A strong legal claim does not always come with the resources to pursue it. In this week’s FFI Practitioner, Fiona A. Chaney and Naomi Loewith explain how litigation funding works and when it may be relevant to family enterprises facing commercial, shareholder, or succession disputes. They also explore how a funder’s independent assessment can help advisors and clients evaluate a claim amid family conflict.

Consider this hypothetical case: Brothers David and Mark inherited equal shares in their family’s manufacturing company. David had spent twenty years developing the company’s proprietary production process—the core asset that distinguished the business from its competitors. When David’s relationship with Mark broke down, Mark left the company and shortly afterward announced plans to launch a competing venture. It quickly became clear that Mark had taken detailed and valuable technical documentation with him.

The company had a strong claim: misappropriation of trade secrets, breach of fiduciary duty, and potentially breach of confidence. But enforcing that claim would require immediate injunctive relief and sustained commercial litigation—an expensive, capital-intensive undertaking precisely when the business was destabilized by the dispute.

Litigation funding allowed the company to pursue the claim. The funder paid for the injunction application, ongoing litigation costs, and expert evidence on the value of the misappropriated intellectual property. The company preserved its resources for operations while pursuing the claim with the same discipline it applied to any other business decision.

The funder’s independent due diligence also provided something less tangible but equally valuable: an unsentimental assessment of the claim’s merits at a moment when the family’s judgment was clouded by conflict.

Litigation funding is a tool that advisors should understand, both as a financing mechanism and as an independent perspective. This article describes what litigation funding is, when it is most relevant in a family enterprise context, and when advisors might introduce it to clients.

What Is Litigation Funding?

Litigation funding—also called dispute finance or third-party funding—is an arrangement in which a specialized funder pays some or all of the legal costs associated with pursuing a claim, including counsel fees, disbursements, and expert fees. In return, the funder receives a portion of the proceeds if the claim succeeds. If the case is lost, the funded party owes the funder nothing: the arrangement is nonrecourse. Depending on the jurisdiction and funding agreement, the claimant may remain responsible for paying the successful opposing party’s legal costs.

The funder’s return is usually structured as a multiple of capital invested or a percentage of recovery, with terms negotiated case by case. The funded party retains control of the litigation: the client and their lawyers direct strategy and settlement decisions, and the lawyers’ professional duties run exclusively to the client.

Funders conduct rigorous due diligence before making an investment. They assess the legal merits of the claim, the likely amount of recovery, the defendant’s capacity to satisfy a judgment, and the overall risk-adjusted return. Not every case is suitable for funding, but for meritorious claims with meaningful recoveries at stake, it is a well-established and increasingly mainstream financing option.

Why It Matters in a Family Enterprise Context

Family enterprises present a set of conditions that make litigation funding particularly relevant. Asset concentration, liquidity constraints, and the complexity of intrafamily disputes make funding a distinctly useful tool.

Liquidity

Many family businesses are asset-rich but cash-constrained. Operating capital is deployed in the business; real estate and equipment are illiquid; and personal wealth may be substantially tied up in the enterprise. When litigation arises, the family may face a choice between pursuing a legitimate claim and preserving working capital.

Litigation funding resolves this tension. Because funding is nonrecourse and not credit-based, access turns on the strength of the claim rather than the claimant’s balance sheet. A family business that is already carrying operating debt can access litigation capital on a nonrecourse basis, meaning the business owes the funder nothing if the claim is unsuccessful. Depending on the terms of the funding agreement and the company’s accounting treatment, this may be possible without adding debt to its balance sheet.

Power Imbalances

Intrafamily disputes are rarely symmetrical. One branch of the family may control the corporate assets; another may have been excluded from distributions or management. The party with the stronger legal claim may be the party with less access to capital.

Litigation funding levels the playing field. It gives the party with fewer resources the ability to pursue their claim to its conclusion rather than accepting a settlement under financial pressure.

Independent Assessments

Family enterprise disputes are emotionally charged. Advisors who know the family well may find it difficult to offer an unsentimental assessment of a claim’s merits—or the family members involved may be unreceptive to one. A funder’s due diligence provides a rigorous, independent evaluation by those whose only interest is an accurate assessment of risk and return.

In our professional experience over many years, claimants who have been through a funder’s due diligence process—even if funding is ultimately not offered—have consistently reported that the process helped them better understand the strengths and vulnerabilities of their position. For advisors, facilitating access to that process can be a genuine service to the client.

Three Examples of Family Enterprise Disputes

The scenario described at the outset—a departing family member who misappropriates the company’s core intellectual property—illustrates one of many categories of family enterprise disputes in which litigation funding can be helpful.

1. Affirmative Claims by the Business
   When the family business is the claimant—pursuing a breach of contract, trade secret misappropriation, breach of fiduciary duty, or similar claim against an external party or a departing insider—the central question is whether litigating is the best use of the business’s capital. Litigation funding allows the business to pursue the claim as a financial asset, financed separately from its operating capital, with the same strategic discipline it applies to other investments.
2. Minority Shareholder Claims
   In closely held family corporations, minority shareholders may need to pursue legal remedies to address unfair treatment by a controlling shareholder. The claim typically arises when one family member or branch attempts to squeeze out another or remove them from management without proper process.
   The minority shareholder, who may have been cut off from distributions and excluded from the business, is often the party with the strongest claim and the least capital. Litigation funding directly addresses this structural problem.
3. Estate and Succession Disputes
   Disputes arising from wealth transfers—will challenges, claims for financial support from an estate, and trustee liability—are a significant category of family enterprise litigation. The estate may hold substantial assets while individual claimants lack the liquidity to pursue claims against it. Funders are well positioned to evaluate estate claims; they understand the evidentiary requirements and the range of available remedies. For a claimant with a well-documented case and a meaningful interest at stake, funding converts a theoretical entitlement into an actionable one.

How Advisors Can Engage

If you think a client might benefit from funding, pick up the phone. Funders welcome early conversations and can give you a candid read on whether a matter is a potential fit—without commitment on either side. Based on a brief description of the legal theory, anticipated costs, and potential recovery, funders can assess whether a matter is worth exploring further. If it is, the funder will clear conflicts, execute a nondisclosure agreement, and proceed to due diligence, typically at no cost to the claimant.

When choosing between funders, advisors should consider their experience with the relevant dispute type, their financial strength and ability to fund through a lengthy proceeding, their reputation among litigators, and the clarity and fairness of their funding agreements.

Advisors should also be aware that the scope of what funders offer has expanded. Beyond financing active litigation, funders can assist in postjudgment enforcement—including asset tracing and cross-border recovery—often on the same nonrecourse basis.

A Tool for the Toolkit

Every advisor has seen a client walk away from a legitimate claim—or accept an inadequate settlement—because the financial cost of pursuing it was prohibitive. Litigation funding solves that problem, and family enterprise advisors who are familiar with it can help ensure that clients have access to the right tool to protect their interests.

Disclaimer: The views expressed in this article are those of the authors only. The information contained in this article is provided solely for informational purposes. This article does not constitute legal or tax advice or create an attorney-client relationship.

About the Contributors

Naomi Loewith combines litigation and investment expertise at Omni Bridgeway, a global litigation finance firm. Ranked Band 1 for litigation funding in Canada by Chambers and Partners, she works with family-owned businesses and their advisors to evaluate disputes as financial assets—and to access the capital needed to pursue them.