In Stutman’s opinion, divorce funding is a loan, not a cash advance.
“Divorce litigation is different from commercial litigation or personal injury litigation by virtue of the fact that the funds used to pay back the loan are not being provided by a third party (like an insurance company), but are being provided by yourself,” he argued.
Stutman does not recommend divorce funding to finance a client’s case.
“My preferred vehicle for this would be a line of credit that you draw down upon as needed (that is in the event your spouse is not funding these expenses adequately for whatever reason),” he said.
Stutman is also concerned that at present, there is no governmental regulation of divorce funding.
“They aren’t limited to a percentage of your settlement,” he said. “In fact, they aren’t limited at all. If your case ends up taking longer, costing more, or if the marital pot is smaller than you think, you could end up using a substantial portion of your assets to repay the loan. There’s a reason the lender charges a higher interest rate. That’s why its called risk.”
Noonan disagrees. She said that while some divorce funding companies may structure their financial assistance as a loan, New Chapter Capital does not. She said her divorce funding company advances funds on an as-needed basis, and that it does not fund more than 20% of a client’s estimated entitlement.
In her opinion, cash advances financed by divorce funding is money well-spent to achieve a fair and even-handed outcome for her clients.
“As the divorce process begins, it’s not uncommon for the spouse with the financial power during the marriage to declare war against their former partner by cutting off credit cards, draining bank accounts, hiding assets and hiring the best legal talent,” she said.
Noonan noted that waging this type of “financial combat” with a spouse wreaks emotional havoc on them, with disastrous results for their case.