When a California business is operated by one spouse during marriage, that spouse often wears three hats simultaneously: (1) officer/director with corporate fiduciary duties, (2) controlling shareholder/member with majority-minority duties, and (3) managing spouse with marital fiduciary obligations. Understanding where these duties overlap—and where they conflict—is critical for both sides of a dispute.
A well-drafted demand letter in this context does far more than request documents. It establishes a record for Fam. Code §1101 claimsBreach of fiduciary duty between spouses resulting in impairment of community estate; remedies include 50%–100% of undisclosed assets plus attorney fees, sets up statutory inspection litigationCorp. Code §1601 (CA corporations), Corp. Code §17704.10 (CA LLCs), DGCL §220 (DE corporations), and creates leverage for fee-shifting and sanctions if the managing spouse stonewalls disclosure or dissipates assets.
📍 Critical Distinction: Your rights depend on whether you're a record shareholder/member (statutory inspection rights) vs. community-property co-owner only (marital fiduciary rights). Both have powerful remedies—but the analysis and strategy differ.
What rights does the non-managing spouse have to information, oversight, and participation—even if not on corporate documents?
Answer: California Family Code §§721 & 1100 impose marital fiduciary duties regardless of who's named on the stock certificates. The managing spouse must provide full disclosure and cannot take unfair advantage.
How do rights differ when spouse is (a) record shareholder/member vs. (b) community-property co-owner only?
Answer: Record shareholders get statutory inspection rights (Corp. Code §1601, DGCL §220). Community co-owners get marital disclosure rights (Fam. Code §721, §1101) but cannot directly invoke corporate statutes.
How do California community-property rules interact with corporate/LLC governance rules?
Answer: Internal affairs doctrine means corporate governance follows state of incorporation (often Delaware), but California community-property law governs ownership and marital duties. Both apply simultaneously.
What is a demand letter actually accomplishing in this context?
Answer: Preserving inspection rights, teeing up Fam. Code §1101 claims, setting up books-and-records litigation, building a record for fee-shifting/sanctions, and creating settlement leverage.
You suspect your spouse is hiding business income, making unapproved deals, or freezing you out of a community asset. You need:
Demand letter: Flat fee $450. Hourly rate: $240/hr. Contingency: 33-40%.
📧 Request Demand LetterYou received a demand letter from your spouse or their attorney. You need to respond strategically without waiving defenses or triggering sanctions. You need:
Initial response $600-800; complex multi-issue responses $1,000-1,500
📧 Request Response StrategyUnlike pure marital dissolution (where automatic temporary restraining orders and preliminary declarations of disclosure apply), pre-dissolution business disputes require affirmative steps to preserve rights. A demand letter:
Community property business disputes sit at the intersection of three bodies of law: California Family Code (community property and marital fiduciary duties), California/Delaware corporate and LLC law (internal governance and inspection rights), and general fiduciary principles applicable to controlling shareholders and managers. A comprehensive demand letter must speak to all three.
Rule: All property acquired by a married person during marriage while domiciled in California is presumed community property.
Impact: Business interests acquired or expanded during marriage are presumptively community, even if only one spouse is listed on stock certificates or LLC membership documents.
Practice Tip: Demand letters often lead with this presumption to establish standing even when spouse is not record owner.
Rule: Separate property includes assets owned before marriage, or acquired during marriage by gift, bequest, devise, or descent, plus post-separation earnings.
Impact: Frames disputes about "I started this company before marriage" vs. community contributions and appreciation during marriage (e.g., Pereira vs. Van Camp apportionment).
Rule: Spouses are subject to the same rights and duties as nonmarital business partners under Corp. Code §§ 16403, 16404 (Uniform Partnership Act), owing each other "the highest good faith and fair dealing" and prohibited from taking unfair advantage.
Impact: This is the anchor for aligning demand letters with the idea that spouses are effectively partners in the community business, not adversaries.
Case Law: In re Marriage of Haines (1995) held that in interspousal transactions where one spouse gains an advantage, a presumption of undue influence arises due to the fiduciary relationship under §721.
Rule: Either spouse has management and control "with like absolute power of disposition" over community personal property as if it were separate property—but cannot make gifts or sell below value without written consent of the other spouse.
Impact: Allows demand letters to challenge improper gifts, below-market sales, or diversions of business assets.
Rule: If all or substantially all of a business is community personal property, the spouse operating or managing it has "primary management and control" and may act alone—but must give prior written notice to the other spouse for any sale, lease, encumbrance, or other disposition of all or substantially all personal property used in the business.
Impact: This is tailor-made for demand letters complaining about unilateral business sales, major loans, asset pledges, or distributions without notice.
Violation Remedy: Transaction may be voidable; sets up §1101 breach claim.
Rule: Creates a cause of action when a spouse's breach of fiduciary duty "results in impairment" of the other spouse's one-half interest in the community estate.
Remedies:
Practice Tip: Demand letters often foreshadow a future §1101 claim and cite these remedies as leverage to induce voluntary disclosure.
Even if the non-managing spouse has no stated role in the corporation or LLC and is not listed on any corporate documents, California Family Code §§721 & 1100 still impose fiduciary duties on the managing spouse. As one court put it: "The corporation is a legal fiction; it does not transform the managing spouse's obligations to the marital community." (See eminutes.com commentary)
Rule: Any shareholder of record has the right, upon written demand, to inspect and copy accounting books, records, minutes of shareholders, and board/committee proceedings at any reasonable time for a purpose reasonably related to the shareholder's interests.
Scope: Extends to records of each subsidiary; cannot be limited by articles or bylaws.
Standing: Recent California authority emphasizes that beneficial owners who are not record shareholders cannot invoke §1601 directly. Must be shareholder of record.
Practice Tip: If spouse is record shareholder, §1601 demand letter is straightforward statutory right. If spouse is only community co-owner, must rely on Fam. Code §§721/1101 instead.
Rule: Manager must send annual report with basic financial statements to each member. Members have inspection rights to specified LLC records (membership list, manager list, operating agreement, tax returns, financial statements) upon written demand.
Penalties: Noncompliance can trigger per-day penalties payable to requesting member.
Contrast with Corporations: LLC member inspection rights tend to be broader and less percentage-dependent than shareholder rights in corporations.
Rule: Codifies duty of loyalty, duty of care, and obligation of good faith and fair dealing for members in member-managed LLCs and for managers in manager-managed LLCs.
Impact: Allows demand letters to invoke corporate fiduciary language (self-dealing, gross negligence) in addition to marital fiduciary duties under §721.
Many California "family businesses" are actually Delaware corporations or LLCs. Internal affairs doctrine means Delaware law governs corporate governance and inspection rights, even for California spouses.
Rule: Stockholders may inspect books and records for a "proper purpose" upon written demand under oath, including stock ledger, stockholder list, and other corporate documents.
Procedure: Must state purpose with "reasonable particularity" and demand must be under oath.
Litigation: Delaware Chancery Court has extensive §220 case law; courts scrutinize both stockholder's purpose and corporation's resistance. Fee-shifting often imposed on losing party.
Practice Tip: §220 demands are faster and cheaper than full discovery in plenary litigation—often resolved in 60–90 days.
Rule: Members of Delaware LLCs have inspection rights to books and records for purposes reasonably related to member's interest, subject to operating agreement provisions.
Flexibility: Delaware LLC operating agreements can modify or eliminate default inspection rights (unlike Delaware corporations under §220).
Practice Tip: Always read the operating agreement before drafting demand letter for Delaware LLC—contractual restrictions may apply.
For a Delaware entity owned by California spouses:
Rule: California Supreme Court held that majority shareholders owe fiduciary duties to minority shareholders regarding any use of their control over the corporation; they must act in a "fair, just, and equitable" manner.
Impact: Even if managing spouse owns only 51% (or controls via voting agreements), they owe duties to minority spouse-shareholder beyond just marital duties.
| Duty Source | Who Owes It | To Whom | Statute/Case | Remedy |
|---|---|---|---|---|
| Marital Fiduciary Duty | Managing spouse | Other spouse (community estate) | Fam. Code §§721, 1100 | §1101: 50%–100% + fees |
| Director Fiduciary Duty | Directors/officers | Corporation (derivatively) and shareholders (directly in some cases) | Corp. Code §§309, 310 | Derivative suit remedies |
| Controlling Shareholder Duty | Majority/controlling shareholder | Minority shareholders | Jones v. Ahmanson (1969) | Direct damages, injunction |
| LLC Manager Duty | Managers (manager-managed LLC) | LLC and members | Corp. Code §17704.09 | Damages, removal, fees |
| Delaware §220 Inspection | Stockholder | Delaware corporation | DGCL §220 | Court-ordered inspection + fees |
This is the single most important distinction in structuring a demand letter. Your rights, remedies, and strategy differ dramatically depending on whether you are listed on the corporate stock ledger or LLC membership list.
If you're a record shareholder/member: You get statutory inspection rights (Corp. Code §1601, DGCL §220, etc.) plus marital fiduciary rights (Fam. Code §§721, 1101). Demand letter can invoke both.
If you're only a community-property co-owner (not on corporate docs): You cannot directly invoke corporate inspection statutes, but you still have powerful marital disclosure rights under Fam. Code §§721, 1100, 1101. Demand letter focuses on marital duties.
| Issue | Record Shareholder/Member | Community Co-Owner Only |
|---|---|---|
| Standing for Corp. Code §1601 Demand | ✅ Yes – Statutory right as shareholder of record | ❌ No – Recent CA authority: beneficial owners cannot invoke §1601 directly |
| Standing for DGCL §220 Demand | ✅ Yes – Stockholder of record in DE corporation | ❌ No – Must be record stockholder |
| Marital Fiduciary Rights (Fam. Code §§721, 1101) | ✅ Yes – As spouse whose community estate includes business | ✅ Yes – Same marital rights regardless of corporate formalities |
| Right to Financial Disclosure | ✅ Dual basis: Corporate statutes + Fam. Code | ✅ Fam. Code §§721, 1100 (managing spouse has affirmative duty to disclose) |
| Remedy for Non-Disclosure | • Court-ordered inspection (corporate) • §1101 damages (50%–100% + fees) • Fee-shifting under both regimes |
• §1101 damages (50%–100% + fees) • No direct corporate remedy |
| Prior Written Notice Required (§1100(d)) | ✅ Yes – If business is community property | ✅ Yes – If business is community property |
| Derivative vs. Direct Claims | Can bring derivative suit on behalf of corporation and direct claims for personal harm | Generally limited to direct claims as spouse (not corporate derivative standing) |
| Demand Letter Strategy | Invoke both corporate statutes and Fam. Code; dual-track leverage | Focus exclusively on Fam. Code marital duties; frame as community-estate disclosure |
Facts: Husband and wife are each listed as 50% shareholders on California corporation stock ledger. Husband is CEO and sole director. Wife suspects husband is diverting funds to side business.
Rights:
Demand Letter Strategy: Draft two separate demands in one letter: (1) §1601 statutory inspection demand with specific document list, (2) Fam. Code §§721/1100 marital disclosure demand. Creates dual litigation tracks.
Facts: Husband formed Delaware LLC before marriage; only husband listed as member. During marriage, LLC acquired California real estate and expanded significantly using community funds. Wife is not on membership docs.
Rights:
Demand Letter Strategy: Lead with community property presumption under §760; invoke managing spouse's affirmative duty to disclose under §721 and Brewer & Federici. Frame as marital disclosure obligation, not corporate.
Facts: Wife owns 30% of California S-corp (on stock ledger); husband owns 70% and is sole director/officer. Husband refuses to provide financial statements or declare dividends; takes large salary and bonuses.
Rights:
Demand Letter Strategy: Invoke §1601 inspection + minority oppression themes (excessive compensation, withholding dividends, exclusion from management). Also invoke marital duties. Triple-threat leverage.
Facts: Both spouses are 50/50 stockholders of record in Delaware C-corp. Husband is sole director. Company operates exclusively in California. Wife suspects self-dealing transactions.
Rights:
Demand Letter Strategy: DGCL §220 demand (under oath, proper purpose); cite California community property overlay in background section. Dual-regime approach.
Managing spouses (and their lawyers) often say: "My spouse is not even on the corporate documents, so they have no rights to information." This is wrong.
California Family Code §721 explicitly states that spouses owe each other fiduciary duties equivalent to business partners. As the eminutes.com article explains: "The corporation is a legal fiction for liability and tax purposes—it does not extinguish the managing spouse's duty to provide full disclosure about community assets."
A spouse who is not a record shareholder cannot invoke statutory inspection rights (Corp. Code §1601, DGCL §220), but still has marital disclosure rights under Family Code and case law (Brewer & Federici, Margulis). Demand letters must clearly articulate this distinction.
California Lawyers Association, "California Appellate Court Affirms that Only Shareholders of Record Can Assert Statutory Inspection Rights Under California Law"
Holding: California Court of Appeal held that Corp. Code §1601 inspection rights belong exclusively to shareholders of record—beneficial owners who are not listed on the stock ledger cannot invoke §1601 directly.
Implication for Spouses: If spouse is community-property co-owner but not record shareholder, cannot use §1601. Must rely on Fam. Code §§721, 1100, 1101 instead.
Practice Tip: If you want statutory inspection rights, ensure spouse is added to stock ledger or LLC membership list as record holder of community interest. Otherwise, demand letter must proceed purely on Family Code grounds.
A demand letter in a community property business dispute is not just a polite request. It is a strategic legal tool that accomplishes multiple objectives simultaneously: preserving statutory rights, building an evidentiary record, creating fee-shifting leverage, and forcing the other side to take a position before expensive litigation.
Corporate Inspection Statutes: Corp. Code §1601, DGCL §220, and Delaware LLC Act §18-305 all require written demand before litigation. Oral requests don't count.
Timing: §220 requires 5 business days' notice before filing suit; California statutes don't specify but courts expect reasonable notice.
Specificity: Must identify categories of documents with "reasonable particularity" (Delaware) or state purpose "reasonably related to shareholder's interests" (California).
💡 Tip: Attach demand letter as Exhibit A to later inspection litigation—shows strict compliance with statutory prerequisites.
§1101 Requires Breach + Impairment: To recover 50%–100% of undisclosed assets plus fees, must show managing spouse's breach "results in impairment" of community estate.
Demand Letter = Proof of Knowledge: A detailed demand specifying suspected misconduct (secret distributions, below-value sales, self-dealing) creates record that managing spouse was on notice of fiduciary obligations.
Refusal to Disclose = Evidence of Malice/Oppression: If managing spouse ignores or obstructs demand, can support §1101(h) claim for 100% + fees (Civil Code §3294 standard).
Fam. Code §1101(g): Court shall award 50% of undisclosed asset plus attorney fees and costs to prevailing party.
Corporate Fee-Shifting: Delaware §220 and California shareholder litigation both support fee awards against party that unreasonably refuses inspection or over-litigates.
Pre-Litigation Demand = Reasonableness Evidence: If you make clear, reasonable demand and other side refuses or slow-walks, strengthens fee application later.
⚠️ Warning: Overly broad or bad-faith demands can backfire—courts penalize gamesmanship on both sides.
Strategic Advantage: Once managing spouse responds (or refuses to respond), they are locked into a factual and legal position. Inconsistent later testimony = impeachment.
Discovery Shortcut: A thoughtful demand letter can elicit admissions or denials that narrow issues before expensive depositions and document discovery.
Settlement Leverage: Many cases settle after demand letter when managing spouse realizes cost and risk of litigation (especially fee-shifting exposure).
Fam. Code §1100(d): Managing spouse must give prior written notice before disposing of all or substantially all business assets.
Demand Letter Can Challenge Past Violations: "You sold the business's main asset (real property / customer list / IP) without notice to me as required by §1100(d). I hereby demand disclosure of all terms and consideration."
Voidable Transaction: Failure to give notice can make transaction voidable; demand letter preserves this claim.
Demand Letter = Party Admission: Certified mail receipt proves managing spouse received notice. Refusal or silence can be introduced as evidence of consciousness of guilt or obstruction.
Detailed Factual Allegations: If managing spouse doesn't deny specific allegations in demand letter (e.g., "You transferred $200K to offshore account"), silence may be deemed admission in later litigation.
Sanctions Risk: Family courts have inherent authority to sanction spoliation and obstruction. Demand letter creates baseline for what should have been preserved.
Choose based on status (record shareholder vs. community co-owner):
If Record Shareholder/Member:
If Community Co-Owner Only:
Both should also invoke:
Be specific but not accusatory. Examples:
Tailor to statute. Examples:
Standard Corporate Inspection Request (§1601 / §220):
Marital Disclosure Request (Fam. Code §§721, 1100):
Ignoring or slow-walking a statutory inspection demand can result in:
Strategic Response Options:
When Appropriate: Demands are reasonable, you have nothing to hide, and you want to avoid litigation costs and fee-shifting risk.
Response: Acknowledge demand, produce responsive documents within deadline, offer inspection at business location.
Benefits: Moots litigation, avoids fee awards, demonstrates good faith.
Risks: Disclosed information may be used against you in later dissolution or business litigation.
When Appropriate: Some requests are reasonable, others are overly broad, burdensome, or seek privileged materials.
Response: Produce clearly responsive documents; object to overbroad/irrelevant requests with specific grounds (attorney-client privilege, work product, trade secrets, undue burden).
Benefits: Shows good-faith compliance while preserving defenses.
Risks: Requesting party may file inspection petition; court will evaluate reasonableness of objections.
When Appropriate: Demanding party is not record shareholder/member and cannot invoke statutory inspection rights; business is separate property, not community; demand lacks proper purpose.
Response: Formal response letter challenging legal basis (e.g., "You are not a shareholder of record under Corp. Code §1601" or "This business is my separate property under §770").
Benefits: Forces demanding party to prove standing and community character; may deter weak claims.
Risks: If you're wrong, courts penalize bad-faith resistance with fee awards. Even if business is separate property, may still owe marital disclosure under §721.
When Appropriate: Deadline is unreasonably short, requests need clarification, or you need time to gather voluminous records.
Response: Promptly acknowledge demand, request reasonable extension (e.g., 30 additional days), propose meet-and-confer to narrow scope.
Benefits: Demonstrates good faith, may resolve dispute without litigation.
Best Practice: Get extension agreement in writing; if requesting party refuses, you have evidence of reasonableness for court.
Flat Fee: $450
Demand letter: Flat fee $450. Hourly rate: $240/hr. Contingency: 33-40%.
Flat Fee: $600–$1,500
Initial response $600-800; complex multi-issue responses $1,000-1,500; follow-up correspondence billed separately
These cases form the foundation for demand letters and litigation in community property business disputes. Understanding them helps both sides evaluate strengths, weaknesses, and settlement value.
California Court of Appeal, First District
Holding: In interspousal transactions where one spouse gains an advantage, a presumption of undue influence arises due to the fiduciary relationship under Fam. Code §721.
Facts: Husband induced wife to sign quitclaim deed transferring community real property to husband's separate property without adequate consideration.
Rule: Spouse claiming benefit of transaction must prove it was obtained through full disclosure, adequate consideration, and without undue influence.
Practice Tip: Cite Haines in demand letters alleging self-dealing transactions (e.g., spouse buying business asset from LLC at below-market price, or transferring community business interest to separate holding company).
California Court of Appeal, Second District
Holding: Managing spouse has an affirmative duty to acquire and disclose information concerning the value and character of community assets, including complex assets like pensions and business interests.
Facts: Husband failed to disclose full value of pension benefits during dissolution proceedings.
Rule: It is not enough for managing spouse to passively answer questions—they have a sua sponte (self-initiated) duty to investigate, obtain accurate information, and disclose it to the other spouse.
Practice Tip: Brewer & Federici is the anchor case for demand letters by non-managing spouses. Even if spouse doesn't ask for business financials, managing spouse has duty to disclose.
California Court of Appeal, Second District
Holding: Managing spouse's sua sponte duty to furnish information extends to disposition and valuation of community assets, citing Brewer & Federici with approval.
Facts: Husband failed to disclose sale of business interest and disposition of proceeds during marriage.
Rule: Managing spouse cannot claim "she never asked" as defense to non-disclosure; duty is affirmative and ongoing.
Practice Tip: Combine Brewer and Margulis in demand letters: "You have an affirmative, sua sponte duty under Brewer and Margulis to disclose all business transactions, valuations, and dispositions—regardless of whether I specifically requested them."
California Court of Appeal, Fourth District
Holding: Fiduciary duty of spouse managing community assets includes a duty of care in investment choices, and expert testimony can be used to show investments were imprudent or excessively risky.
Facts: Husband made speculative real estate investments with community funds that resulted in significant losses; wife's expert testified investments violated prudent-investor standards.
Implication: Business decisions by managing spouse are not insulated by business-judgment rule—can be scrutinized under fiduciary duty of care standards.
Practice Tip: Use Duffy when challenging managing spouse's risky business ventures, undercapitalized expansions, or speculative investments with community funds.
California Court of Appeal, Fourth District
Holding: Managing spouse who handles community assets has ongoing duty to account and provide transparent financial information.
Practice Tip: Frequently cited alongside Brewer to establish that managing spouse must maintain and produce accurate business records.
California Supreme Court
Holding: Majority shareholders owe fiduciary duties to minority shareholders regarding use of control over the corporation; they must act in a "fair, just, and equitable" manner and may not use control to disadvantage minority.
Facts: Controlling shareholders created holding company and transferred their shares, leaving minority frozen out of liquidity opportunity.
Rule: Controlling shareholders' fiduciary duty runs directly to minority shareholders (not just to corporation) when they engage in conduct that harms minority.
Practice Tip: Cite Jones when managing spouse is majority shareholder and engages in freeze-out tactics (withholding dividends, refusing board seats, blocking access to information). Establishes that minority spouse-shareholder has direct claim, not just derivative.
California Court of Appeal, Second District
Holding: Excessive officer compensation paid by controlling shareholders to themselves can support both derivative and direct claims by minority shareholders; court awarded attorney fees to minority shareholder for successfully enforcing inspection rights.
Facts: Controlling shareholders paid themselves salaries far exceeding market rates while refusing dividends to minority shareholders.
Rule: When controlling shareholders use corporate form to enrich themselves at expense of minority, courts will scrutinize compensation as potential breach of fiduciary duty.
Practice Tip: Use Jara in demand letters alleging managing spouse takes excessive salary/bonuses while refusing to distribute profits to minority spouse-shareholder. Also supports fee awards for inspection litigation.
California Court of Appeal, First District
Holding: Trial court erred in denying shareholder inspection rights under Corp. Code §1601; court improperly applied Delaware law and failed to recognize breadth of California statutory inspection rights.
Facts: Minority shareholder sought to inspect corporate books and records; corporation resisted, claiming shareholder had improper motive.
Rule: California §1601 inspection rights are very broad and cannot be denied based on speculation about shareholder's motives, as long as purpose is "reasonably related to shareholder's interests."
Practice Tip: Havlicek is critical for California corporation inspection demands. Courts cannot deny inspection based on vague concerns; burden is on corporation to show request is clearly unrelated to shareholder interests.
California Supreme Court
Holding: In closely held corporation with buy-sell agreement, valuation disputes and majority-minority dynamics are resolved by interpreting shareholder agreements and applying fiduciary principles.
Facts: Buy-sell agreement required valuation of departing shareholder's interest; majority and minority disputed valuation method.
Implication: Shareholder agreements are enforceable but will be interpreted against backdrop of fiduciary duties; courts won't allow controlling shareholders to manipulate valuation to minority's disadvantage.
Practice Tip: Useful when demand letter challenges valuation of business for buyout or dissolution purposes.
Skadden, Sidley, and other firm summaries of Delaware Chancery decisions
General Rule: Delaware courts increasingly impose fee-shifting against corporations that unreasonably resist or over-litigate §220 inspection demands.
Key Principles:
Practice Tip: For Delaware corporations, §220 demand + litigation is often faster and cheaper than full discovery in plenary suit. Cite Delaware case law in demand letter to signal sophistication and fee-shifting risk.
For Non-Managing Spouses:
For Managing Spouses:
I represent both sides of community property business disputes: non-managing spouses seeking disclosure and accountability, and managing spouses responding to demands while protecting their interests. Whether you need a demand letter drafted or need to respond to one, I can help you navigate the intersection of California family law and corporate governance.
Demand letter: Flat fee $450. Hourly rate: $240/hr. Contingency: 33-40%.
📧 Request Demand LetterInitial response $600-800; complex multi-issue responses $1,000-1,500
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