Thursday, September 26th, 2019
Legal costs can be very expensive. There is of course always the option of dealing with it on your own (including representing yourself at court) but for most people this would be a daunting prospect.
In dealing with financial settlement on divorce you are carving up the assets (including pensions) held by you and your spouse (jointly or solely) and the division of capital is final – this is your one and only chance to ensure the settlement is reasonable and fair and that you are getting what you are entitled to. There is in addition the issue of maintenance that needs to be considered. Most people would like a trained professional to advise and represent them. However, with the virtual removal of Legal Aid from this area funding expensive legal fees is often out of scope for many.
What are the options for paying for a divorce?
Not necessarily in this order but the obvious considerations for paying for a divorce would be:
1. Using your own capital – you may not have liquid funds, but you may have property that you could leverage by way of an increased mortgage. Whilst this may sound extreme and potentially expensive given you may have administration fees, it is worth considering as a form of finance to fund the legal costs of a divorce.
2. Using joint resources – you and your spouse may be in similar positions and unable to access joint assets without agreement of the other. Often you can agree to set aside a certain fund to meet both parties’ legal costs, perhaps up to a cap.
3. Asking your spouse if he/she would agree to meet your solicitors’ legal costs. This can be a big ask as they will have to fund their own legal costs as well. It is usually only a realistic prospect if one spouse has very substantial assets/income compared to the other.
4. Application to court for a Legal Services Order – this is an interim application to the court to ask a judge to order your spouse to meet your legal fees. These applications are not easy – there are a few hurdles to overcome in terms of the criteria you need to establish to be successful. You should only pursue if your lawyer strongly recommends you do so.
5. Credit Card – this can be expensive in terms of the interest and of course you may not have the facility to take you as far as you need.
6. Loans from family and friends – the upside is that these could be forthcoming relatively easily and informally and often without interest attaching. On the downside it may sully family relationships and the court would often consider loans from family/friends to be ‘soft’’ and hence ignore them completely in considering the financial division
7. Litigation Funding – it is this option on which we focus below.
What is Litigation Funding?
It is essentially a personal loan to meet lawyers’ divorce fees and is repayable out of your eventual settlement. It is not uncommon now in family financial proceedings (and indeed in some other forms of proceedings under the Trusts of Land Act) for one party to have the help of a litigation loan.
How does it work?
Your solicitor should be able to give you an idea of whether you are likely to be considered. If you are then an application is made to the loan provider via your solicitor. The loan provider will need the relevant details to allow their underwriters to consider the loan request – the amount of loan requested, the risks, the prospect of success of your case, the assets in the case, likely quantum of your settlement, their route to repayment etc. A facility is requested i.e. your solicitor will assess the funds you will need to take you through the litigation and ask for that amount to draw on. Once you are accepted in principle you will receive a contract to sign but you will have to take independent legal advice (from a totally different lawyer) before signing it and you would have pay for that one-off advice.
Once you have had that advice and signed the agreement your loan facility is in place. This can all be done relatively quickly. One would then have to formally notify your spouse/civil partner or their lawyer that this loan had been granted.
Different loan providers will then deal with the rest in different ways and they will all have different charges and administration costs. We cannot advise whether you should get a litigation loan or which provider to go to as that would be financial advice beyond the remit of most family solicitors.
There are a few providers out there and more coming onto the market. They all have slightly different models and it is very important that you research this and compare their offerings before making a decision. Normally, the court would treat such a loan as a hard loan and take it into consideration when dividing the assets.
Some things to be aware of:
• Providers will charge different interest rates but when comparing please be aware at how this is quantified as the headline figures may not be comparable on a like for like basis
• Some will charge simple interest and others will charge compound interest
• Some may have hidden charges such as administration costs or an administration charge every time your solicitor renders an invoice and an amount is released.
• Some will immediately charge you interest on the whole of the facility whether it is used or not whereas other will only apply interest on the tranches drawn down as and when your solicitor starts to send their invoices
It should be remembered that this will essentially be your debt that will need to be repaid whether you succeed in your case or not. It is an option that has to be considered and possibly a vital tool if you cannot otherwise fund your case. It is essential however that you go into it with eyes wide open and fully consider the product and your alternative options first.
If you want to discuss this or your claims on divorce, please contact one of our Family Law Team by calling 020 7228 0017.