Divorce funding is a type of legal funding in which a funding company invests in a divorce case to help the side that is disadvantaged because they don't control the money. It's a relatively small niche of the legal funding industry, but it has been steadily growing.
Here are 10 things you need to know about divorce funding.
1. Most states have laws which prevent divorce attorneys from working on contingency. That means all the lawyer's fees in divorce cases have to be paid as the case progresses. As anyone who has been involved in a divorce knows, those fees can be quite expensive. And usually the more money at stake, the more upfront money it costs.
2. The party that controls the money usually has a big advantage in a divorce case since the other party often isn't able to maintain the lifestyle they had grown accustomed to. Some courts will give one of the parties temporary maintenance while the case is pending. However, in the types of cases where a large amount of money is at stake, that maintenance tends not to be nearly enough to preserve that person's lifestyle, and pay their attorney's fees and legal costs.
3. Divorce funding serves to level the playing field in these cases. Instead of allowing the side which controls the money to have all the leverage, legal funding allows the party without access to cash to be patient. Instead of settling for an early, low offer, they can wait for what is fair.
4. Divorce funding caters almost exclusively to high income couples, with combined martial assets of at least $2 million and usually much more. That's because divorce funders typically look to make investments of at least $100,000, and they need to be confident there are enough assets to split to make their investment worthwhile.
5. Divorce funding is different from other types of legal funding because often the party needing money has substantial assets in their name or joint names, they just aren't liquid. This is usually because until a divorce is final the couple isn't allowed to sell anything that may be considered a marital asset. However, they still may be able to use these assets to get a more traditional loan, which is usually less expensive than the rate of return divorce funding would command.
6. Before funding a case, divorce funders are going to have see any prenuptial agreement between the parties, a list of each parties known assets, and other personal and sensitive information.
7. The funder is going to base how much money they are willing to invest in a case on the assets of the other spouse, and if those assets are liquid. This is because the funder wants to get paid back as soon as the case settles.
8. Divorce funding can be particularly useful in cases in which one spouse suspects the other of hiding assets. Finding these assets can be an expensive process, from hiring investigators and accountants to litigating it all. But since the payoff can be huge, these cases can be very appealing to funders.
9. Because marriage is a matter of the heart, many divorce funders will only get involved in a case if there are public records of quarrels, evidence of abuse, mismanagement of money or other objective facts which make the funder confident the parties won't get back together. Because most divorce funding is contingent on a recovery, if the parties get back together it may be hard for the funder to collect any money.
10. For a number of reasons, legal funding is expensive and divorce funding is no exception. Divorce lawyers can offer guidance on whether it's right for you.
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