Family Law

FINANCING THE DIVORCE - LENDERS ARE INVESTING IN DIVORCES

By Aaron Weems

It is not uncommon in divorce cases to have one spouse who is in a financially superior position than the other. Though alimony pendente lite provides the dependent party additional support during the pendency of the divorce, the complexity of many cases means that the 'independent spouse' has mounting legal fees which far exceed any alimony pendente lite award. When a client has difficulty meeting day-to-day financial needs, the prospect of incurring tens of thousands of dollars of litigation fees from their divorce may have a chilling effect on their desire to litigate issues fully and completely. When coupled with the fact that typically each party pays their own legal fees and most local judiciaries do not readily issue orders for the payment of attorney's fees by the other party, it often results in individuals coming out of their divorce with significant amounts of debt. 

As highlighted in a December 4, 2010 New York Times article, there is an emerging group of financial companies who focus on lending money to divorce litigants in exchange for a share of the equitable distribution settlement. Professional Rules of Ethics prevent divorce attorneys from engaging in any type of contingency fee arrangement, however, these financial lenders are limited by such rules. Instead, they basically serve as a client's 'war chest' to provide them the means to hire the expert witnesses, forensic accountants, or any other litigation related expense required to ensure that their case is brought to a satisfactory conclusion. 

When a third-party pays a litigant's legal fees, it is important to remember that this does not change the scope of the attorney/client relationship. Whether a client uses a lender, a personal loan from a friend, or having their bills paid by their new boyfriend or girlfriend, there should never be any ambiguity as to where the attorney/client relationship extends. First and foremost, the attorney's responsibility is to the client, not to the person or entity paying the bills. Payment of someone's legal fees does not entitle that person or entity access, information, or direct the case. Your attorney should make it clear from the onset that regardless of how the bills are paid, attorney/client privilege only extends between the client and the attorney and that access cannot be bought.

While this type of lender has existed for personal injury cases, it appears that divorce cases are an emerging market. Although I am not aware of any Pennsylvania financial institutions or lenders offering this specific benefit, for many, it may be preferable to having to draw down credit lines and the goodwill of friends and relatives to finance a divorce action. So long as these emerging lending companies understand and acknowledge their role, they may prove to be a useful tool to spouses with shallow financial resources but significant equitable distribution claims.

Full post as published by Pennsylvania Family Law on December 14, 2010 (boomark / email).