I came across several news outlets yesterday running a story about the “Divorce Fairy”, otherwise nicknamed the “Divorce Fixer” or the “Robin Hood for divorcing women”. The story discussed a particular divorce finance firm located in Manhattan, which loans money to divorce litigants typically in the New York/New Jersey area, so that the litigant can purportedly fund his or her lifestyle, as well as litigation expenses, during what may be a lengthy and acrimonious proceeding.
The article went on to detail that a typical loan is approximately $250,000, at an interest rate of anywhere between 12-20 percent, where personal income and credit scores are not taken into account. In determining whether to loan money, the firm evaluates the marital asset pool to determine the likelihood of the loan being repaid at the matter’s conclusion. Considering that the typical loan is a quarter of a million dollars, the services provided are not going to be compatible with all matters or for all individuals.
As a threshold consideration, is such a service necessary? On the one hand, it seems like a great idea, especially for spouses who had no control over the assets during the marriage and do not know how they are going to pay for a retainer, let alone the costs of an entire proceeding. I recently had a potential client indicate that she wanted to retain our firm, but could not afford to pay a cent of a retainer – no credit card, no account access, no borrowing ability from family, friends, or a financial institution. The other party had hired a very aggressive attorney and filed a Complaint for Divorce containing no less than eight (8) counts, and a motion to dismiss some of the counts was likely going to have to be filed at the outset. In that case, considering the assets involved that would be available to repay a loan, she sounded like a good client for the services provided by a divorce financing firm.
Similarly, we recently represented a client who sought an amount of monthly interim support commensurate with that lived during the marriage. The problem was, however, that she had no idea what the marital lifestyle was because the husband earned the income, controlled the assets, and paid the expenses. This is not an unheard of scneario, but the trial judge took issue with the litigant’s inability to quantify the marital lifestyle, despite the husband earning upwards of $1 million annually. Under these circumstances, being able to procure a loan from the financing firm would, perhaps, have eased her concerns about funding her monthly expenses and allowed her to litigate against a spouse with a bottomless war chest.
On the other hand, some would argue that such a service not only serves to unnecessarily drag out a litigation, but also circumvents many of the more standard avenues available to a payee spouse to ensure that her lifestyle is maintained during the divorce, and that she receives a counsel fee payment to “level the playing field” with the monied spouse. This way, the monied spouse cannot financially intimidate the other spouse into an inequitable settlement or result. When a motion to procure such relief is available where the monied spouse may be directed to pay interim support and fees from his income, rather than marital assets under his control, one can argue that it does not make sense for the non-monied spouse to incur such a substantial obligation to a creditor, with what some may consider to be a very high interest rate attached thereto (which is not surprising since credit scores and income levels are not considered).
It comes down to a cost-benefit analysis. When a case finally reaches its conclusion, how does the non-monied spouse determine whether it was worth procuring the loan and its accompanying interest rate, rather than having filed a motion with the trial judge for interim financial relief, which would not carry the same debt obligation. In addition, while evaluating an asset pool to determine if a loan can be repaid makes sense, oftentimes the asset pool available at the commencement of a matter is different from that at the end of the matter, for a variety of reasons including but not limited to, passive market forces. While there are many cases where the loan can be repaid without difficulty, instances may arise where the non-monied spouse cannot repay the debt at a matter’s conclusion. In the course of negotiating, the debtor spouse can ask that the monied spouse pay off the loan and any potential interest, or at least a part thereof, which is certainly that litigant’s right to request pursuant to various rules and cases applicable to support and counsel fee awards.
Ultimately, the divorce finance service is a very interesting and developing concept. While it does not seem to be appropriate for every case or client, any litigant considering such an option should not only consider the debt obligation that will accrue in connection with such a service, but also how it measures in comparison to your rights as a divorce litigant, and other avenues of potential relief, such as the motion practice outlined above. Be sure to discuss all such options with experienced matrimonial counsel before making this type of decision in connection with your divorce proceeding.