The law does not consider family members as one legal unit. Each member of a family may have different roles and responsibilities. They may also have quite different financial interests.
In numerous situations, family members assume responsibility for certain decisions. When they do, or if they have another role where their choices and actions can affect other family members, they can breach a fiduciary duty, and the affected family members can hold them legally responsible.
To be clear, fiduciary duties do not always result from a general family relationship (although spouses can owe each other a fiduciary duty, and parents may owe one to their children). The fiduciary duty comes from a financial relationship between family members.
Could Family Members Owe Fiduciary Duties to Each Other? Under What Circumstances?
In general, some relationships will result in a fiduciary duty. For example, when one is in a position where they are a stronger party in a business relationship with some control over the business, they will owe a fiduciary duty to another person involved in the business affected by their decisions. Fiduciary duties result from a relationship of trust. One is trusting someone to act in the best interests of a trust or business when they cannot necessarily act themselves.
What Are the Requirements of the Fiduciary?
In general, a fiduciary duty consists of:
- The duty to use reasonable care when making decisions (such as performing a fair amount of due diligence before engaging in transactions)
- The duty to avoid conflicts of interest and to place the duties to place another party’s interests over those of the fiduciary
How Can I Hold Fiduciaries Personally Responsible for Losses?
Breaches of fiduciary duty can cause significant financial damages. When the fiduciary breaches their duty, they can be held personally liable. They will need to pay the money to the plaintiff out of their pocket. Thus, fiduciaries should not take their duties lightly and be sure they can act in this capacity before agreeing to do so.
Family members are often chosen to serve in a fiduciary capacity or may take on the obligation based on their role. Unfortunately, family bonds do not always take precedence over self-interest. Some people may not be ready to serve in a position they agreed to. Regardless of the reason, family members can sue each other for breaches of fiduciary duty.
Trustees Can Cause Losses to Family Members
Another instance in which family members may sue each other for breach of fiduciary duty is when one alleges that a trustee violated their fiduciary duty. When a grantor establishes a trust, they select a trustee responsible for managing the trust assets per the trust document.
People may establish an asset protection trust as they get older to protect their assets from the high costs of long-term care. They will often name the child as the trustee. The grantor cannot retain any decision-making responsibilities because it will mean that they still control the assets. The trustee can be responsible for managing trust assets for years. There is often tension between family members who disagree with the trustee’s choices.
Do Family Members Owe Fiduciary Duties to Each Other in a Business?
Family members are often in business together in closely-held corporations. In one of these businesses, shareholders owe a fiduciary duty to the corporation. Generally, they do not owe a fiduciary duty to each other. However, a majority shareholder will owe a fiduciary duty to the minority shareholders.
One family member may take issue with another family’s actions on behalf of the business (or in their interests). The family members may conflict with the direction of the business, and one tries to freeze the other out of the business. Alternatively, a family member may be concerned that one is wasting corporate assets.
Family Business Conflicts Often Happen
Unfortunately, conflict in family businesses is all too common. Some rivalries come into play, along with disagreements about the course of the business. You can see it in the fact patterns of court decisions involving family-run business disputes. People can disagree when there is a significant amount of money at stake. Alternatively, rivalries with each other can cause people to take actions to advance their position that are not in the best interests of the business.
Even when family members do not have ownership stakes in a business, they may sue each other. Family members might simply work for the business, and an employee has a legal responsibility to act in the interests of their employer, as opposed to in their self interest. If they have acted for their gain and caused damage to their employer, their employer may sue them. It does not matter if the employer was a family member.
Can Powers of Attorneys Breach Their Fiduciary Obligations?
Another example of a potential family lawsuit for breach of fiduciary duty is when one family member has a power of attorney to make decisions on behalf of another. The person with a power of attorney is an agent, and they must put the interests of that family member over their own. The person with power of attorney may make a careless decision regarding finances or engage in a transaction with a related entity that costs money. Abuse of a power of attorney is a type of fiduciary duty claim.
Lawsuits for Elder Financial Abuse
A lawsuit for elder financial abuse might be a related matter. Even if the family member did not have a formal role, they can be liable for breaching a fiduciary duty to a family member if they misappropriate assets. If one is a caretaker and they steal a check or illegally access a bank account, the elder can sue them. A family member may have a position of influence over the senior and use it to exploit them. Other family members who have suffered losses can also sue.
Outside of the business context, there are also instances in which family members may sue each other for breach of fiduciary duty. There have been cases where children have sued their parents for decisions that they have made that affected them.
Are Spouses Liable to Each Other?
This rule even allows spouses to sue each other if one committed a tort. For example, under Illinois law, spouses may sue for torts committed during the marriage. The law deems spouses to owe a fiduciary duty to the other during the marriage. Previously, the law did not allow spouses to sue each other under common law. However, modern cases and statutes allow these types of lawsuits.
Note that the fiduciary duties to each other will end when the marriage ends. In other words, if one spouse breaches a duty to an ex-spouse, they cannot face legal action for breach of fiduciary duty. However, there may be other grounds for a lawsuit.
Courts Do Not Like to Imply Fiduciary Duties
However, fiduciary duties will derive from actual relationships where there is “a moral, social, domestic or purely personal relationship of confidence and trust.” These are actual relationships that give rise to this duty. Courts do not often create informal fiduciary duties. Fiduciary duties are more objective than subjective.
A family relationship alone will not give rise to a fiduciary duty. There must be something more to the relationship that places higher duties on one family member. Family relationships may create an informal fiduciary duty between family members where there is evidence of a relationship of trust and confidence. There must be some kind of special relationship when family members are in business together, or one has a designation as an executor or a trustee.
Do Not Hesitate to Sue a Family Member When They Have Caused You Losses
You should not avoid suing someone just because they are family. A family relationship certainly did not stop them from breaching the duties that they owed to you. If someone has violated the duty that they owed, you should seriously consider filing a lawsuit against them. While there will be consequences for the family, there will also be consequences when one family member costs others money, and they do nothing to rectify it.
If you are filing a breach of fiduciary lawsuit, you have an obligation to prove every element of your claim. Otherwise, you may be unable to recover financial compensation.
How Can You Win a Breach of Fiduciary Duty Lawsuit?
To win a breach of fiduciary duty lawsuit against a family member, you will need a lawyer who can prove:
- Someone took on fiduciary duties that they owed you
- They breached the duty that they owed to you
- You suffered actual losses as a result of the breach of fiduciary duty
Contact a Business Attorney to Review Your Legal Options
There is no reason why you need to suffer losses and not do anything about it. If you suspect a family member breached their fiduciary obligations, contact an attorney to learn more about your legal options.
One of the possible legal options is a lawsuit. Your attorney will need to gather proof that can show that the other party breached their obligations. Many of these cases are highly contentious because they involve family. To be clear, it will not be the lawsuit itself that will cause the tension - the actions that led to the lawsuit are the source of the disagreement.
What Damages Could a Breach of Fiduciary Duty Lawsuit Recover?
If you win your breach of fiduciary duty lawsuit, you will be entitled to total damages to compensate you for your loss.
Your damages may include:
- Compensatory damages for the monetary losses that you have suffered
- Lost profits, if the breach of fiduciary duty cost you money that you should have earned
- Non-economic damages for the psychological harm and angst that the breach of fiduciary duty caused you
- Punitive damages based on the extent of the wrongdoing by the fiduciary can be up to three times your actual losses.
Many people underestimate their losses due to a breach of fiduciary duty. They also might not know how to calculate damages or what to include in their claim. Chances are a family member who caused you financial harm will not willingly pay you what you deserve. You need a business lawyer who handles fiduciary claims to calculate the worth of your lawsuit. Your attorney can gather evidence to support the value you attach to your claim.
Contact an Attorney Early in the Legal Process
Contacting an experienced business attorney when you suspect someone has breached their fiduciary obligations is vital. You must take prompt legal action to protect yourself and minimize losses. One of your first rights is to request an accounting record from the fiduciary. They will need to provide you with a listing of the transactions that they have made. Based on that, you can file a lawsuit for breach of fiduciary duty.
With the right attorney, you will better know your legal rights and options.