Husband’s Failure To Disclose Assets Is Basis For Constructive Fraud

In the case of Searcy v. Searcy, the Court of Appeals in a decision filed September 20, 2011, reversed the trial court and found that there was an issue of fact with regard to constructive fraud when the husband failed to disclose the existence of promissory notes for two particular beach lots that were sold during the marriage.  The Court of Appeals found that a fiduciary relationship existed between husband and wife.   A duty to disclose arises where a fiduciary relationship exists between the parties through a transaction.  The relationship of husband and wife creates such a fiduciary duty.  During a marriage, a husband and wife are in a confidential relationship and have a duty to disclose all material facts to one another and a failure to do so constitutes fraud.  However, this fiduciary duty ends when the parties separate and become adversaries negotiating the terms of their separation.  Furthermore, the termination of the fiduciary relationship is firmly established when one or both of the parties is represented by counsel.  However, the mere involvement of an attorney does not automatically end the confidential relationship.  The mere fact of the parties being separated in and of itself is not determinative of the existence of a fiduciary relationship.  When the parties originally divided their assets, the husband failed to disclose the existence of two promissory notes for Lots 17 and 18 and wife never knew that they existed.  The subsequent separation agreement made no mention of notes for Lots 17 and 18. The Court of Appeals found that the fiduciary relationship between husband and wife still existed at the time the Defendant husband first failed to disclose the purchase money notes.  Therefore, wife had a claim for constructive fraud.