Posted by: euser
December 16, 2010
Topic: Marriage and Divorce

It never fails to amaze me what you can finance. Nearly every store in the mall has its own credit card, you can pay on Ebay purchases over time using Paypal, home shopping networks offer monthly low payments on wares from fitness equipment to jewelry, and plastic surgeons will set up a payment plan on any number of procedures. The latest item you can finance? Your break up.

This month, The New York Times published an article by Monica Almeida titled "Taking Sides in a Divorce, Chasing Profit." The full text may be read at http://www.nytimes.com/2010/12/05/business/05divorce.html?_r=2.

Not paying for the cost of a lawsuit up front isn't a new idea. Many attorneys advance the cost of certain types of lawsuits, such as personal injury cases. There are ads everywhere for attorneys who won't charge a cent unless the client wins. Frequently, these are contingency fee arrangements, and the attorney is compensated by taking a significant percentage of any winnings. The client is not required to pay for legal services up front.

Contingency fee arrangements are subject to strict ethical rules. Not all cases are appropriate for a contingency fee arrangement. In fact, contingency fee agreements are never acceptable in a criminal case and are usually not allowed in domestic relations cases, such as divorce. The particular state where representation takes place dictates which types of cases may be paid for through a contingency fee agreement. In Kentucky, SCR 3.130(1.5) governs the fees that an attorney may charge for services. Pursuant to SCR 3.130(d)(1), "a lawyer shall not enter into an arrangement for, charge, or collect any fee in a domestic relations matter, the payment or amount of which is contingent upon the securing of a divorce or upon the amount of alimony, maintenance, support, or property settlement in lieu thereof..."

So what happens when a potential client wants to resolve a family law issue, but contingency fee arrangements cannot be used and the client doesn't have the money to retain counsel? In some cities, companies have sprung up to meet the demand for financing options. One such company is Balance Point Divorce Funding in Beverly Hills, California. Churchill Divorce Finance is preparing to open in New York City.

Companies like Balance Point are a lifeline for individuals whose spouses clear out bank accounts then file for divorce, leaving the other spouse surprised and penniless. The cost of breaking up can be very high once paying a lawyer, searching for hidden assets, and maintaining a lifestyle are taken into account. Companies who finance divorces are paid in the end with a share of the spouse's settlement. These companies are especially helpful when one spouse is the breadwinner and controls finances, and the other spouse takes care of children or the household, with very little control over the money flowing into the household.

Companies who finance divorces, and other lawsuits, help keep a party to the suit from maxing out credit cards or having his or her attorney withdraw due to unpaid bills. The companies also allow a party to stay in the litigation until it ends, instead of taking a lower settlement or accepting unfavorable terms because they cannot afford to keep going to court. Balance Point doesn't charge clients interest. In the article, Balance Point didn't comment on the exact amount of the settlement taken as payment for the financing, but stated that it is substantially less than one-third. According to the article, industry participants estimate that banks, hedge funds, and boutique firms like Balance Point now have a total of $1 billion invested in lawsuits at any given time.

Legal organizations look favorably upon companies like Balance Point. According to the article, the vice president of the American Academy of Matrimonial Lawyers welcomed the use of divorce financing because it helps put both spouses on an equal playing field. Equalizing the playing field can be very difficult. The clients of Balance Point are often women, without jobs, who are raising small children. Frequently, their husbands run their own businesses, making it difficult to obtain financial information. In one of Balance Point's cases, an estranged couple spent several hundreds of thousands of dollars on lawyers, accountants, and investigators. The judge overseeing the case warned that the total could exceed $1 million if the parties do not reach a compromise.

Divorces are not the only type of case being financed-other types of cases include securities fraud cases brought by disgruntled investors, whistleblower claims against corporations, and property development disputes.

Louis and I are not aware of any companies that provide funding for family law cases in Kentucky. However, the dearth of options means that the market is ripe for a company to step into this role. Until a company does begin offering this type of financing, or we become aware of such a company to refer clients to, we offer reasonable retainer fees so that you can hire knowledgeable and dedicated counsel for your family law issue. Please use the form on the left side of this website, or click "Contact Us," to tell us about your family law issue and schedule a free thirty-minute consultation. --Stacy Anne Hoehle

Companies That Finance Divorces Provide Lifeline to Struggling Clients

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