When people win the lottery or have another large settlement coming to them, there are firms who reach out to them to help out. How? By buying the impatient winner's future windfalls for a percentage of the actual payout. Some companies in the U.S. are now targeting future divorcees in the same way.
Novitas, a divorce funding company based in Britain, just last month set up operations in the U.S. According to the NY Times, Novitas is just one of the companies looking to break into this lucrative market. How lucrative?
Novitas says it makes "nonrecourse advances" at rates of 1 percent to 1.5 percent a month — or 12 to 18 percent a year. A "nonrecourse advance" is one that the lender cannot recover if the divorce settlement does not yield a payout. Another firm, BBL Churchill Divorce Finance, makes loans for which they have recourse — if you don't get a settlement, you still owe money — and charges a similar interest rate.
Balance Point Divorce Funding says it makes an investment in a person's divorce, which entitles it to a percentage of the entire settlement.
Companies like Novitas generally lend around around a fifth or a quarter of the value of an expected settlement. The loans range from $100,000 to $250,000, which put the value of the settlements at around $400,000 to $1 million. The money doesn't need to be paid back until months or years down the line when a settlement is reached.
Of course, this is for those who are in dire need and need funds for living expenses, lawyers and everyday things their married life provided for them. It's for people like Theresa Emerson, who found herself out of options when she went to Novitas and, in her words, is "cash-poor and asset-rich."
Divorce Funding Firms Help Spouses Expecting Big Payouts (NY Times)
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