Funding your own divorce costs? BLM's Family law team explains how litigation funding may help
It is without doubt that cash flow can be an issue for divorcing couples.
Divorce, and the legal costs that follow, is usually not something that has been planned for, regardless of your wealth. Legal fees, whatever the assets, can be expensive. With high-net -worth individuals the numbers can be staggering as with an increased asset pot, sometimes complex business structures and international elements, not to mention issues with financial disclosure and the need for experts, there usually comes increased complexity. This all comes at a cost.
The problem of funding can be harder if you are the financially non-dominant party; if you are not the breadwinner. Of course (and it is not unusual) you can ask for your fees to be paid by your spouse and if they refuse (which they often do) you do have recourse through the courts. You can apply for your legal costs to be paid by what is known as a Legal Services Order. However, litigation is always risky and you are not guaranteed success. This satellite litigation (that goes alongside the primary litigation) not only increases your legal costs and potentially causes delays but you must also have exhausted all other avenues, in order for such an application to succeed.
One such option is litigation funding. Litigation funding is now widely used and can be an attractive option. However, you need to weigh up the benefits of getting into debt by way of litigation funding against your potential gain. Is it proportionate?
It certainly has its advantages. It can be a way of redressing the imbalance of power in order to ensure that each party has equality of arms in their legal advice. Paradoxically, it might even reduce your legal costs. After all, with correct legal advice there is more chance of getting a fairer and earlier settlement.
How does it work?
Your lawyer will broadly know whether your case is suitable for litigation funding and will discuss this with you. You choose the funder and provided your lawyer is on their panel, they then make the application on your behalf. You should ensure that you do the relevant research to make sure you are aware of the terms of the loan and are comfortable with the interest rates.
Your lawyer will be able to estimate how much your legal costs will be and therefore what level of funding you will require. However, one advantage of litigation funding is that interest is only charged on the amount that is drawn down, rather than the full facility, assuming the whole loan is not utilised.
You will only succeed in your application for this funding if there is a clear route to clearing the loan at the end of your case, which is usually demonstrated by the existence of liquid assets which can and will be sold at the conclusion of your matter. The loan would usually be secured against those assets.
Assuming your application is successful and once you have the paperwork back from the lender, there is a mandatory minimum seven day ‘cooling off period’ during which you will have to have independent legal advice on the terms of the litigation funding agreement. After that, the funding is approved and the loan is available to drawdown. The process is typically relatively simple from there on, in that your lawyer will bill regularly, as agreed. You approve bills as they are received from your lawyer and requested from your funder and then you approve the drawdowns to cover those bills. Of course, the process may vary from lender to lender.
Your lawyer will, of course, need to keep the lender updated with any developments throughout the case. Once your litigation is concluded, the loan and interest will be payable from your settlement.
As with any financial obligation, you should seek advice from an IFA or financial planner if you are considering applying for litigation funding. Your lawyer is not qualified to provide this advice.
Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.