A Troubling New Practice: For-Profit Businesses that Fund Divorce Cases

By Barbara A. Babb, University of Baltimore School of Law Associate Professor of Law and Director, CFCC

The New York Times recently published an article about a new trend in family law: for-profit businesses that invest money to support one party’s legal case in a divorce proceeding and then are paid on a contingent basis from the party’s recovery in the case. I am disturbed by this new development, as it seems to skirt long-established ethical rules in family law practice.

While some attorneys ethically are permitted to charge their fees on a contingent basis (think of the classic personal injury attorney), matrimonial lawyers cannot. The public policy reason for this is that a lawyer has a first duty to advocate for the client’s interests, and there is so much more at stake in a family law case than just money. Sometimes, the best decision for the parties in what begins as a divorce case is reconciliation. Further, there may be times when a smaller total monetary recovery for one party may be used as a bargaining chip for other interests, like obtaining sentimental property. There also are times where litigating for the top recovery possible would require the parties to engage in a very contentious process that would cause more pain for the family than the monetary recovery would be worth. Thus, if an attorney has a stake in the monetary recovery, she could encounter a conflict of interest and could influence a client to make decisions that would harm the client because of the attorney’s desire to profit.

The problem with these new for-profit businesses investing in divorce is that they can have the same harmful influence on a client, resulting in many of the same problems and concerns that undergird the ethical rule preventing attorneys from charging contingent fees in matrimonial cases. Unfortunately, however, the conduct of these businesses is not regulated in the same way as a lawyer’s. The for-profit business’ offer of assistance comes at a person’s most vulnerable and helpless time and can influence that person to make very bad decisions—for example, dissipating assets that rightfully belong to the recently split family or even pursuing a divorce more aggressively instead of considering reconciliation or other options. With no professional ethics governing this kind of for-profit business, there is no end to the damage it can do in a person’s life while seeking to increase the business’ contingent fee recovery. From both a public policy and a moral perspective, then, it is imprudent to allow these businesses to influence individuals in pain who are experiencing a family breakup and are enduring an extremely difficult time.

As the article points out, this kind of business does allow a person to secure counsel to recover assets that may not be recovered without immediate funding to pay an attorney, and it could potentially help the individual to avoid being disadvantaged by a former spouse. The family justice system, however, already has a way to address this problem without resorting to for-profit businesses that are founded on such questionable ethical grounds. The justice system allows a party to ask for attorney’s fees from the person with money, which is done routinely and granted frequently.

I know that new practices like the for-profit businesses raise complex issues, and I am interested to hear how others perceive this new trend. Do you share my concerns? Are there other considerations you would address? Are these for-profit businesses more justifiable than I believe they are?

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