A Review Of The Options Available To Clients Who Need Help With Funding Their Legal Fees, From Bank Loans To Borrowing From Friends
Last year George Williamson shared his advice to clients in Tatler’s Expert’s Corner on the options available for those that require assistance in paying their legal fees and the advantages and disadvantages of each option.
It remains just as relevant today.
Divorce litigation is inherently expensive and, while separating couples might be asset rich, liquidity is often an issue during proceedings. This may be because the assets are in dispute and therefore frozen to prevent liquidation, or because one party holds all the assets in their name, meaning the other party has insufficient cash to meet their legal fees. Or it could simply be because the current economic conditions mean individuals will be reluctant to sell assets at the wrong time. All these factors mean that it is becoming increasingly difficult fund a contested set of divorce proceedings out of your own pocket.
So, what are your options?
Borrowing money from friends or family might seem like an attractive option since it is usually free (i.e. no interest charged), it is easy to organise (no application process) and there is very little by the way of contractual obligations to be concerned about.
However, there is one major disadvantage to be aware of which can significantly outweigh the benefits highlighted above. According to case law, borrowing from friends and family will usually be considered a ‘soft debt’ in the eyes of the law, i.e. the assumption is that you probably won’t ever repay it. While this may be entirely untrue, it is very difficult to prove otherwise. A judge is therefore unlikely to factor the repayment of a ‘soft debt’ into your award, meaning you could end up absorbing the entirety of your legal fees yourself from your settlement. In contrast, borrowing money from an institution, such as a bank, will usually be classified as a ‘hard debt’. This makes it significantly easier for your solicitor to argue that it should be added on to your settlement.
Your former spouse might not seem an obvious source of funding for legal fees but, in some cases, your solicitor may persuade the other side to simply agree to pay your fees in order to reach a swift resolution. In acrimonious cases, when the other side refuses to pay, it may be possible to obtain an order from the court obliging your spouse to meet some or all of your legal fees.
While it might be nice to know your ex is paying your fees, it often takes protracted negotiations between solicitors or even a full-blown court application to get to that point, both of which can be dis-proportionally expensive with no guarantee of success. In any event, the substantial legal fees incurred on both sides will deplete the matrimonial ‘pot’.
Even if you are successful with the negotiations or court application, this approach can often lead to obstructive behaviour from the other side, such as the drip feeding of insufficient cash to meet your invoices and endless requests for justification of legal bills from your solicitors. This generates further back and forth between lawyers – driving up the legal costs, not to mention the acrimony, and distracting everyone from the main objective, which is to resolve the divorce fairly and efficiently.
For those with little or no income, and in certain circumstances when people suffer at the hands of domestic violence, abuse or child abuse, legal aid may be an option. Nevertheless, proving abuse can be challenging and, except for in a handful of cases, the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act in 2012 has all but cut off public funding for financial claims on divorce and separation. This, of course, has a significant impact on the reliability of legal aid as a funding solution.
If the above options are not viable, you may want to consider borrowing from an institutional lender. Credit cards tend to be expensive and generally the borrowing limits are low, so may only contribute to a small portion of proceedings. This also applies to bank loans. Some private banks may consider lending a larger amount on the basis that you invest your settlement with them; however their lending criteria is usually strict and this sort of borrowing can be difficult to obtain.
Another option is to take out a facility from a specialist litigation finance provider to pay your legal fees and living expenses throughout the proceedings, essentially allowing you to borrow against your future settlement. This option may be available to you if there are sufficient matrimonial assets and your anticipated settlement will cover the loan by a minimum multiple of say 3 or 4 times.
When applying to a litigation finance provider your solicitor will make the application on your behalf, with your input. He or she will usually apply for a facility to cover your legal fees up to a final hearing, meaning you have the reassurance of knowing you will be represented all the way to the conclusion of your case. This can instantly shift the ‘power dynamic’ by removing any imbalance in the level of legal representation. In essence, it provides a level playing field and allows the economically weaker party to reach a fair resolution more quickly.
Some funders also offer living expenses loans, which can help to prevent the financially weaker side from being starved into a weaker bargaining position and add some much-needed re-assurance that their family’s day to day needs will be sufficiently covered until the conclusion of the divorce proceedings. Further, it removes the need to make expensive court applications to remedy insufficient interim maintenance.
As a litigation loan is from an institution, it will be recognised as a ‘hard debt’ and your solicitor will have a very good chance of arguing that it should be added on to your settlement.
This sort of lending is not cheap, however if it can remove the need for additional and expensive litigation and help to achieve a fair financial settlement - it could pay for itself many times over. When choosing a litigation funder, it is important to choose a reliable company with a deep understanding of the complexities within family law.
In conclusion, when it comes to funding options for legal fees and living expenses during divorce proceedings, there are a number of potential options available and it is important to run through the costs and benefits of each solution with your divorce solicitor.
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