Defalcation

AAA

DEFINITION of 'Defalcation'

1. Combining two or more debts to create one total debt. Defalcation can be legally carried out upon request or in death of one of the parties.

2. Theft or misuse of funds which were under the control of the defalcator but not owned by them. Defalcation is a form of embezzlement through the allocation of funds, or failure to account for received funds.

INVESTOPEDIA EXPLAINS 'Defalcation'

1. For example if Peter had a $100 debt to Diana and Diana had a debt to Peter for $14, the debt could be combined. Peter would then owe Diana $86. This is not always legally possible without the consent of both parties.

2. The term defalcation is usually used in the context of public officials misappropriating public funds. There is a requirement of one party to be in control of someone else's account while allocating the funds in an inappropriate manner.

RELATED TERMS
  1. Debt Consolidation

    The act of combining several loans or liabilities into one loan. ...
  2. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
  3. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  4. Fiduciary Negligence

    A professional malpractice in which a person fails to honor his ...
  5. Embezzlement

    A form of white-collar crime where a person misappropriates the ...
  6. Money Laundering

    The process of creating the appearance that large amounts of ...
RELATED FAQS
  1. What's the difference between legal defalcation and illegal defalcation?

    Defalcation describes the failure of any one party to hand over or present funds that were entrusted to its care, but not ... Read Full Answer >>
Related Articles
  1. Retirement

    Designating A Trust As Retirement Beneficiary

    Designating a trust as your IRA beneficiary can be beneficial, but it requires proper planning to avoid problems.
  2. Professionals

    Meeting Your Fiduciary Responsibility

    Being a fiduciary comes with a certain level of responsibility. These four steps will reduce your liability when managing other people's money.
  3. Budgeting

    Debt Consolidation Made Easy

    These five steps can help get you out of debt faster and easier than you'd ever imagined.
  4. Professionals

    Ethical Issues For Financial Advisors

    Learn what to do when that devil on your shoulder begins to whisper.
  5. Professionals

    8 Ethical Guidelines For Brokers

    We examine the less obvious ethical dangers faced by a broker, and help you avoid trouble in ethical gray zones.
  6. Professionals

    An Introduction To Fiduciary Advisors

    Offering personalized solutions in a world of cookie-cutter advice may be your ticket to career perfection.
  7. Home & Auto

    Can You Trust Your Trustee?

    Ignorance and incompetence can cost you money. Make sure your trustee is up to the task.
  8. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  9. Investing

    What's an Agency Problem?

    An agency problem occurs when a conflict of interest arises for an agent -- a person acting on behalf of another person. The conflict of interest arises when the agent’s own interests are different ...
  10. Investing Basics

    The Dodd-Frank Wall Street Reform Act

    The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly called Dodd-Frank, was passed in 2010. The goal of the act is to prevent another great recession like that of 2008, which ...

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center