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Divorce Loans: Everything You Need To Know 

A divorce can be a complex and expensive. If you don’t have the funds to pay for a solicitor and aren’t eligible for legal aid, self-representation is often the only option. This reality can make what is an already daunting situation become even worse.

 

Divorce loans offer a solution. A ‘fighting fund’ removes any imbalance in the level of legal representation the parties have and provides a level playing field, often resulting in a swifter resolution - potentially cutting out further litigation and saving time and money.

What are divorce loans?

 

In short, divorce loans, also known as ‘litigation loans’ or ‘legal financing’, are loans provided by a third-party to finance some or all of an individual’s legal expenses and related disbursements when they are involved in a litigation (a dispute in a court of law).

 

In addition to legal fee loans, some funders also offer separate facilities to cover living expenses, alleviating the impact on your day-to-day life when you are going through a divorce.

Related Reading: What Can a Litigation Loan Be Used For?

 

How do divorce loans work?

 

Divorce loans work by enabling access to funds borrowed against a future settlement.

Litigation loans can usually be used to cover solicitor’s fees, barrister's fees and disbursements, whether that’s through court, mediation, arbitration or collaborative law. The litigation loan is repaid using a portion of the financial settlement they receive at the conclusion of the case.

 

While this might sound like a straightforward arrangement, the litigation lender will want to be certain that they will get their money back. That’s why any loan they provide will usually be a proportion of the individual’s projected financial settlement.

Related Reading: How Do Divorce Litigation Loans Work?

 

How much does a divorce loan cost?

 

With several different litigation lenders in the market, it can be tricky to figure out exactly how much a divorce loan is going to cost. Anyone considering taking out a litigation divorce loan needs to fully understand how much it is going to cost them and be in a position to make an informed decision.

 

Fortunately, many litigation lenders are extremely transparent, so figuring out how much a litigation loan will cost is relatively straightforward.

 

To give you an idea, an unsecured divorce loan usually has four associated costs:

  • Admin fee: Usually either a set amount or a percentage of the total approved loan.

  • Interest rate: Usually fixed for the duration of the litigation loan agreement, typical interest rates are 1.5% - 2% per month (18% - 24% per year). This can be simple flat rate interest, or compounding.

  • Redemption fee: A fee charged if the litigation loan is repaid early. Not all litigation lenders charge this (we don’t), but there are some that do.

  • Independent legal advice fee: Most litigation loan lenders will require that the client seeks independent legal advice to ensure they make a fully informed decision. This usually has to paid for directly by the borrower before they enter into a litigation loan agreement. Typical independent legal advice fees range between £275 and £350, plus VAT.

 

Some funders may charge interest on the whole facility and others (like Level) charge on a drawdown basis, so you are only charged for what you actually use from the facility when you actually need it.

Related Reading: How Much Does It Cost To Get Divorced?

 

What about divorce loan lending criteria?

 

As previously mentioned, a litigation lender will want to ensure they get their money back, which is why they assess divorce loans on a case-by-case basis.

 

First and foremost, any potential financial settlement the client is likely to receive needs to more than adequately cover the cost of the loan.

 

Secondly, the litigation lender will also usually require there to be sufficient UK-based assets. For unsecured litigation lending, the lender will usually also require that the individual is a UK resident. However, this requirement can sometimes be waived if security can be granted in the form of a charge over property or other assets.

 

Thirdly, the litigation lender will usually perform a credit check on the individual applying for a divorce loan. This can only be done with the client’s permission.

Related Reading: What Are My Options To Pay for My Legal Fees During Divorce?

 

Are divorce loans safe?

 

In most circumstances, divorce loans are safe. However, it always pays to do your homework and find the right litigation lender for you.

 

For example, some litigation lenders can take longer to approve applications and make funds available to individuals. Sadly, these delays can impact the strategy of a case, which could compromise the overall outcome.

 

This is why it’s important to partner with a litigation lender who is established, reputable, transparent and efficient.

 

There are various other options for paying your legal fees during divorce. Litigation loans are one potential funding option and you should explore other options to ensure you choose the most suitable solution for you.

Click here for more information https://www.thelevelgroup.co.uk/borrowers or contact us directly and speak to one of the team.

 

Please note that the above reflects information at the time of writing and is subject to change.

 

Related Reading: What Are the Benefits of Litigation Funders?

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