Divorce financing may help with high costs, but be cautious

According to some financial planners, the possibility of divorce is something that all married individuals should keep in the back of their mind. In fact, some financial planners recommend, in light of this possibility, that spouses maintain their financial independence throughout the marriage.

Jeff Landers, a Certified Divorce Financial Analyst, goes so far as to even recommend maintaining a secret emergency fund for the sole purpose of covering the cost of legal fees. Mr. Landers suggests that this is an important precaution that should be taken by the less financially-stable spouse. He reasons that without access to funds, the dependent spouse may be forced to make concessions in the divorce proceeding simply because they cannot afford to actively participate in the dissolution process.

To address this concern, a new business model has emerged to provide financing for individuals facing divorce. These firms provide litigation financing to individuals who cannot otherwise afford to obtain fund their legal representation. While the specifics of these arrangements may vary depending upon the firm, these businesses look at the arrangement as an investment that they will yield a return on. This might seem like a great idea, especially in cases involving complex and high-value assets, but these arrangements need to be approached with caution.

These financing arrangements are not available in all states. Even when available, the state may place restrictions on the structure of these arrangements. Minnesota lawyers are discouraged from recommending such agreements for a number of reasons, including the potential impact that these arrangements may have on the attorney-client relationship. When these arrangements already exist, lawyers are guided to do a full risk and reward assessment of the terms.

Obtaining a divorce does not have to be a litigious and costly process. There are a number of alternative means of dispute resolution, such as negotiation and mediation, which are not only more cost-effective, but also can result in an overall more desirable outcome.