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