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Is Litigation Financing a Viable Option?

  • 30 March 2016
  • Author: Cari Holbrook
  • Number of views: 3200
Is Litigation Financing a Viable Option?

You may have a great track record in the courtroom, but are you willing to bet on it? An increasing number of U.S. litigators are, following a trend called third party litigation financing (TPLF) or alternative litigation financing (ALF). This type of litigation financing often uses hedge funds and other investment principles to fund the litigation process for plaintiffs’ attorneys.

According to the American Bar Association, ALF is relatively new in the United States but is evolving as a method of providing financial support to litigants. It often takes the form of nonrecourse financing but it can also include loans to lawyers in contingency fee cases. Investors provide funding either as a lump sum or as periodic payments to a claimant in exchange for a share of the proceeds of the final judgment or settlement.

As pointed out by Probate and Property Magazine, litigation financing can be a useful means of payment for contingency fee cases such as those involving trusts and estates. For instance, a personal representative may delay distributions to a client because the trust or estate has uncertain liabilities (due to a pending litigation or audit, for example). Although the beneficiary may have an immediate need for these funds because of financial demands or age, the ultimate determination of the total liabilities could be months or even years away. ALF can offer a way to pay legal fees through an advance of these funds.

While most people think this technique is only available for class action/large cases, smaller cases can also be financed by small family partnerships utilizing this technique. But beware of the tax implications. Steven Bankler, CPA, Ltd. has established a service niche for those law firms that work under contingent fee agreements, to save both the attorney and their client taxes.  Contact us with your questions and to explore your options.

Image Copyright: phartisan / 123RF Stock Photo

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