A fiduciary duty is a legal obligation that requires one party to act in the best interest of another. When this duty is violated, it’s called a breach of fiduciary duty—and it can lead to serious legal and financial consequences.
To know what a fiduciary duty is, how it can be breached, and what legal options are available is essential for anyone involved in business, finance, or trust-based relationships.
Defining Fiduciary Duty
A fiduciary duty arises when one person or entity agrees to act on behalf of another in a position of trust. This is common in relationships where one party has more knowledge, access, or authority and is expected to act with honesty, care, and loyalty.
Some of the most common fiduciary relationships include:
- Business partners
- Company directors and officers
- Trustees and beneficiaries
- Financial advisors and clients
- Legal representatives and clients
In each case, the fiduciary is expected to avoid conflicts of interest and act solely in the interest of the person or entity they represent.
What Is a Breach of Fiduciary Duty?
A breach of fiduciary duty occurs when the fiduciary acts against the interests of the person or organization they owe the duty to. This breach can be intentional or due to negligence, and it often involves personal gain, secrecy, or failure to disclose critical information.
Examples of breach of fiduciary duty include:
- A business partner mismanaging business funds or engaging in self-interested transactions
- A trustee using trust assets for personal expenses
- A corporate officer engaging in insider trading
- A financial advisor recommending products that serve their own interests over the interests of his client
These actions violate the trust at the core of the relationship and can cause financial loss, reputational harm, or long-term damage.
Learn more about how these cases are handled in civil court related to business litigation.
Elements of a Legal Claim
To bring a legal claim for breach of fiduciary duty, the following elements must usually be proven:
- A fiduciary relationship existed
There must be clear evidence that one party had a duty to act in the best interest of another. - That duty was breached
The fiduciary either failed to act or acted in a way that served their own interests, was dishonest, or showed a lack of care. - The breach caused damages
The harmed party must have suffered financial loss or other measurable damage as a direct result of the breach.
Courts often examine whether the fiduciary had a duty of care, duty of loyalty, or duty of full disclosure—and whether that duty was broken.
If you’re unsure whether your situation qualifies, consult with BridgeTrust experienced in business litigation to evaluate your case.
Legal Consequences and Remedies
When a breach of fiduciary duty is proven, courts may order:
- Compensation for financial losses
- Disgorgement of profits the fiduciary gained improperly
- Punitive damages in cases of malicious or fraudulent conduct
- Removal of the fiduciary from their role
- Injunctions to stop ongoing harm
In some cases, a fiduciary may also face criminal charges if fraud, embezzlement, or theft is involved.
The type of remedy depends on the relationship, the nature of the breach, and the damage caused.
How to Protect Yourself
If you are in a fiduciary relationship—either giving or receiving trust—it’s important to take steps to protect your rights.
To protect yourself as a fiduciary:
- Keep detailed records
- Disclose all relevant information
- Avoid conflicts of interest
- Follow formal processes for decisions
To protect yourself from a breach:
- Monitor transactions and agreements
- Ask questions about major decisions
- Get independent reviews of financial or legal documents
- Act quickly if something seems wrong
- Consult with professionals, such as lawyers and accountants, to ensure compliance
Early legal advice can help prevent problems before they escalate into litigation.
If you suspect a breach of fiduciary duty, it’s wise to speak with an attorney who understands business litigation and fiduciary law.
Fiduciary duties exist to ensure trust and fairness in sensitive relationships. When those duties are violated, the consequences can be serious. A breach of fiduciary duty is not just a broken promise—it’s a legal violation that can affect lives, businesses, and financial futures.
Recognizing the signs early and understanding your legal options can help you act before more damage is done.