(In the 12th paragraph and subsequent references, corrects thespelling of Stacey Napp, and in the 23rd paragaraph, removesreference to Balance Point making smaller loans than Churchill.)
By Geoff Williams and Beth Pinsker
NEW YORK, April 12 (Reuters) - When big dollars are at stakein a divorce settlement - a situation faced by billionaireoilman Harold Hamm after his headline-grabbing breakup - thelitigation tends to drag on for months, if not years.
But a protracted court battle is expensive and may seemunaffordable for the "less moneyed" spouse divorcing anestranged partner with deep pockets.
That's why a mini-industry has emerged to help finance thelegal costs of breaking up with someone wealthy enough to make along court fight worth the upfront expense.
"One of the first tactics a spouse will do to get the otherto wave the white flag is run up legal fees against the other,"says Brendan Lyle, chief executive of BBL Churchill, a New Yorkfirm that specializes in divorce financing.
"It builds pressure on the other spouse when one can drop$40,000 on court costs without breaking a sweat and the othercan't. We're in there to help alleviate that problem."
Divorce financing is a relatively new field, emerging in theUnited States around 2009. It is a small subset of a growingindustry that gives access to third-party funding to prospectivelitigants that can't afford to fund their cases on their own.
The size of the wider field is hard to peg because only twocompanies are traded publicly - Juridica Investments Ltd and Burford Capital Ltd - although a myriad of otherfinanciers are in the business.
"It's just a fraction of cases that receive funding, but itis expanding dramatically," say Maya Steinitz, an associateprofessor at the University of Iowa College of Law in Iowa City,Iowa.
Among firms that specialize in divorce, BBL Churchill loansmoney to clients, usually after receiving a retainer of $10,000to $15,000.
"Most of our clients are wives of doctors, or husbands ofdoctors, hedge fund managers and finance company managers,accountants and accounting partners," BBL's Lyle says.
Balance Point Divorce Funding, based in Beverly Hills,California, takes a different approach. It doesn't loan clientsmoney, but structures agreements as investments in the outcomeof the case.
"With a loan, you have an absolute obligation to repay andthere could be scenarios where the lender gets more than theclient," founder Stacey Napp says. "We are in tandem with theclient."
Balance Point started in 2009 with funds from Napp's owndivorce settlement. Now Asta Funding Inc, an asset managementcompany in Englewood Cliffs, New Jersey, backs the firm.
When Churchill started, also in 2009, the firm fielded oneapplication every two weeks, Lyle says. It now it gets aboutfive a day.
His company is currently backed by Three Hills Partners -comprised of private equity from Jon and Steve Sabes ofMinneapolis and Patrick Preece of Greenwich, Connecticut.
EVALUATING CASES
Divorce financing companies do a significant amount ofunderwriting - research to calculate the client's chances ofprevailing and whether the potential settlement is worth thetime and resources.
"We understand that there are limits to what we do and weare trying to make sure that all of our loans come through,"says Lyle.
Both Churchill and Balance Point step in only when theclient has exhausted other avenues. Many first try to get theirown lawyers or financial management firms to back the case, orask the opposing party with deep pockets to pay the legal fees.
The money the firms provide pays attorney costs and otherexpenses, such as bringing in a forensic attorney to testify onthe client's behalf.
The typical loan at Churchill is $250,000 and, on average,it takes 14 months to pay back.
Each case is different, says Lyle, but the interest ratesare akin to credit cards, usually 16 to 19 percent.
The most expensive loan to date that BBL Churchill hasfinanced was $800,000 and the lowest amount is $25,000.
Napp, on the other hand, will refer clients who need more toChurchill.
Her company does not require clients to put up any money asa retainer and all of her potential clients must vet theinvestment agreement with an independent attorney who has no tieto the case.
"The risk-reward analysis needs to be done, to make sure theloan makes sense," says Lisa Hanson, a Philadelphia-basedfinancial adviser who specializes divorce financial planning.
"You'd want at least $500,000 in your settlement and itseems like typically you'd be looking at a marriage that has atleast $4 to $5 million in marital assets. And it really shouldonly be done if you have no other options."
Rosemary Frank, a Brentwood, Tennessee, financial adviser,prefers that her clients borrow on an already-open home equityline of credit or use funds from the marital estate to pay for adivorce.
She also recommends borrowing against a non-retirementportfolio, using the investments - stocks, bonds, mutual funds -as collateral.
But sometimes that simply is not enough to foot the bill,Napp says.
"Litigation funding levels the playing field," she says."Money is the great equalizer. It means you had a shot." (Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance. Editing by Lauren Young, Frank McGurty and Andre Grenon)
