Investments

Wealthy investors make money from funding divorces

Money may not buy love, but it can help warring partners buy their way out of a broken down marriage – and a new investment fund aims to cash in on divorce.

The fund from private finance company Novitas offers loans of up to £300,000 for couples to pay divorce legal costs.

Investors can earn up to 8% a year on a minimum investment of £20,000.

The fund provides cash for couples who cannot raise credit from banks. The first loan was agreed last year, and the firm claims to have lent several million pounds with no defaults.

“The reduction in banking credit, coupled with the government cut-backs to legal aid, means people seeking a divorce can face a hefty financial burden,” said fund manager Jason Reeve.

“We are aiming to provide an alternative lending source to help divorcing couples

“People who do not have sufficient cash to meet the legal costs of divorce often find themselves needing to borrow money to pay their solicitor. It is all about cash flow ahead of the division of the matrimonial assets.”

Demand is anticipated to stay high as marriage break ups increase, with 120,000 in 2010, a 5% increase on the previous year, reveals Novitas.

The divorce lending market is an estimated £100 million a year, with legal fees averaging between £13,000 and £40,000 a couple.

Borrowers pay a one-off set-up fee of £500 or 1% of the loan amount if higher, plus a fee of no more than £150 to register a charge against property at the Land Registry.

Interest is rolled up and calculated as a fixed rate percentage of borrowing and varies between loans.

Borrowing is secured, generally against the family home, but other assets like shares or land are also considered.

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