When Theresa Emerson left her 29-year marriage, she was a multimillionaire who became penniless and homeless overnight.
As the cash-poor but asset-rich dependent spouse, she felt helpless until she found the “fairy godmother of divorce.” That was Nicole Noonan, CEO of divorce financing firm Novitas US. She stepped in with a $150,000 (U.S.) loan to cover Emerson’s fight for her share of an estate she estimates is worth $4 million (U.S.).
The 18 per cent interest rate attached to the loan is high, but the firm is also taking on a great risk—if she doesn’t win, it receives nothing.
Now, Noonan wants to bring Novitas’ services to Canada and plans to set up a Toronto operation in the summer or fall.
“Our next push is certainly Canada because, like the U.S., there’s a lot of divorces,” Noonan said.
The move would make it the first lender of its kind in this country, family law experts believe. But they’re torn over whether the business is a novel solution that helps economically disadvantaged spouses or a new form of predatory lending.
For Emerson, the choice was clear: either she could pay the fee in exchange for recovering millions, or settle for nothing.
“Women in my position do not have a way to go after their estate, the playing field is not level,” she said. “But this way, I have the opportunity while going through a divorce to do it with dignity.”
Before she met her fairy godmother, she spent months trying to find a lawyer, but was told she’d need to pay $10,000 (U.S.) immediately as a retainer.
A friend suggested she take out a loan against the $2 million (U.S.) 6,000 square-foot six-car garage home in Southern California. But unlocking the value in that house was the reason she needed the money to fight her husband.
“Nobody is lending to someone who has no money, who has no assets, whose credit’s destroyed,” said Emerson, who asked that The Star use her alias to protect her identity from her husband.
In a serendipitous online search, Emerson stumbled across an article about Noonan, a former divorce lawyer who opened a U.S. arm of Novitas, a British divorce financing firm that provides loans to cover the costs of a divorce - as long as there are substantial assets involved.
Noonan decided to get into the niche lending business after seeing too many stay-at-home moms suddenly cut off from their husband’s money and left powerless.
“Day in and day out I would see it and that was just heart wrenching,” she said.
Noonan’s firm lent Emerson $150,000 (U.S.) at an 18 per cent interest rate, meaning she’ll have to pay back $177,000 (U.S.) within three years after the divorce is finalized.
The money - aside from the $50,000 (U.S.) she receives for living expenses - is kept in a trust by her lawyer, who uses the pool to pay herself, the forensic accountant, private investigator and others.
Novitas is making extremely risky loans, which is why it charges so much interest and rejects nine in ten applicants.
Loans that cover the high cost of divorce in Canada could be one part of a solution to a family law system that has become overly complex, expensive and time-consuming, said Trevor Farrow, associate dean at Osgoode Hall Law School.
“The upside of these kind of third party arrangements is they provide access to justice opportunities for people who otherwise couldn’t afford them,” he said.
“The downside with these sorts of things is it turns people’s tragedies and people’s disputes — particularly when they’re at their most vulnerable — into business opportunities for funders who are looking to make a return.”
The expense of hiring a lawyer has led to an increasing number of spouses choosing to represent themselves. More than 57 per cent of Ontarians did not have a lawyer in family court in 2014-2015.
The province is reviewing a proposal to allow paralegals, law clerks and law students, to represent individuals in family law cases to help bring costs down.
But there’s still the problem of economic disparity between a moneyed and dependent spouse.
In Canada, the U.K. and the U.S., divorce lawyers are not allowed to represent clients in exchange for a share of the settlement, as they do for class action or personal injury cases. But there’s nothing stopping a third party funder from stepping in.
Family lawyer Philip Epstein is skeptical about the need for this kind of service.
High net worth clients are usually able to secure a line of credit based on the equity in a matrimonial home and a letter from their lawyer, he said. In some of his most famous cases, when a lot of money was on the line, his firm chose to carry the cost of the case despite the risk of not being paid at the end.
“There are other ways of leveling the playing field without borrowing money at 16 or 18 per cent,” said Epstein, who is editor-in-chief of the Reports of Family Law.
In Canada, the average divorce costs less than $15,000. And most of the time, people aren’t fighting about assets, they’re fighting about children, he added.
Most clients who can’t afford a lawyer are likely to be rejected by such financing firms that cater to the small minority of divorces that are high net-worth and high conflict, he said.
“I don’t think that’s where the problem is. The problem is for the person with average means or no means in finding proper legal representation,” he said.
“These aren’t the cases that these agencies are funding. They’re funding the battle of the Trumps.”
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