When a relationship breaks down there are many tough decisions that need to be made about you, your family, your home and your finances. One of the first financial considerations many have to make is working out how you are going to fund their divorce – this can be very problematic, especially for those whose spouses control all or the majority of the family wealth.
Concerns about the potential costs of legal fees puts many people off obtaining early professional advice. However, early advice often helps much more than you might have imagined and enables you to engage with the process and take sensible steps you may not have realised you needed to take. Your solicitor will help you to understand your entitlements and the process, so that you can feel more in control of a difficult situation, enabling you to make informed decisions and, ultimately, a better settlement. These early steps can often save a lot of money in the long run.
There are many options available to pay for legal fees, including the following:
- Your own resources: You may have income or savings of your own which can help pay for legal fees as and when they are incurred. Drawing from some investments may incur a penalty if they are liquidated early or without sufficient notice, but such penalties may be worth accepting if they are cheaper than borrowing. If, however you are considering selling assets to meet your ongoing costs, do bear in mind that any such disposal could be viewed by the court as an attempt to put assets beyond the reach of your spouse, which could create a serious problem for you. You should therefore take legal advice before disposing of any significant assets (whether for funding costs or for any other reason).
- Borrowing from family members or friends: In principle, this is the easiest and cheapest form of borrowing if you know someone willing to lend to you, as such loans are usually interest free with no fixed date for repayment. If the money is being loaned to you rather than given, it is crucial that any such loan is evidenced in writing, ideally with a formal loan agreement, to increase the chances of it being viewed by the court as a genuine debt which must be repaid. Courts are understandably reluctant to regard all borrowings from friends and family as genuine debts and if yours is tantamount to commercial borrowings it must be clear and obvious in the documents. If not, there is always a risk that the court will not be persuaded to include it when calculating the asset distribution.
- Credit card, overdraft or personal loans: Depending on your credit score, you may be able to borrow funds on a credit card, overdraft or with a personal loan. These days, many credit cards offer nil or low rates of interest on a short-term basis. However, this option is not ideal if repayment cannot be made quite quickly, as high rates of interest tend to kick in after a while. A personal loan can be obtained from a high street bank. Again, interest rates tend to be quite low currently but can vary a lot depending on your circumstances and will be for a fixed period with monthly repayments.
- Insurance: It is worth checking your domestic household insurance policy to see if there is any assistance provided for legal advice. Legal insurance is often sold as an added extra, so it would be worth reviewing your insurance cover to double check.
- Specialist litigation loan providers: We have a good relationship with several providers who specialise in providing loans to fund litigation for family law cases at reasonable rates of interest. They can provide you with the funds to finance your case by way of a loan you pay back out of your final settlement. Qualification for a loan will be dependent upon the lenders criteria and can be assessed upon an individual’s financial position during the court process.
- Payment from your spouse: If you do not have the money to cover your legal fees but your spouse does, they might agree to pay your legal fees for you. This is particularly appealing when you might otherwise need to take out an expensive loan to fund your fees, which would result in reducing the resources available for division. If they refuse, and the result is that you might not be able to pursue your case, it is possible for the court to order your ex-partner to meet your costs. This would require a separate application to the court for a Legal Services Order and will require a hearing to decide the issue. It can be a very powerful tool to even the “playing field” between spouses, where one party has greater financial might that the other.
- Legal aid: Unfortunately, legal aid is now very rarely available for divorce cases. Legal aid may be available in some extremely limited circumstances such as where there is evidence of domestic violence or abuse or child abuse. We cannot advise on anyone’s eligibility for legal aid and we do not take on legally aided cases.
If you have any questions regarding the topic discussed above, please don’t hesitate to contact Andrew Kingston or any member of the family team.