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Divorce Litigation Financing - Lenders Taking Contingent Fees on Lawsuits Where Lawyers Can't

By December 5, 2010

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Most attorneys are already familiar with lenders who finance contingent fee personal injury litigation. However, an article in the New York Times called Taking Sides in a Divorce, Chasing Profit, profiles a new company providing financing of high value divorce cases on a contingent fee basis. Balance Point Divorce Funding will lend money to women to finance their divorce litigation where the assets at stake range between $2 million and $15 million in value. Rather than charge interest on the loan, Balance Point takes a percentage of the money awarded to the woman in the divorce.

In most states, attorneys are prohibited from taking a contingent fee in a divorce case. However, this restriction is only a bar regulation, which means non-lawyers are free to completely disregard the rule. While some attorneys will seek an award of attorney's fees as part of a divorce settlement or judgment, most attorneys are not willing to advance the out-of-pocket costs of litigation without a better rate of return than just getting their money back. With the amount of money at stake in a high value divorce, it should come as no surprise that lenders are wanting to grab a piece of the pie. While it is certainly good that this may enable a person to fight for a more fair resolution of their divorce case, there are some concerns over whether this will ultimately lead to people being exploited for an unfair share of their marital assets.

What are your thoughts on this issue? Is this a great alternative for women who might not otherwise be able to fight for a fair distribution of the marital assets, or does this open the door for women to be exploited at a time when they are desperate and vulnerable? Have the bar associations made a mistake in preventing attorneys from taking contingent fees in divorce cases, while leaving the door wide open for non-lawyer finance companies to come in and provide the service without any oversight? Will this lead to banks making more off of divorce cases than the lawyers? Or does keeping lawyers away from contingent fees help keep lawyers from getting their judgment clouded by their own self-interest? Post a comment below, or discuss the issue in our Forum.

Comments

December 5, 2010 at 10:29 am
(1) Richard says:

This smacks of exploitation on one hand, but it actually makes some sense because sometimes people don’t have the cash to hire a lawyer for a high value case. A housewife whose husband is the major breadwinner would have marital assets worth millions but not have the ability to access those assets to hire a good lawyer. There are some states that permit contingency fees in divorce cases. Those that don’t fear lawyers turning divorces into blood-lettings that leave the parties broke and the lawyers rich. So, by limited lawyers’ fee-taking, the bar has exposed parties to other financial predators.

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