Should I go to a litigation funder to pay for my divorce? - Boodle Hatfield

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15 Sep 2021

Should I go to a litigation funder to pay for my divorce?

My husband has been the primary breadwinner and has dealt with all financial matters throughout our marriage, as I gave up work to look after our children. We are now getting a divorce and he has locked me out of our shared bank accounts. I have nothing in my own name to pay for the legal costs and fear that any legal advice I can afford won’t be a fair match. What are my options? Should I go to a litigation funder, who will loan me monies to pay for my legal advice, or will this mean I give a huge amount of my settlement away to that funder?

Emily Brand, partner at Boodle Hatfield, says this is sadly a common scenario, as cutting off funds to pay for proper legal advice is seen by some as an excellent means of pressing their estranged spouses into accepting an unfair settlement for fear of running up legal costs they believe they cannot pay.

The courts, however, want to ensure that parties have “equality of arms” when it comes to legal representation. That means that if, for example, your husband has assets and/or income which he could use to pay your legal fees then — if he is not prepared to agree the manner in which your fees are funded — the following steps are open to you.

The first step is to issue your primary application to the court for orders determining your financial claims. This will kick off court proceedings at the end of which, absent an earlier negotiated agreement, a judge will decide how your assets and income should be divided after the divorce.

Simultaneously, you should make an application for a legal services provision order. The court will then list a hearing of that application. Before this hearing, your solicitor needs to estimate the costs you may incur during the proceedings and set out, to the best of your knowledge, the means by which your spouse could cover those costs. For example, you might argue that a rental property could be remortgaged to meet your legal fees or that the contents of a savings account could be paid to you.

As part of that application, you will also need to prove to the court that no litigation funder is prepared to lend you money to cover your legal costs. If the only capital asset in your case is, for example, your home in which you are living with your children, then it is likely that no funder will be prepared to lend to you.

Litigation funders are, however, increasingly prepared to lend even when family wealth is held in a complex structure such as a trust or a company. If your spouse can show that you could obtain litigation funding, your application is unlikely to be successful, so your solicitor needs to show that at least two litigation funders have rejected your applications for funding.

The interest rates charged by funders can be high — some might say it is analogous to paying your legal costs on a credit card. It therefore makes sense to reach an agreement with your spouse as to how your legal fees will be paid, if possible, rather than add to the inevitable financial burden of a divorce by paying high interest on a loan which will have to be paid off once an agreement or a settlement has been reached.

If you borrow from a litigation lender, this will be your personal responsibility to repay and the debt must be paid from the assets you preserve or retain from the divorce, unless a third party is prepared to repay it for you.

Taking on debt in the form of litigation funding can be a huge step to take when in the throes of marital breakdown. It should be remembered, though, that compromising on unfair terms under pressure — with a view to saving money in the short term — could have a devastating impact on your future over the long term.

This Q&A piece featured in Lucy Warwick-Chings, Financial Times column on 15th September 2021.