Eliminating Financiers from the Equation: A Call for Court-Mandated Fee Shifting in Divorces

Divorce can be prohibitively costly. Many struggle or simply cannot afford to pay divorce attorneys' fees, and the economic effects of divorce on women are particularly acute. In the past few years, financing firms have emerged to fund nonmonied spouses, mostly women, who cannot afford to litigate divorces from their wealthy spouses. The services provided come with a hefty price tag: firms take large fees, and their involvement may lead to unethical and potentially damaging practices. This Note explains what third-party divorce finance firms are and why the use of firms is problematic, and offers an alternative, more equitable method of financing nonmonied spouses' divorce fees. Courts, not financing firms, should address any disparities in ability to pay between spouses. Mandatory fee shifting by courts would obviate the need for these financing firms that improperly profit from divorce and whose services come with many unwelcome strings attached.INTRODUCTIONDivorce traditionally involves two spouses, their attorneys, a judge, and perhaps children. But today, in some cases, the drama involves a new party: a divorce-financing firm. Since 2009, these firms have been investing1 or loaning money at high rates2 to spouses, mostly women,3 to finance divorces. Traditional forms of funding (e.g., a standard bank loan) are often not an option for an individual whose spouse controlled the finances during the marriage and who often has no income, low credit, and little or no available collateral.4 In addition to often having difficulty paying to litigate a divorce, women typically experience a severe decline in economic standing after a divorce.5The media portrays third-party financing firms as saviors for those who cannot otherwise afford to pay for their divorce litigation. For example, reporters have dubbed one such firm and its leading attorney the "Robin Hood for divorcing women,"6 "the fairy godmother for Manhattan divorcees,"7 and the "divorce fixer."8 The nonmonied spouse seeking financing for her divorce is typically a woman whose husband controlled the finances, perhaps gave her an allowance, and generally funded her lifestyle by making mortgage and credit card payments and meeting other financial obligations.9 Divorces themselves are complex and expensive. In addition to attorneys' fees, spouses often pay for outside experts and investigators10 to analyze a spouse's questionable behavior and value the monied spouse's business, real estate, stocks, and other assets,11 resulting in a lengthy discovery process.The media and scholars have not probed deeply into the ethics and economics of this growing practice to consider if more cost-effective and morally sound alternatives exist for potential clients of these firms.12 Third-party divorce funding is distinct from traditional bank loans and credit cards for the following reasons: the financing firm is more involved in the outcome than a bank would be; there are moral implications of the firm explicitly profiting from divorce; and finally, divorce settlement is the only source of repayment. Unlike traditional loans where banks are repaid as long as their clients secure funding, divorce settlements are the only collateral for the third6. party financing firms, so these firms are more invested in the strategy of how money is spent and the goal of finalizing divorces.13Third-party firms finance nonmonied spouses either through nonrecourse loans or through an investment-like funding. Either of these funding arrangements, regardless of the nominal label given or the specifics of the arrangement, resemble a contingency fee arrangement when repaid in the event of a divorce settlement. This is problematic because contingency fee arrangements in which "[a] fee [is] charged for a lawyer's services only if the lawsuit is successful or is favorably settled out of court"14 have long been banned in divorce cases.15 Some firms give nonrecourse16 loans whose terms explicitly tie repayment to the finalization and settlement of the divorce. …