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Is it wrong to profit from divorce litigation?
Monday 28 May 2012 by Rachel Rothwell
There are some intriguing developments in the financing of divorce cases at the moment.
Investment in divorce litigation hit the headlines earlier in the year with the high-profile divorce of Michelle Young from her millionaire former husband Scot, described in the press as a 'fixer’ for Russian oligarchs and British billionaires. There was considerable press attention in the fact that Young’s legal action against her husband has been financed by a litigation funder, prompting numerous articles about the trend of investors seeking to 'cash in' on divorce cases.
Young’s case was backed by Harbour Litigation Funding until 2009, and is now being supported by another, unnamed, funder. Harbour’s Susan Dunn tells me emphatically that her organisation will not be backing any more divorce cases - ever - and will stick to commercial litigation, which is its area of expertise.
It is very hard to tell how much money is actually being invested in divorce cases, or indeed who precisely is investing in it. But the perception that it is an expanding practice does seem to have contributed to calls for litigation funding to be regulated by government.
The Liberal Democrat peer Lord Thomas, who recently tried and failed to bring in government regulation of litigation funding, did so because he was concerned that it was spreading into areas where it would be individuals, not corporate entities, who would be on the receiving end of the funder’s cash, and these individual litigants would be in need of more protection.
Thomas referred to the growth of funding in divorce litigation and the prospect of it spreading into personal injury as a reason for bringing in government regulation. For the vast majority of funders, who deal only with commercial clients, investment in divorce litigation is therefore seen as a bad thing, as it could ultimately bring statutory regulation down onto the entire litigation funding sector. Most funders assert that they would not touch this sector themselves, as divorce cases are not governed by 'economically rational behaviour’ (as anyone who has gone through an acrimonious divorce will know).
But alongside investment in divorce litigation, the extent of which is unknown, what is more clear is that there is a real growth in lending targeted specifically at divorce claimants, with a number of players in this market. The latest development is the launch last week of a new fund by Novitas, which lends money to finance divorce cases.
Novitas has previously focused on high-value divorce cases, with an average loan value of £50,000, but interestingly it is now making a big push into the lower end of the market, offering loans from £3,000. Under its model, the client - usually the wife - takes out a loan using the matrimonial home as security, and her lawyer then bills against this loan.
Whereas previously Novitas’ referrals came largely from top-end private client firms such as Withers, as it expands to the high street, it now also has links with three QualitySolicitors firms.
Intriguingly, the company is hoping that well-heeled divorce solicitors will choose to put their own cash into its new fund as an investment opportunity. But one does wonder whether any potential difficulties could arise where a lawyer guides their client towards a loan facility in which they hold a personal stake.
At first glance, there may seem something slightly unsavoury about lenders seeking to turn a profit from divorce litigation. But ultimately, this new drive into the middle England market could have a beneficial effect on access to justice for spouses - mostly women - who are not being offered a fair deal in their divorce, but do not have the means to do anything about it.
And as the Co-op aggressively seeks market share in high street family work, anything that increases the overall number of divorce cases that can be brought could prove good news for solicitors as well as unfairly treated spouses.
Rachel Rothwell is editor of Litigation Funding magazine, providing in-depth coverage on costs and the financing of litigation.
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