Small Business

Paying for divorce: Firm gives you funds, for a cut of the settlement

Here's the good news! Fewer American couples are getting divorced.

The bad news: Lots of American couples are still getting divorced.

How to finance your divorce

As any couple going through the process will tell you, breaking up is expensive to do. Sometimes the richer the couple, the harder it is for one party to pay attorneys and track down assets. More money, more problems.

Stacey Napp believes she can level the playing field.

"I was very fortunate," Napp said of her own divorce, in 2008. "I came from a family that had resources, I went to law school, I had been (working) in debt collection for awhile, so I had all the components that you would want to have in a bad situation like this."

After her divorce was final, Napp realized other people weren't as fortunate, and she learned that divorce attorneys are barred by law from working for contingency fees. "That was really the 'Aha!' or epiphany moment," she said.

Read MoreThe most expensive divorce settlements of all time

In 2009, she formed Balance Point Divorce Funding, a Beverly Hills, California, company that finances the cost of a divorce in exchange for a percentage of any settlement. This is not a loan. It's an investment. (Tweet This) If there's no award, Napp not only doesn't make any money, she loses the money she invested.

"We haven't lost money on a case yet," she said, literally knocking on wood. "We've funded probably over 25 cases now. We have a bunch now that are sitting with us at the present time."

Clients include Patricia Cohen, the ex-wife of SAC Capital Advisors founder Steve Cohen. The former Mrs. Cohen believes her ex owes her millions of dollars from their divorce over 20 years ago, according to The New York Times.

"I didn't get a client for almost two years," said Napp. She approached investors, but they wanted to see proof of concept first. "I had to put my money where my mouth was."

Napp funded the company with her own divorce settlement, proved that the business model worked, and the investors came on board.

How it works

Wavebreakmedia Ltd. | Getty Images

Here's how Balance Point finances a divorce:

  • Clients who call Napp are asked how long they've been in divorce proceedings, who their lawyers and experts are, and how much they believe they're due from a spouse.
  • Napp asks the client's lawyer to come up with a budget for the total estimated cost of pursuing a divorce all the way through trial (though most are settled ahead of time).
  • Balance Point does its own due diligence and decides whether a potential settlement is worth an investment. Napp said her return on investment averages in the double digits.
  • If the company funds a divorce, the money is doled out in tranches.
  • Assuming the client wins a settlement, as much as 25 percent of it goes to Balance Point.

Say, hypothetically, that a woman believes she is due $10 million based on a couple's assets, worth $20 million. Taking the case all the way to trial might cost $750,000. Balance Point will fund $750,000 but in $150,000 increments. The more a client draws down, the higher the percentage he or she owes Napp from any eventual settlement.

In determining how much of a percentage to ask for, Napp decided to stay below the 33 percent that's typical of attorneys who operate on a contingency basis (again, divorce attorneys cannot work for contingency fees). She wanted to self-regulate and establish best practices in an industry that's brand new.

Read MoreHow to avoid a nasty and costly divorce war

"We start as low, quite frankly, as a one-digit percentage," she said. "Typically we don't go above 25 percent, and that's by design."

Most of Balance Point's clients are women. All of its investors are men. Nearly all of the women who've received funding are divorcing men with self-made fortunes. Of the few men who've received funding, all are going up against wives who inherited their wealth.

You're not going to get everything. You shouldn't expect to get everything. Take a haircut, walk away with your sanity, walk away with time in your life, and start over.
Stacey Napp
founder, Balance Point Divorce Funding

Balance Point is expanding its services into funding asset recovery, and Napp is considering moving into funding custody battles. She recently funded the recovery of $500,000 that an ex-wife was due from her husband after an 8-year-old divorce.

"He hated her so much he moved to the Midwest," she said. "He wouldn't pay her." Nine months after Balance Point got involved, "She had the full amount paid."

Napp won't name names, but she says her craziest case at the moment involves a man who works as a criminal informant for the government. "He's being protected, the assets are being hidden, and there is a level of complicity that you cannot believe," she said.

There are some cases that Napp won't touch, however, like the woman divorcing a man whose money is in Dubai.

"I said, 'You're a woman with a judgment going into an Arab country. I think you're going to have a worthless judgment at the end of the day. I can't fund this.'"

She also won't work with people who aren't willing to compromise. "You're not going to get everything. You shouldn't expect to get everything," she said. "Take a haircut, walk away with your sanity, walk away with time in your life, and start over."