In most developed western countries, it is illegal for divorce attorneys to receive a a share of any settlement. This is due to a fear of an increase in the amount and tenacity of divorces. If an attorney can receive a percentage of the settlement, they will stop at nothing to squeeze out every dollar from their opponent.
However, these rules do not apply to financiers. Several firms are beginning to offer special loans to would-be divorcees that have a high interest rate of around 18% annually. This extra cash allows divorcees to hire a premiere legal team and win a higher settlement. Without the loan, they would likely have to give up and settle for much less. Most applicants can typically expect to win assets worth three times their borrowing. They then pay off their loan, and both parties walk away a little bit richer.
What if a couple gets back together?
This is the biggest fear of financiers, as the assets would not be sold, and the borrowers would be unable to pay back their loans. To combat this, many firms hand pick cases in which reconciliation is nearly impossible. An example is a couple that have already been battling it out in court for a lengthy amount of time.
Some firms have completely bypassed this risk by using a referral system. These firms will refer clients to lawyers, who then have to guarantee their clients' loans. If borrowers cannot pay the financiers back, the lawyers have to pay the loans themselves.
This entire section of the finance industry is new and interesting, but it is already causing a bit of a controversy. What do you think? Is it right for a firm to finance a divorce?
http://www.economist.com/news/business-and-finance/21694473-firms-who-lend-people-seeking-end-marriage-are-attracting-interest-inside
I think it is fine considering that the actual attorneys who are responsible for establishing settlements are not incentivized to get as much as possible. They get a better legal team through these policies, but the people in these teams are not incentivized to get more, they are just generally better attorneys. I don't see anything wrong with allowing people to get the best legal help they can receive.
ReplyDeleteI agree with Christopher as long as this is benefiting the clients as they are the ones that need to help and services then there is nothing wrong with these firms doing this kind of business as the attorneys assume responsibility for the settlement in court. The lawyers in my opinion should hold the most risk in this situation as they are the ones who are serving the clients and are the ones who resume the responsibility to win a settlement case in favor of their clients and if they do not do so, they should be liable for the loans if the borrowers cannot pay them back.
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