In America and Britain, divorce lawyers are not allowed to charge a contingency fee – a fee representing a share of whatever settlement they secure. If this were allowed, public policy would not be served as it is feared such arrangements would cause more litigation.1
Interestingly, the same rules do not apply to financiers. Novitas Loans, a British firm, according to The Economist Magazine, is currently lending to 1,500 would-be divorcées (most are women) at 18% annual interest. The loans are intended to cover legal fees; applicants typically expect to win assets worth three times their borrowing. Without the loans, many would have to give up and settle for less, says Jason Reeve, the firm’s managing director.
BBL Churchill Group is an American firm with cases in 27 states. The firm’s average loan is $306,000 in New York State and less elsewhere. The typical interest rate is around 16%.
As The Economist article points out, the big risk for divorce funders is that a couple might get back together. When that happens, assets are not sold and a borrower may not be able to repay the lender. Novitas therefore prefers to fund cases that have been grinding through the court long enough to make reconciliation unlikely.
From a finance and economic perspective, divorces can get expensive very quickly. It, therefore, behooves the divorce client to seek a process, such as collaborative or cooperative divorce, prior to the expenditure of significant sums of money.
by Patrick Gaffney
