Thursday, December 9, 2010

Family Law Sees Its First "Lawsuit Lenders"

From the NY Times:

Michelle Pont and her husband amassed millions of dollars in properties and investments from a freight-hauling business that they started with a single stake-bed truck in 1991. They bought a four-bedroom home, then a second home, a vacation home, a motor home and half a dozen cars.

But when Ms. Pont decided to seek a divorce last year, she quickly ran out of money. She had no job. Her husband controlled the family’s investments. A few months of legal bills maxed out her credit cards and drained her retirement account.

She wrestled with accepting a smaller settlement than she considered fair. Then a lawyer referred her to Balance Point Divorce Funding, a new Beverly Hills lender that offers to cover the cost of breaking up — paying a lawyer, searching for hidden assets, maintaining a lifestyle — in exchange for a share of the winnings.

In October, Balance Point agreed to invest more than $200,000 in Ms. Pont’s case.

“It’s given me hope,” Ms. Pont said. “I don’t view it as a loan; I view it as an investment in my future. They are helping me to get what is rightfully mine.”

With some in the financial world willing to bet on almost anything, it should be no surprise that a few would see the potential to profit from the often contentious and emotional process of ending a marriage.

So far, the number of companies investing in divorce is small — Balance Point is one of the few that do it exclusively. But other businesses are gearing up. A New York start-up, Churchill Divorce Finance, also is planning to enter the business. The company’s chief executive previously co-founded a publicly traded Australian company, ASK Funding, that has invested tens of millions in divorce cases there.

While this business is in its infancy, Balance Point is part of a bigger trend — the growing industry that invests in other people’s lawsuits, arming plaintiffs with money to help them win more money from defendants. Banks, hedge funds and boutique firms like Balance Point now have a total of $1 billion invested in lawsuits at any given time, industry participants estimate.

Lawsuit lenders initially focused on personal injury cases, but over time they have sought new frontiers, including securities fraud cases brought by disgruntled investors, whistleblower claims against corporations and property development disputes.

Stacey Napp, a lawyer by training who has spent her career in finance, founded Balance Point last year with money from her own divorce. Since then, she has provided more than $2 million to 10 women seeking divorces. She says she is helping to ensure both sides can defend their interests.

Divorce cases may be a promising niche for lenders because costs can mount quickly — some top lawyers in Los Angeles charge more than $500 an hour — and because state laws uniformly require plaintiffs to pay lawyers upfront, rather than promising them a contingency fee, or a share of any winnings, as is common in other civil cases.

Read the full article here.

AC

http://lawprofessors.typepad.com/family_law/2010/12/family-law-sees-its-first-lawsuit-lenders.html

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Comments

Interesting article addressing a very common situation. Unfortunately some lawyers get carried away with charging fees they know are beyond what the case is worth. This can lead to more pain than just the divorce. Loans of this type can help - but knowing that your lawyer will also tell you when to fight and when to walk away is important.

Posted by: Sydney Lawyer | Dec 19, 2010 1:21:04 PM

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