Yael Selig Consultant
How to initiate and finance a divorce when you don’t hold the purse strings
There are no two ways about it, having a divorce costs money. Not only are a couple required to share their assets but they have to pay legal fees. Accessing legal services and initiating divorce proceedings often requires a client to pay a retainer to their solicitor. This can be an added barrier and complication for some clients when they have very little control over their finances or access to money is a concern.
Yael Selig, Consultant and family law specialist at Ince highlights how clients who don’t hold the purse strings can access the Justice system.
When we meet a client for the first time, it is often the case that despite ample family resources, that one party has restricted or no access to funds and is therefore unable to provide the initial legal retainer required. We then find ourselves engaged in detailed negotiations with the side that holds the purse strings to force the required payment of our fees.
Once the matter has begun, it is possible to make an application for a legal services payment order which releases marital/joint funds to pay for the costs. But what options are available to finance the divorce before commencing proceedings?
Having funds available when commencing legal proceedings can cut out unnecessary and expensive litigation over costs funding and can allow clients to get to the same point more quickly. A ‘fighting fund’ removes any imbalance in the level of legal representation the parties have and provides a level playing field. As a result, removing the economically controlling party’s funding leverage will often result in a swifter resolution – potentially cutting out further litigation and saving time and money.
Interim maintenance allowance
Whilst divorce proceedings are underway, each party requires funding to carry on their usual day-to-day activities. When one party hasn’t got access to funds they may choose to apply for interim maintenance.
For example if our client requires £5,000 per month for their living expenses but they are being paid insufficient interim maintenance of say £3,000 per month, there is a top up of £2,000 per month required. Historically there are two options:
- The party could ‘make do’ until the case concludes, which is worth noting may weaken the needs claim.
- The party could make an interim maintenance application, which can be disproportionately expensive and has an unpredictable outcome. An interim maintenance application will often cost £10,000 - £20,000 (for each party) meaning £20,000 - £40,000 out of the matrimonial pot.
In most cases, we would advise our client to apply for a loan to cover the amount missing in the interim maintenance allowance; removing the need to make a costly interim maintenance application for what would only benefit the client until the court and parties decided on an ongoing maintenance allowance.
Borrowing from friends and family
This same type of (‘unrestricted use’) loan can also be used to help solve the age-old ‘soft debt’ issue where a client borrows from friends or family to pay their legal fees. The risk they run is that this will be treated as a soft debt and while a client might genuinely need to repay this debt a Court may not factor it into their settlement.
Independent litigation funding
The solution to enable access to funds and prevent a party creating potentially significant soft debts is to borrow against their future settlement with an independent litigation funder like Level. Level has in-house Family Law and financial expertise and work with a select group of top Family and Private Client law firms in the UK. They are the only matrimonial funder to be top-ranked by Chambers & Partners.
If the client engaged with Level (or an alternative litigation funder), they would be provided with an ‘unrestricted use’ loan to repay any soft debt to their friend or family member during the proceedings, meaning they will then have an institutional debt in its place. Institutional debt is likely to be recognised as a hard debt and can bring a significant amount of money back into the picture and contribute towards a potential settlement. The downside is of course that the party would have to pay interest on the loan, which was free before. However, put into context it is a relatively small percentage of a loan that otherwise may not have been recognised in the financial settlement at all.
Funding can also help to support the relationship between the client and solicitor by removing the difficult billing conversations that may arise when the client does not have the resources to meet invoices.
When it comes to funding options both for legal fees and living expenses during divorce proceedings, there are some important factors beyond interest rate to consider. While funding ultimately comes at a cost, consider the true economics; if funding can cut out unnecessary litigation and save time and help to achieve a favourable and fair settlement, then it can be seen to pay for itself many times over.
Explore your options with Ince and Level
Ince is an international legal and professional services firm with nine offices in Europe, Middle East and Asia. We receive instructions from clients across the globe and we inevitably deal with cases across multiple jurisdictions. Both domestically and internationally, there can be issues regarding costs funding. At Ince, we have looked at various models and this has led us to Level. Level is an independent external provider who can assist with litigation funding.
We were introduced to Level last year and have been extremely impressed by their clear understanding of Family Law, their fair rates and bespoke independent service which is offered for each and every client. They are affordable and transparent and they respond well to the client’s needs. From our own experience we have been extremely satisfied with their services. They provide a prompt and effective service and are very personable.
Historically the terms of such a loan would have been onerous and often too costly to make it an attractive and feasible option. Level can assist and is able to financially support clients throughout their legal proceedings to case conclusion. For more information about Level, please visit their website.
Co-authors: Yael Selig, Consultant at Gordon Dadds & Ince and George Williamson, Chief Executive Officer & Founder at Level