Written spousal consents are fixture of most business transactions that involve married persons. These consents are everywhere, in asset purchase agreements, stock purchase agreements, leases, beneficiary designation forms, and real estate transactions. To some clients this requirement often seems unnecessary and inconvenient, especially when one spouse isn’t even involved in the business or property that is the subject of the transaction. In fact, because of California community property laws and the nonconsenting spouses right to void a transaction a spousal consent is highly recommended. For an especially striking example of why these spousal consents are so important we turn to Donald Sterling, disgraced former owner of the Los Angeles Clippers.
Unfortunately for Donald, his fall from grace since being banned from the NBA for life in 2014 has been full of many interesting legal issues. First, in 2014, shortly after the release of the recording of his racist comments, Rochelle H. Sterling, Donald’s wife of more than 50 years, removed Donald as trustee of the Sterling Family Trust, which owned the Los Angeles Clippers, and attempted to sell the team to Steven Ballmer. Donald objected to the sale and refused to sign any of the sale documents. In response, Rochelle filed a petition in Los Angeles Superior Court to affirm the sale and her removal of Donald as trustee of the Sterling Family Trust. The Superior Court sitting in Probate agreed with Rochelle and affirmed the sale of the Clippers to Ballmer, finding that Donald lacked the capacity to understand trust transactions and that the trust would be substantially harmed if the sale did not close.
In a second Sterling case, this time involving lack of spousal consent, Sterling v. Stiviano, 2017 WL 3083472, filed shortly thereafter, the California Court of Appeal reaffirmed the right of one spouse to void unauthorized transfers of community property by the other spouse. In this case, Rochelle filed a lawsuit against Donald’s ex-mistress V. Stiviano for the return of roughly $2.8 Million in gifts of community property given to her by Donald. Specifically, Rochelle alleged that Donald had given Ms. Stiviano a 2012 Ferrari automobile purchased with $240k in community assets, a 2007 Bentley automobile purchased with $90k in community assets, a 2013 Range Rover purchased with $70k in community assets, a residential property in Los Angeles purchased with $1.8 million in community assets; and various cash payments totaling $430k in community assets. Obviously, Rochelle did consent in writing, or otherwise, to these gifts.
Rochelle invoked her power as the non-consenting spouse to void the gifts of community property. Rochelle argued that these gifts constituted an unauthorized gift of community property in violation of California Family Code §1100(b), which states “A spouse may not make a gift of community property, or dispose of community personal property for less than fair and reasonable value, without the written spousal consent of the other spouse.” The Court summarizes the well-established California law on the issue as “[g]ifts made without the consent of the wife are not void, but are voidable at the instance of the wife.” Sterling v. Stiviano, 2017 WL 3083472 at 3, citing Harris v. Harris, (1962) 57 Cal.2d. 367, 369. With this in mind, Sterling Court affirmed the trial court’s order that Ms. Stiviano must return all these gifts to Rochelle for the benefit of the Sterling community.
Obviously, the Sterling spousal consent case was a very clear cut case because there was no consideration for the transfer and no question that Rochelle had never consented to these gifts. The typical business transaction would be a much closer case because generally there would be an argument that the transaction was for “fair and reasonable value.” This theoretically provides an exception to the written consent requirement. However, allowing an important transaction to hang on the assumption the parties have agreed to a value that is “fair and reasonable” is far too much of a risk and the consequences far too great. Therefore, insisting on a written spousal consent for each transaction involving a married person is the only rational solution.