A growing industry is developing in the area of litigation loans. Though not unusual in personal injury cases or residential school litigation, entrepreneurs are beginning to look to the lucrative divorce market to turn a profit.
In high-net worth divorce cases it is typical to hear that only one of the spouses has their hands on the purse-strings of the family wealth, usually the husband, but not always. The economically challenged spouse may reside in a beautiful family home and drive a BMW, but once her savings have been used for her lawyer’s retainer and her credit cards are maxed out, she is playing on a field skewed in favour of her cash-rich spouse.
In British Columbia the Supreme Court may order that family funds be made available to a spouse who has run out of financial options, but only for the purpose of hiring expert witnesses, such as a chartered accountant, business valuator or property appraiser.
The Court will not order one spouse to pay the ongoing legal fees of the other, except in the most extreme circumstances. Of course, the rules on the costs of a court case do allow a court to order the losing spouse to pay the winning spouse, but that comes at the end of the litigation. Also, it is not full reimbursement, but a limited contribution to the victorious spouse’s legal fees.
Business woman and lawyer, Stacey Napp of California, has jumped on the litigation financing bandwagon with her firm, Balance Point Divorce Funding, a company she founded after her own brutal eight-year divorce.
Borrowing from friends and relatives, Ms. Napp settled her divorce case by agreeing to retain the family home and receive $500,000 as her share of her husband’s mobile home parks business. Not a bad deal you say?
It turned out to be a very bad deal, since shortly after the settlement; her husband offered his business for sale for the princely sum of $5.7 million.
Eventually an Arizona judge reopened the fraudulent settlement and awarded her an appropriate share of the actual value of the business. Using the funds from the court judgment Ms. Napp decided to put her money to work, funding divorce cases for others who like her, did not have the financial means to compete with their husbands’ deep pockets.
As a lawyer with a career in finance, Ms. Napp recognized she had all the skills required to run her new business. She knew how to find assets, understood the litigation process and had the money to make loans.
As for her clients, they don’t see it as a loan; rather they view it as an investment in their future financial security.
Lawdiva aka Georgialee Lang
Lawdiva's Blog 
There is a phrase..”The very rich are different from the rest of us”.
In my business, as a PI, I rarely accept engagements concerning divorce cases…too much emotion, too much hassle.
But in a few cases, I have taken them on; strictly in terms of finding hidden assets. In one case that is memorable, the prospective client wanted to hire me to discover the bank accounts that her husband had in Switzerland. In this particular case, it was evident that he had accounts there totaling about $11M. I had dealt with issues concerning Swiss banks previously, and found that as long as one knew what they were doing, the so-called bank secrecy could be circumvented.
This type of issue is covered by the Hague Convention, and is doable, but it requires some disbursements, not the least of which involves having to hire a Swiss lawyer to stick-handle the matter.
At issue was the fact that, given the amount of disbursements that I was contemplating, I needed a retainer of $75K. She demurred, pleading poverty, and suggested that I absorb the cost and we could settle once the matter was finalized. I pointed out to her that she was living in a home valued at about $9M, had three vehicles at her disposal, all of which the husband was paying for, and that the interim settlement pending the finalization of the divorce provided her with $19K per month maintenance.
But this was a woman who never saw a blouse that cost less than $400. so in her mind, she was poor.
Gawd…I am so glad that I turned down the engagement.
It never fails that some clients want you to “bankroll” their litigation. I, like you, almost never do so. When I have carried a client’s account the client’s gratitude factor is almost nil!
Thanks for you comments!
Thanks for the post.
I’m guessing – to put it in a B.C. Family Law context – it sounds like Ms. Napp may have gotten a whiff of Justice Fraser’s “Chuna” sandwich and decided to go for the “Gold”. I can’t help but wonder whether the initial settlement might not have somehow had a calculated strategic component to it.
As to your reference to “bankrolling” and “carrying” client accounts; reminds me of the story of the patient creditor seeking payment on an outstanding account. In response to certain excuses made by the debtor the creditor tells the debtor: “Actually; I’ve been better to your than your Mother….I’ve carried you for more than 9 months”
Ray Mayer
Special Situation Financing
Mayer Mortgage Corporation
ray@mayermortgage.ca
Ray Love your comment! If you know about “Cunha” and “Gold” you are very clued in. Keep commenting!
After I hit the send button I started having doubts about my spelling of the surname. I recall having seen it referred to in various Reasons as “Cunha”, “de Cunha”, and the one that stuck in my mind, “Chuna”. I think the proper one is actually “de Cunha” unless it was the wife’s surname. in any event If I had to think of “de Cunha” I would have probably been forced to think of some Gidgety analogy instead.