transfer of assets to another spouse. However, in Lintz v. Lintz (2014) 222 Cal. App.4th 1346 the court ruled that this code section should apply to all transactions, including testamentary documents.
You might be wondering how this could even come up. Well, generally speaking, it is a situation similar to Lintz where it is not a first marriage, and there are children from the previous marriage that get disinherited in favor of the spouse. In Lintz, the trial court ruled that the new trust was procured via undue influence by going through the statutory elements of undue influence, however, on appeal the court found that was not necessary to do as there was a presumption created that was not rebutted at trial (ultimately the court reviewed the trial court’s findings and found them to be without defect in any event).
This means, that if you are a spouse and you want to ensure that any transaction is upheld, you must get an independent attorney to draft all documents that will be able to discuss at length whose idea it was for the transaction, what the thought process was behind the transaction, and the disadvantaged spouse knew what they were doing.