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We know that the issue of costs and how to fund your case can cause a lot of stress at a time when there is already matrimonial or family breakdown and conflict. Often, separating couples are usually already struggling to adapt to financially supporting two separate households and may be unable to release funds from a joint asset especially if the money is tied up in bricks and mortar.
We believe that people should have as much information as possible to make an informed choice on how to fund their case, and in this blog I highlight below some of the main options. The list is not exhaustive and as a firm we are open to a bespoke approach, and are always happy to discuss the options and to help find a tailored solution that works for your circumstances.
In divorce proceedings the first port of call for many clients will be family and friends and new partners. Private borrowing can have many advantages such as a lower rate of interest (if charged at all), more flexibility in terms of repayment dates and arrangements, quicker access to the funds required and no impact on the credit rating of the borrower.
However, the same advantages are also the reason why these are sometimes considered to be soft loans and in divorce proceedings the other party may try to argue that these debts do not have to be repaid or, if it is accepted that it is a loan rather than a gift, that the lender will not take any action to recover the debt and so the court does not need to accord it the same weight as other liabilities.
If you are considering this option, there are ways to try to protect your position (with varying degrees of effectiveness) as follows:
This letter or Loan Agreement should refer to the amount of money loaned and should specify the purpose of the loan. Sometimes private borrowing will relate to general expenditure as well as legal fees and, if so, a breakdown is sometimes useful. Depending on the agreement, the letter will need to set out any agreed terms relating to interest charges and how these will be calculated and implemented, repayment dates, and any specific reasons that repayment is required by that date. The letter should be signed by the lender and dated. Whilst this may feel ‘heavy handed’ if you are borrowing from someone extremely close to you (i.e. your parents), it is a simple way to make the arrangement more formal and transparent – both of which are important in terms of divorce proceedings. If the loan is provided by a more distant relative or a non-family member, it may also be helpful to refer to this so that it is more difficult to argue that the loan will simply be written off at the end of the proceedings.
A private loan can be coupled with security provided by the borrower to allow the lender to recover the debt if repayments are not made as agreed. In my experience, clients (or the lenders themselves) are often reluctant to enter into such formal arrangements when private borrowing is the source of funding. There can also be considerable difficulties in creating and/or registering charges over assets held in joint names, so it is easier to pursue this option if the secured assets are held in the sole name of the client – although in those circumstances consideration should also be given to whether or not this creates a perception (or reality) that the client is putting the assets beyond the reach of their spouse.
You may be in a position to take a loan from a commercial lender, such as a bank or credit card company. There may also be the option of increasing existing mortgage facilities and using equity in property to secure funding.
The disadvantages of this approach include the higher rate of interest which usually accrues and the fact that repayments will usually commence shortly after the loan is drawn down. If you are considering this route then it would be advisable to investigate deals such as 0% interest credit cards, which will limit as far as possible the negative aspects of this option. These loans are likely to be considered hard loans by a court and taken into account in relation to a final settlement. The consequence to this is that in the event that payment is defaulted, it is more likely to result in formal proceedings from the lender than with soft loans.
It is also important to remember that with commercial borrowing it is likely that repayments will most likely be due on a monthly basis from the start.
When using this option, we advise clients to be aware that this may affect their credit rating and mortgage capacity. This is particularly important if, for example, you will need a mortgage to meet your housing needs and significant other borrowing could affect your mortgage capacity.
There are a number of providers that offer loans such as Novitas, Silver Lining Loans and Level to include a few which are loans designed specifically for the purpose of funding court proceedings for financial remedies and TOLATA (Trusts of Land and Appointment of Trustees Act 1996) cases. The terms of the loan will vary between providers and offer some advantages that the commercial loans do not provide.
The main features of these arrangements include:
Sometimes referred to as “Sears Tooth agreements”, deferred payment agreements are less common. This is because very few (if any) law firms, will be willing and able to carry out swathes of legal work without receiving payment before the resolution of the matter.
Important factors to consider with this sort of arrangement will be the assets likely to be available for distribution by the end of the proceedings, the chances of you being successful in obtaining those assets (or such assets as would be required to cover the outstanding fees) and the cash flow position of the firm who is advising you. In my experience, few firms will be in a position to fund a family law case until conclusion especially when litigation loans are available. However, you may find that there are certain parts of the case that can be funded in this way if certain safeguards are met.
The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) has governed the provision of legal aid since 1 April 2013. This means that public funding for most children and finance matters in private family cases will only be available where there is specific evidence in relation to domestic violence and where a client can satisfy certain means/merit criteria which means detailed information will need to be taken about the client’s financial circumstances. Additionally, in many cases, clients who are eligible will have to pay back some of the cost if they “win” money or property from the case which is called the “statutory charge”. Legal aid will continue to be available for cases concerning domestic violence, forced marriage, international child abduction and public law proceedings.
There is further information about the qualifying criteria here: www.gov.uk/check-legal-aid.
We advise our clients to check whether any insurance policies they hold provide assistance with the payment of legal costs. Some general insurance policies (which can include household contents cover) include an element of cover for legal expenses or advice and assistance, or it may be that you have a specific legal expenses insurance policy. Whilst it is not usual for such policies to cover the costs in matrimonial proceedings or otherwise in relation to the breakdown of a relationship, it is worth establishing this in relation to each individual policy at an early stage.
An application can be made to the court once a divorce has been issued for a costs allowance to be paid from one party to the other which in practice means you may be able to obtain an order compelling your ex-spouse/partner to pay your legal costs. The relevant legislation is s22ZA(1) of the Matrimonial Causes Act 1973 and the court will take into account certain statutory considerations such as income, earning capacity resources of both parties along with the reasonableness of your stance. You will need to obtain evidence demonstrating that you have no access to funds from other sources. Evidence can include confirmation from your solicitor that a deferred payment arrangement is not available and similar letters from litigation loan companies.
It’s vital to note that the funds that are provided following an LSPO are to be used only for the purposes of legal costs and not for the meeting of any other income or capital needs.
LSPOs are by their nature and definition the last option to be considered in respect of funding financial proceedings. It should be noted that these orders are not available in Children Act proceedings (neither Schedule 1 nor Section 8 of the Children Act 1989). However, similar orders are available in Children Act Proceedings and the considerations will be similar.
Where a Legal Services Payments Order is not available, it may be worth considering an application for a legal costs allowance as part of a Maintenance Pending Suit application which is an application for maintenance “as the court thinks reasonable”. Strict criteria apply and the costs of such an application can be high and/or disproportionate to the issues at stake so, as with all litigation, a careful risk assessment and exercise in cost proportionality needs to take place.
In some cases, clients have little or no resources to fund their case or to pay for formal legal advice and are compelled to act in person, i.e. they are unrepresented. This can be tricky since although there is lots of information online and court forms can be downloaded, it can be very tricky to navigate the legal landscape without help especially when the issues are complex. It may be possible to work in a hybrid relationship with your solicitor so that your solicitor only provides limited or partial advice on a so-called ‘pay-as-you go’ basis, i.e. you pay for the legal advice you can afford rather than obtain full representation which means you still run your case yourself. Alternatively, a litigant in person may be able to find the support of a McKenzie friend, or from the Citizens Advice Bureau or a pro bono legal clinic, although the quality and availability of these services can be hit and miss.
For all our clients we aim to offer, as early as possible, a cost estimate so that they know what to expect for the legal route they are taking. In some cases, we can additionally offer a fixed fee service for certain categories of work such as an undefended divorce or assisting with the preparation of an important application or document such as a pre or post nuptial agreement.
Please contact us so that we can scope and assess the work you require and where possible, we can aim to fix the fee or to signpost the costs you can expect along with mapping out the best route you can take to help reduce the cost and minimise the conflict. Family law Partners is committed to dispute resolution and very often, exploring non-court routes (for example, mediation or collaborative law) are the cheapest and most effective so please speak to us as we can help you understand your options.
Farhana Shahzady is a Director in our London office. Find out more about her experience and approach here.