Divorce funding is a thing, mostly overseas at this point, but it’s likely to be a trend that Australia will follow.
Divorce funding is not huge in Australia (yet) but it’s only a matter of time. After all, with more than 45,000 divorces in Australia each year there is a population to support this kind of idea. In fact, an American firm called National Divorce Capital plans to open branches in Australia and Canada later this year. They ‘invest’ in divorce cases, only getting repayment if a settlement is reached They were bought by a British firm called Novitas Loans about a year ago.
This British firm is currently lending to 1,500 would-be divorcées (most are women) or divorcés, at 18% annual interest. The loans are intended to cover legal fees; applicants typically expect to win assets worth three times their borrowing. Without the loans, many would have to give up and settle for much less, says Jason Reeve, the firm’s managing director. It gets lots of thank-you letters from borrowers, he claims. Demand for loans of this kind has jumped since the British government restricted legal aid for divorces in 2013, notes Nigel Shepherd of Resolution, an association of family lawyers. Community legal centres in Australia offer legal aid, but at least 45,000 people have been forced to represent themselves in court since 2009 because the nation’s Legal Aid service is in turmoil, statistics released today by the Law Council of Australia reveal. The group has launched a new campaign called Legal Aid Matters, calling on all sides of government to commit to an extra $350 million to fix a service it says is in crisis mode.
Brendan Lyle of BBL Churchill Group, an American firm with cases in 27 states, says his role is “part financier and part therapist”. Vengeful clients, determined to fight over every last teaspoon, must be restrained. The firm’s average loan is $306,000 in New York state and somewhat less elsewhere. The typical interest rate is around 16%. The default rate is a modest 2%, although there is some forbearance for struggling customers.
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But firms that offer divorce funding face risk: they will only get paid once the assets of the marriage are sold. Therefore, the biggest risk is that a couple may get back together. In this scenario a borrower may end up being unable to pay back the divorce funding because assets are not sold. Companies like Novitas prefer to loan money for cases that have been going on long enough to make reconciliation improbable. One of Novitas’s competitors has 374 law firms that refer clients for divorce funding. The Iceberg Partnership, a company that underwrites the risk to divorce funding companies, transfers the risk to these law firms who must agree to repay Iceberg themselves if the client defaults on the loan. Iceberg provides an unsecured loan, at preferential rates, and as with a credit card, clients are expected to make monthly minimum payments.
Divorce Funding Through Crowdfunding
Crowdfunding is now also an option for divorce funding. One site has a dedicated divorce registry. Sara and Josh Margulis now have a divorce registry on Plumfund, a crowdfunding platform, after a discussion with Arianna Huffington (of Huffington Post fame). Their first online registry was Honeyfund, a honeymoon registry, which seems a little ironic! But now they are in the divorce business as well – something they never thought they’d do. At the time of writing there were 148 active divorce registries on the site. The registry allows people going through a divorce or their friends and family to raise money for expenses such as new furniture, legal fees and child custody. Sara understood the need for such a fund when she saw a close friend go through a bitter divorce and custody battle that left her financially depleted.
“Because divorce is considered such a shaming time in life, it’s a time when people tend to draw in and not really ask for help,” Sara says. “This is a way for someone close to a divorcée to say, ‘We’re going to rally around you and support you.’ It doesn’t have to be taboo.”
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Although we have come a very long way in shaking off the stigma of divorce that once existed (think divorce selfies and divorce parties) it doesn’t take the sting out of the emotional and financial hurt. While we may not be flush to help our separated friend, there are some other ways in which we can be supportive. Here are some as tried and tested on/by Jackie Pilossoph, a divorcee who is still smiling:
Don’t try to give advice.
Invite him/her to have coffee or a beer or go for a walk or a jog.
Write him/her a letter of encouragement.
Assure him/her that confiding in you is OK.
Do not exclude him/her from couple’s nights.
Don’t say anything stupid.
Don’t badmouth hi/her ex.
Offer to babysit his/her kids if they need “me” time.
Be honest if you must.
If you need some financial or legal advice about a separation or divorce then please seek professional help. Our family lawyers are experienced and happy to give you a free, 10-minute phone consultation. Please contact us today!