The New York Times on 4 December 2010 described a loan company that bankrolls division of property litigation on a contingent fee basis, for the cash-poor divorcing party in cases where the marital estate is $2-15M. The lower limit of the eligibility range is to make sure the litigation is driven by asset division, and not some other hot-button issue like kids, self-respect or revenge.

            In an open economy you can finance just about anything if it is legal. But the vulnerable spouse in a medium-to-high-asset divorce case raises special concerns. It is precisely because of these concerns that lawyers cannot fund cases for clients in contested family law matters, the way they can in product liability or personal injury suits.

            Here are pro’s and con’s involved in borrowing money for divorce.

           

Advantages

Risks

1. Level the playing field for the spouse without access to cash.

1. The spouse borrowing to pay for a court case may be unnecessarily signing away part of the marital estate that they would have received anyway, even without the financing.

 

2. If the litigation does not work out, there is always the possibility the loan may be dischargeable in bankruptcy.

2. These litigants (stay-at-home moms, and others) are vulnerable to overreaching. Often, they are less sophisticated in financial matters.

3. Use of the third-party lender preserves legal counsel’s independent professional judgment.

 

3. If their attorney receives part of the loan at the outset of litigation, the lawyer may fight less hard to obtain fees from the other party through a settlement or award.

 

            The overriding concern in divorce financing needs to be a just and fair outcome for the more needy spouse, usually the wife. As long as an injection of funds for the lawyer, private investigators and experts does not tilt the litigation outcome in favor of the early lump sum settlement preferred by the lender; rather than, for example, higher spousal support over time that may be of greater value to the recipient, I am all in favor.