Many people feel trapped in an unhappy marriage unable to move on as they simply don’t know their options for funding a divorce, believe they cannot afford to pay for a divorce or fund the cost of obtaining a financial settlement. The aim of this article is to offer practical advice explaining both traditional and creative funding options for people wishing to divorce and settle their financial claims.
Hourly rate charges
Family law solicitors are more frequently than not paid on the basis of an hourly charging rate. This rate is fixed but varies greatly depending on the solicitors’ geographical location, experience and type of firm within which he or she works. (The Supreme Court Costs Office issue guidelines as to appropriate hourly rates for different level of fee earners in different parts of the country and is a useful reference).
Fixed fees in divorce
Whilst in the main solicitors’ costs are charged on an hourly rate, other funding options are available. Fixed fees are now being increasingly offered for certain parts of a case, or in some circumstances, the entire case such as an undefended divorce.
Sears Tooth Agreements
Some law firms will let clients pay their legal fees when their divorce has concluded and a financial order has been obtained. This is called a “sears tooth agreement”, which is a deed that assigns the client’s legal settlement to their solicitor to enable them to cover their costs in acting for the client and from which they will take their costs first when the case has concluded. In practice, sears tooth agreements are risky for solicitors and rarely offered.
Legal Services Orders and the Matrimonial Causes Act
Where one spouse is much wealthier than the other, the court can order one spouse to pay towards the other party’s legal fees when funding a divorce. For this to occur, the parties need to agree or an application needs to be made by one party under section 22ZA of the Matrimonial Causes Act 1973. This allows the court to make a Legal Services Order directing one party to pay a sum of money to the other for the purpose of enabling that person to pay for legal services. The court will only make the order if it is satisfied that without it the applicant would not reasonably be able to obtain legal services, so the applicant will need to produce evidence that he or she is unable to obtain a commercial loan or enter into a sears tooth agreement with a solicitor.
When deciding whether or not to make a Legal Services Order, the court looks at whether the other party is legally represented and what steps the parties have taken to try to settle the case prior to litigating. Case law indicates that it would be unfair to expect a party to sell or charge his/her home, deplete modest savings, or take on a loan with a high interest rate to fund legal services.
Borrowing money, Matrimonial litigation funding and litigation loans
Sometimes the only practical solution is for a client to borrow money by using a credit card or bank loan to pay legal fees. However, it is becoming more common for some banks to lend money to fund matrimonial litigation and there are also specialist companies that offer ‘litigation loans’, again usually in cases where one spouse is significantly wealthier than the other. The lender will assess the assets available for distribution in a client’s case and take a view on the likely settlement he or she will receive. These loans are subject to strict lending criteria. Once a financial order is in place, the loan will be repaid from the financial settlement monies received before being released to the client.
Loan agreements in divorce
Many clients lend money from friends and family for funding a divorce and litigation. In this situation it is important that a loan agreement is in place setting out specific terms of repayment and interest as there is a risk that the court might treat the loan as “soft” and not take the loan into account when considering how to divide the assets.
It is important that your solicitor discusses the question of costs clearly from the outset with you.
For further information on the options available in funding a divorce, please contact Claire Porter in our Family Law team on 01244 305926 or email [email protected].