Case Review: What Happens to Marriage Property in Post-Divorce Bankruptcy?

In re Clifford Allen Brace, Jr. (Cal. Supreme Court, July 23, 2020, S252473) 

Full text here

Holding:

In this case, a California Supreme Court majority answered a question referred to it by the Ninth Circuit in a bankruptcy case. It said that “(t)he question here is whether the form of title presumption set forth in Evidence Code section 662 applies to the characterization of property in disputes between a married couple and a bankruptcy trustee when it conflicts with the community property presumption set forth in Family Code section 760.” The issue was whether W’s one-half interest in the real property became part of H’s bankruptcy estate. That issue depended on whether their acceptance of a deed to them both in joint tenancy from the prior owner of the property rendered the property community or jointly titled separate property for non-divorce purposes under pre-1985 law and/or post-1984 law. The high Court concluded that

Family Code section 852 provides that for property acquired on or after January 1, 1985, a transmutation “is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.” (Fam. Code, § 852, subd. (a); see id., subd. (e).) We hold that under this rule, joint tenancy titling of property acquired by spouses using community funds on or after January 1, 1985 is not sufficient by itself to transmute community property into separate property. For joint tenancy property acquired between January 1, 1975 and December 31, 1984, the act of taking title as joint tenants is, in itself, insufficient to prove a transmutation; however, a court may consider the manner of taking title in determining whether the spouses had an oral agreement or common understanding. Finally, as noted, joint tenancy property acquired with community funds before January 1, 1975 is presumptively separate property.

Summary of the Facts 

Clifford and Ahn Brace married in 1972. They acquired one parcel of real property before 1985 and another thereafter. They used community funds to acquire both parcels and took title to each property as “husband and wife as joint tenants.” Clifford filed a Chapter 7 bankruptcy petition in 2011.

The Bankruptcy Code specifies that community property is part of the estate; bankruptcy courts look to state law to determine what property counts as community property. (See Butner v. United States (1979) 440 U.S. 48, 54.)

The bankruptcy trustee in this case sought a declaration that the Redlands and San Bernardino properties are community property under Family Code section 760. The distinction between community and separate property matters because Ahn Brace has not joined in her husband’s bankruptcy petition. If the properties are community, then the entirety of the Braces’ interests in the properties becomes part of Clifford Brace’s bankruptcy estate. If the properties are separate, then only Clifford Brace’s one-half property interest becomes part of the estate. (In re Reed (9th Cir. 1991) 940 F.2d 1317, 1332; see Code Civ. Proc., § 704.820.)

The bankruptcy court found that “‘the properties were acquired by [Clifford and Ahn] Brace during the marriage with community assets and they presumptively constitute community property under applicable law. Defendants failed to establish that the . . . [p]ropert[ies] were not community in nature and, therefore, they constitute property of the Estate. . . .’” (In re Brace (Bankr. 9th Cir. 2017) 566 B.R. 13, 17.) The Ninth Circuit Bankruptcy Appellate Panel affirmed. (Id. at p. 16.) Citing In re Marriage of Valli (2014) 58 Cal.4th 1396 (Valli), which held that property acquired during marriage from a third party with community funds is community property upon divorce unless the statutory transmutation requirements have been met, the panel reasoned that public policy and statutory construction support the extension of Valli’s holding to the bankruptcy context. (In re Brace, supra, 566 B.R. at pp. 21–27.) The Braces appealed to the Ninth Circuit, which certified the question to this court. (In re Brace, supra, 908 F.3d at p. 535.)

Result on appeal: The high Court began its analysis of the issue by noting that “(a) central point of disagreement between the parties concerns the applicability of two statutes: Family Code section 760 and Evidence Code section 662,” the panel summarized the Family Code provisions regarding the character of property. It also said that “for property acquired on or after January 1, 1985, married persons may change — i.e., transmute — the character of property from community to separate, or vice versa, if the transmutation is made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.” (Fam. Code, § 852, subd. (a); see id., subd. (e).)”

In the case before us, the bankruptcy trustee contends that Valli’s rule extends beyond the marital dissolution context to preclude application of Evidence Code section 662 when it conflicts with the Family Code section 760 presumption in a dispute between a bankruptcy trustee and a debtor spouse. The Braces, by contrast, argue that Family Code section 760 applies in actions between the spouses to “protect the innocent spouse from undue influence by the other spouse,” whereas Evidence Code section 662 applies to “maintain the stability of title outside of dissolution actions.” Further, amici curiae Christopher Melcher and Professor Grace Blumberg (author of Blumberg, supra) point to a joint tenancy form of title principle first recognized in Siberell v. Siberell (1932) 214 Cal. 767 (Siberell) that may govern characterization in certain situations. Although caselaw has sometimes conflated Siberell and other presumptions arising from joint title with Evidence Code section 662 (see In re Marriage of Haines (1995) 33 Cal.App.4th 277, 291–292 (Haines); In re Marriage of Brooks & Robinson (2008) 169 Cal.App.4th 176, 185–187; Estate of Gallio (1995) 33 Cal.App.4th 592, 597), they are in fact distinct.

The panel said that “(a)s we explain, the history reveals the gradual evolution of common-law separate property concepts based on form of title into a unified community property framework.” It traced the history of Evidence Code §662, stating that “(t)The question here is whether the form of title presumption in Evidence Code section 662, and not the community property presumption in Family Code section 760, applies outside the context of marital dissolutions, specifically in a dispute between a bankruptcy trustee and a debtor spouse.” It also traced the history of current Family Code §2581, Siberell and Lucas, saying that “(w)e disapprove In re Marriage of Lucas, supra, 27 Cal.3d 808 to the extent it implies that the married woman’s form of title presumption continues to apply to marital property acquired on or after January 1, 1975.” The panel then discussed the evolution of the transmutation writing requirements. It said that “(a)s this history shows, our community property system has gradually evolved toward one that affords both spouses equal interests and control over community assets. At the same time, the rules characterizing property as community or separate based on form of title have faded in the contemporary statutory framework.”

As noted, the form of title presumption in Evidence Code section 662 is not an exception to the community property presumption in Family Code section 760. The Braces principally contend here that the community property presumption is limited to the context of marital dissolution. But against a historical backdrop in which our community property framework has become more encompassing, while rules characterizing marital property based on form of title have receded, we find no indication that this is so. Nothing in the text of Family Code section 760 expresses such a limitation.

Moreover, when we look to other statutes that refer to community property, we find that the Legislature has explicitly applied the Family Code section 760 presumption to define third-party rights, such as creditor rights, against one or both spouses. (Code of Civ. Proc., §695.020, subd. (a) [“Community property is subject to enforcement of a money judgment as provided in the Family Code.”].) The Civil Code incorporates Family Code section 760 into its definition of joint property interests. (Civ. Code, §§ 682, 687.) And if spouses want to transact with each other, the Legislature subjects these agreements to the laws governing fraudulent transfers. (Fam. Code, §§ 851, 852.) “These [Family Code] provisions presuppose that, as a general rule, third parties are entitled to rely on the community property presumption in transactions involving marital property.” (In re Brace, supra, 566 B.R. at p. 24.)

In Valli, we held that the statutory transmutation requirements apply to purchases made by one or both spouses from a third party using community funds and that Evidence Code section 662, assuming it “ever applies in marital dissolution proceedings,” “does not apply when it conflicts with the transmutation statutes.” (Valli, supra, 58 Cal.4th at p. 1406.) In that case, the form of title on an insurance policy purchased with community funds and put in the wife’s name was not sufficient to alter its characterization as community property under Family Code section 760.

The Braces urge us to limit Valli to the context of marital dissolutions. But we see no basis in the text, purpose, or history of Family Code section 760 to confine Valli’s holding in this way. It would carve a major hole in the community property system to hold that Evidence Code section 662, a general statute that addresses the import of legal title — and not Family Code section 760, a statute that specifically addresses the characterization of property acquired during marriage — governs the characterization of property acquired during marriage for all purposes other than divorce. (See Rader v. Thrasher (1962) 57 Cal.2d 244, 252 [“a special provision relating to a particular subject will govern against a general provision”]; Haines, supra, 33 Cal.App.4th at p. 301 [“where two presumptions are in conflict, the more specific presumption will control over the more general one”]; cf. Estate of Bibb (2001) 87 Cal.App.4th 461, 469–470 (Bibb) “[T]he more general form of title presumption created by Vehicle Code sections 4150.5 and 5600.5 should not be used to negate the requirements of section 852, subdivision (a), which assure that a spouse’s separate property entitlements are not undermined.”].) In the absence of a statute that expressly restricts the applicability of the community property presumption to dissolution actions, we decline to engraft such a major limitation onto Family Code section 760. Indeed, to conclude that Evidence Code section 662 and not Family Code section 760 applies outside the context of divorce would run counter to the intent of the pivotal 1973 legislation that prospectively eliminated separate property inferences from form of title.

...As noted, the form of title presumption in Evidence Code section 662 is not an exception to the community property presumption in Family Code section 760. The Braces principally contend here that the community property presumption is limited to the context of marital dissolution. But against a historical backdrop in which our community property framework has become more encompassing, while rules characterizing marital property based on form of title have receded, we find no indication that this is so. Nothing in the text of Family Code section 760 expresses such a limitation.

Moreover, when we look to other statutes that refer to community property, we find that the Legislature has explicitly applied the Family Code section 760 presumption to define third-party rights, such as creditor rights, against one or both spouses. (Code of Civ. Proc., § 695.020, subd. (a) [“Community property is subject to enforcement of a money judgment as provided in the Family Code.”].) The Civil Code incorporates Family Code section 760 into its definition of joint property interests. (Civ. Code, §§ 682, 687.) And if spouses want to transact with each other, the Legislature subjects these agreements to the laws governing fraudulent transfers. (Fam. Code, §§ 851, 852.) “These [Family Code] provisions presuppose that, as a general rule, third parties are entitled to rely on the community property presumption in transactions involving marital property.” (In re Brace, supra, 566 B.R. at p. 24.)

In Valli, we held that the statutory transmutation requirements apply to purchases made by one or both spouses from a third party using community funds and that Evidence Code section 662, assuming it “ever applies in marital dissolution proceedings,” “does not apply when it conflicts with the transmutation statutes.” (Valli, supra, 58 Cal.4th at p. 1406.) In that case, the form of title on an insurance policy purchased with community funds and put in the wife’s name was not sufficient to alter its characterization as community property under Family Code section 760.

The Braces urge us to limit Valli to the context of marital dissolutions. But we see no basis in the text, purpose, or history of Family Code section 760 to confine Valli’s holding in this way. It would carve a major hole in the community property system to hold that Evidence Code section 662, a general statute that addresses the import of legal title — and not Family Code section 760, a statute that specifically addresses the characterization of property acquired during marriage — governs the characterization of property acquired during marriage for all purposes other than divorce. (See Rader v. Thrasher (1962) 57 Cal.2d 244, 252 [“a special provision relating to a particular subject will govern against a general provision”]; Haines, supra, 33 Cal.App.4th at p. 301 [“where two presumptions are in conflict, the more specific presumption will control over the more general one”]; cf. Estate of Bibb (2001) 87 Cal.App.4th 461, 469–470 (Bibb) “[T]he more general form of title presumption created by Vehicle Code sections 4150.5 and 5600.5 should not be used to negate the requirements of section 852, subdivision (a), which assure that a spouse’s separate property entitlements are not undermined.”].) In the absence of a statute that expressly restricts the applicability of the community property presumption to dissolution actions, we decline to engraft such a major limitation onto Family Code section 760. Indeed, to conclude that Evidence Code section 662 and not Family Code section 760 applies outside the context of divorce would run counter to the intent of the pivotal 1973 legislation that prospectively eliminated separate property inferences from form of title.

…Thus, the import of Family Code section 2581 is that it establishes a stronger presumption of community property at dissolution when title is held in joint form, while the general community property presumption, rebuttable by tracing, applies at dissolution to property not held in joint form. Nothing in the text, purpose, or history of Family Code section 2581 suggests an intent to limit the applicability of Family Code section 760 to dissolution matters, although, as Justice Kruger notes, the legislative history of the 1983 amendments suggests that some believed Siberell still controlled outside dissolution. (Conc. & dis. opn., post, at pp. 10–11.) If anything, Family Code section 2581 demonstrates that when the Legislature intends to limit a provision affecting the character of property to the marital dissolution context, it is capable of saying so. The absence of any such language in Family Code section 760 confirms that its scope is not limited to marital dissolution.

The Braces further contend that limiting the application of community property presumptions to interspousal disputes would promote stability of title… 

But when property is held in joint tenancy, both tenants are on record title. And recorded deeds commonly indicate the marital status of the grantees; in this case, for example, the Braces took title as “husband and wife as joint tenants.” If the joint tenants are married, a creditor or third-party purchaser will be on notice that the property is presumptively community and that an alienation or encumbrance of that property must be joined by both parties. The third party can inquire whether a written transmutation agreement rebuts the community property presumption; such an agreement, in order to be “effective as to third parties without notice thereof,” must be recorded. (Fam. Code, § 852, subd. (b).) We do not think this approach puts third parties at risk of not being able to determine who owns the property and the nature of the ownership.

The majority also discussed the Braces’ arguments that so holding would undermine the stability of title in the context of probate. It said that “(c)ourts have consistently held that for property titled in joint tenancy, the form of title controls at death. ... Although these cases often relied on Siberell or its progeny, we see no indication that the abrogation of Siberell in 1973 or any subsequent development suggests an intent by the Legislature to disturb the rule that the form of title controls the disposition of joint tenancy property at death.” It then discussed the Brace’s contention “that our holding will undermine the expectations of spouses and third-party creditors,” noting that our decision today does not prevent an innocent or estranged spouse from protecting his or her interests in separate property. For purposes other than dissolution, a spouse can prove separate ownership in jointly titled property and rebut the Family Code section 760 community property presumption by tracing. (Lucas, supra, 27 Cal.3d at p. 815.) A spouse can convert jointly held property acquired with community funds into separate property through a written transmutation agreement. (Fam. Code, §§ 850, subd. (a), 852.)

A spouse can hold his or her earnings in an account outside of the other spouse’s control in order to protect those earnings from liability for the other spouse’s pre-marital debts. (Id., § 911.) And couples can opt out of this system altogether through premarital agreements. (Id., § 1600 et seq.) In light of these options, the Braces’ concerns about stability and expectations do not persuade us that the default rule governing the community’s liability for the debts of either spouse should differ according to the nature of the action.

In sum, we hold that the community property presumption in Family Code section 760 applies not only to dissolution actions but also to a dispute between one or both spouses and a bankruptcy trustee, and that Evidence Code section 662 does not apply when it conflicts with the Family Code section 760 presumption.

Next, the majority discussed the effect of Family Code §852’s writing requirements, addressing the question of “(w)hen spouses use community funds to acquire property from a third party and take title in a joint tenancy deed, does the form of the deed constitute an express declaration that transmutes the community funds into separate property?” After discussing the history of the transmutation statutes and several cases interpreting them, the justices said that we do not address interspousal deeds by which one spouse conveys his or her separate property to both spouses as joint tenants, as in Bibb, or by which both spouses deed their community property to each other as joint tenants. Instead, we focus here on the common scenario of a married couple using community funds to buy property from a third party. Such a conveyance typically occurs through a grant deed signed by the third-party grantor. (Civ. Code, § 1092.) The deed conveys the third party’s interest in the property to the spouses, and the spouses, as grantees, accept the interest of the grantor. Although the deed may “‘expressly declare’” that title is vested as joint tenants (id., §683), the deed does not “contain language which expressly states that the characterization or ownership of the property is being changed” between the spouses. (MacDonald, supra, 51 Cal.3d at pp. 271–272.)

Professor Blumberg, as amicus curiae, argues that the Braces relinquished “the incidents of community property ownership . . . when the parties accepted title in a deed specifying an alternative and mutually exclusive form of joint-and-equal ownership.” (See Blumberg, supra, at p. 150 [joint tenancy “title creates a presumption of transmutation”]; see id. at p. 156.) But the Legislature and the courts have repeatedly lamented that spouses do not understand what effect, if any, joint tenancy title has on the characterization of property purchased with community funds. (See In re Marriage of Buol (1985) 39 Cal.3d 751, 762–763; Schindler, supra, 126 Cal.App.2d at p. 601; ante, at pp. 10– 11.) If anything, we have observed that the 1965 enactment of the special community property presumption applicable at divorce had the effect of “more closely matching the intent and assumptions of most spouses who acquire and hold their residence in joint tenancy.” (Lucas, supra, 27 Cal.3d at p. 814 [discussing predecessor to Family Code § 2581.])

Against this backdrop, we see no basis to assert that married couples intend joint tenancy title to result in separate property interests with regard to third-party claims. Indeed, the mere fact that spouses choose to take title as joint tenants appears to be the kind of “unreliable” evidence that the Legislature intended to target with the transmutation statute. (MacDonald, supra, 51 Cal.3d at p. 269; see Schindler, supra, 126 Cal.App.2d at p. 601 [“It is common knowledge that innumerable husbands and wives with little or no information about estates in real property acquiesce without reflection in the suggestion that they place purchased property in joint tenancy.”].) Under Family Code section 852, the question is whether it is apparent solely from the titling of a deed as a joint tenancy that the spouses understood the writing to change the character of property acquired with community funds into separate property. We conclude the answer is no because a joint tenancy deed does not itself constitute “language which expressly states that the characterization or ownership of the property is being changed.” (MacDonald, at p. 272.)

Nor is a joint tenancy deed exempt from the express declaration requirement on the ground that neither spouse’s ownership interest is adversely affected. It is true that holding property as joint tenants does not completely deprive one spouse of possession, as is the case when one spouse takes community property with sole title. (See Valli, supra, 58 Cal.4th at p. 1399.)

Taking title in joint tenancy also does not change the 50 percent interest that each spouse has in community property. But a property right is not simply the percentage share a person holds in a particular asset. It encompasses a “bundle of rights and privileges as well as of obligations” (Union Oil Co. v. State Bd. of Equal. (1963) 60 Cal.2d 441, 447, fn. omitted), such as the right to possess, lease, encumber, or alienate the property.

Shared management and control is a defining feature of our community property system and has driven the evolution of our community property laws. (Fam. Code, §§ 1100, 1102.) With few exceptions, “either spouse has the management and control of the community real property.” (Id., § 1102, subd. (a).) Spouses must act as fiduciaries to one another in the management and control of the community assets. (Id., § 1100, subd. (e).) And both spouses must “join in executing an instrument by which that community real property or an interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered.” (Id., § 1102, subd. (a).) By contrast, a “married person may, without the consent of the person’s spouse, convey the person’s separate property.” (Id., § 770, subd. (b).) Although the ability to unilaterally convey community property or the absence of fiduciary duties may be advantageous to a spouse in certain situations, the law presumes that couples desire the protections above.

…In sum, for property acquired with community funds on or after January 1, 1985, the titling of a deed as a joint tenancy is not an express written declaration sufficient to transmute the property into separate property under Family Code section 852.”

Justice Kruger wrote a concurring and dissenting opinion. He opined that the state of the law prior to 1985 was that spouses who took title to property in joint tenancy acquired equal separate property interests, not community property, and that subsequent changes in the law should not affect the character of property acquired during that time. He said that the underpinnings of Siberell’s transmutation reasoning were open to question, for reasons the majority correctly identifies and now clarifies. (Maj. opn., ante, at pp. 36–37.) But this clarification comes too late for those who, like the Braces, acquired property in joint tenancy between 1975 and 1985 with the reasonable expectation that the property would be presumed separate under Siberell’s longstanding rule.

Because the Braces were entitled to rely on the law as it then stood, I would hold that, in a suit against a bankruptcy trustee, property acquired by spouses in joint tenancy on or before December 31, 1984, is presumptively the spouses’ separate property, while property acquired since then is presumptively the property of the community.

Other cases of interest

In re T.S. (Cal.App., July 21, 2020, B293453)

In this case, the Second District reversed a Los Angeles County juvenile court's orders terminating jurisdiction over two children, denying F’s request for a contested evidentiary hearing on custody and visitation in its exist order and “granting sole legal and physical custody to the children's mother, Nataliya S., and granting visitation to Vacheslav. ... On appeal Vacheslav contends the court erred in denying his request for a contested evidentiary hearing on custody and visitation. Vacheslav also argues the court's custody and visitation orders were not in the best interests of the children and constituted an abuse of discretion."

Agreeing, the panel said that F's offer of proof was sufficient to entitle him to an evidentiary hearing before the court issued its exit orders and that “(t)he section 364 hearing considered whether court supervision would continue or, if terminated, with whom the children would live and the nature of visitation for the noncustodial parent. While significant, these determinations did not represent Vacheslav's final opportunity to avert termination of his parental rights. In this context it does not offend due process to condition the right to a contested evidentiary hearing on an offer of proof.” It also said that the Department acknowledges the juvenile court's broad authority upon termination of its jurisdiction to fashion a custody and visitation order in the children's best interests without the need for a section 388 petition. Mirroring the analysis used by the juvenile court, however, the Department argues that discretion does not extend to entering a custody order that removes a child from the physical custody of the parent with whom he or she is residing at the time of the hearing.

The Department also argues, even if a separate section 388 petition was not required to present to the court Vacheslav's request for a custody and visitation order awarding him sole physical custody of T.S. and Christian, the juvenile court properly concluded it could not order a change of custody absent a finding of substantial risk of harm to the children and a lack of available services to prevent their removal from Nataliya's custody. This was also error. To be sure, at the disposition stage of a dependency proceeding, a court may not remove a child from a parent's custody and place the child in the custody of the Department unless the court finds there is a substantial danger to the child and no available services to protect the child absent removal. There is no statutory language, however, suggesting this standard be applied when the court issues a custody order upon the termination of jurisdiction pursuant to section 364. To the contrary, as discussed, at that stage of the proceedings, the court must consider the child's best interest.

Coley v. Eskaton, et al. (Cal. App., June 11, 2020, C084328) 

In this partially-published civil case brought by a resident against his homeowner's association, the Third District affirmed a Sacramento trial court's holding that two of the HOA's directors breached their fiduciary duty to the HOA and its members and awarding damages for the breach. It held that the two directors had a conflict of interest with the HOA because of financial incentives they receive to run the HOA for the benefit of only part of the total development. It discussed the business judgment rule, holding that directors cannot obtain the benefit of the Rule "when acting under a material conflict of interest.”

Deference under the business judgment rule is premised on the notion that corporate directors are best able to judge whether a particular transaction will further the company's best interests. (Gaillard, supra, 208 Cal.App.3d at p. 1263.) But that premise is undermined when directors approve corporate transactions in which they have a material personal interest unrelated to the business's own interest. And it is particularly undermined when a majority of these directors approve transactions while having a material conflict of interest. Under those circumstances, the directors carrying this conflict of interest are precluded from seeking the benefit of the business judgment rule.

California law, more importantly, demands the very same of majority directors who approve transactions while operating under a material conflict of interest. Directors faced with such divided loyalties must show the approved transaction was "fair and reasonable"-meaning they must not only "'prove the good faith of the transaction but also…show its inherent fairness from the viewpoint of the corporation and those interested therein. [Citation.]’ " (Tenzer, supra, 39 Cal.3d at pp. 31-32; Heckmann, supra, 168 Cal.App.3d at pp. 127-128.) And again, we find the trial court fairly captured this requirement in concluding the Eskaton-affiliated directors, because of their conflict of interest, had the burden to show their approved assessments were "just and reasonable." The defendants here, however, never made this showing.

As the trial court explained, the directors' incomes were tied in part to the financial performance of Eskaton Village-incentivizing the directors to shift costs from Eskaton Village to the Patio owners. And that is what they ultimately did, to the benefit of the Eskaton entities and the detriment of the Patio owners.

In a cross-appeal, the panel reversed the trial court's refusal to hold the two directors personally liable for the breaches. They agreed with P that “they breached this duty by approving transactions-while acting under a material conflict of interest-that were unfair to Coley and other Patio owners, and (3) Coley suffered damages as a result of this breach.” The panel said that (a)s fiduciaries, Murch and Donovan were bound not to approve a transaction in which they had a material financial interest unless that transaction was "fair and reasonable"-meaning the transaction was entered in " 'good faith' " and was " 'inherent[ly] fair from the viewpoint of the corporation and those interested therein.' " (See Tenzer, supra, 39 Cal.3d at pp. 31-32; see also id. at p. 32 [discussing "the standards of fairness and good faith required of a fiduciary” in cases involving potential self- dealing]; Jones, supra, 1 Cal.3d at pp. 110, 112 [majority shareholders owe a fiduciary duty of "good faith and inherent fairness to the minority in any transaction where control of the corporation is material"; this "comprehensive rule of 'inherent fairness'" also applies to directors who engage in transactions that conflict with their duty to shareholders]; Heckmann, supra, 168 Cal.App.3d at pp. 127-128.)

But they failed to meet this standard. Even if the directors required the Patio owners to pay a greater share of the security-services fees and legal fees in good faith-which is debatable (see fn. No. 4, ante)-it could not be said that their doing so in violation of the CC&Rs was fair from the viewpoint of the Patio owners.

This case could be helpful in making fiduciary duty arguments regarding spouses managing their separate property during marriage and after separation along with community property, the inherent conflict of interest in doing so and their burden to justify transactions that benefit them at the community's expense.

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