RegulationApr 17 2019

Fairer way to fund a divorce

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Fairer way to fund a divorce

A new law to end the ‘blame game’ in divorce proceedings has been announced in the UK. 

Last week, the government said legislation to allow “no-fault” divorce would be introduced “as soon as parliamentary time allows”.

This comes in the wake of the widely publicised Supreme Court decision in Owens v Owens where a wife was condemned to remain unhappily married to her husband of 40 years until 2020 on the basis of the “flimsy” and “exaggerated” examples of unreasonable behaviour in her divorce petition.

Under the existing regime, unless both parties agree to a divorce and are willing to wait two years for it, one spouse has to draw up allegations of the other’s ‘unreasonable behaviour’ or prove that adultery has taken place. 

When it comes to drafting a divorce petition based on unreasonable behaviour, there is an unspoken agreement between sensible practitioners that they will try to tone down their client’s allegations so that, while satisfying a judge that the behaviour in question is sufficient to justify granting a divorce, they do not cause undue or unnecessary antagonism. 

Under the existing regime one spouse has to draw up allegations of the other’s ‘unreasonable behaviour’ or prove that adultery has taken place. 

Many people, however, are determined to stick the knife in, overflowing onto continuation sheets as they itemise their former partner’s shortcomings and misdemeanours meticulously. 

While this might feel cathartic at the time, it hardly needs stating that this approach can result in an unnecessarily messy divorce as antagonism skyrockets. And, of course, it can have a catastrophic effect on the parties’ ability to resolve their finances amicably, let alone co-parent constructively. 

Misconceptions

Unfortunately, there are a number of misconceptions when it comes to divorce law.

Many mistakenly believe that the party who is to blame for the demise of the marriage will be penalised for his or her behaviour and, the more blame that can be apportioned to him or her, the worse off he or she will be when it comes to the final reckoning on finances. 

This is true only in the rarest and most extreme circumstances and, on the whole, the conduct of the parties during the marriage will have no bearing whatsoever on where they end up financially.

Misunderstandings like these are exactly why it is so important to get sound legal advice from a family practitioner at an early stage. That way, individuals can get a proper understanding of their likely outcome and start to plan accordingly. 

Battle of unequals

But what if they have no access to funds to pay for that advice? Perhaps all the family equity is tied up in property, businesses or trusts, or perhaps the financially stronger spouse has always controlled the family finances and will not release funds to their spouse so that they can access legal advice.

When a divorce becomes acrimonious – whether it is as a result of a fault-based petition or not – there can be a strong desire to make sure that one’s former spouse gets very little out of the family pot.

While the financially weaker party is floundering without advice, the financially stronger spouse may be busy gathering together a strong legal team and putting together his or her case.

One powerful option that may be available is a litigation loan. These work by allowing an individual to borrow money for their legal fees on the basis that the entire loan plus any accrued interest will be repaid once the client has received his or her settlement. 

Until recently, only one provider dominated the market but this has changed over the past year or two and there are now a number of options to choose from. If a provider is regulated by the Financial Conduct Authority – and they certainly should be if they are providing a service like this – then they are under an obligation to lend responsibly.

This means they will lend only up to a certain proportion of the client’s likely settlement outcome. But, if the figures work and there is a clear route to repayment at the end of the divorce procedure, this could be exactly the solution a party to divorce is looking for.

Most litigation loans work by providing a maximum facility for the borrower who is then able to draw down from that facility as and when invoices become due for legal fees.

It is important to know that clients are charged interest only on the amount they draw down. A small set-up fee can be paid up front or rolled into the loan and paid at the end.

In fact, the only up-front cost to the client is a small sum for independent legal advice on the loan itself, and this is a feature of every loan, no matter which provider is used.

Some providers can top up the facility with a separate loan for living expenses.

This is helpful to the borrower in that they are able to meet their outgoings and can also complement the litigation in other ways. It can be very helpful to a solicitor who is trying to demonstrate a realistic picture of a client’s income needs.

It can remove the need to make expensive applications for interim maintenance while the finances are being ironed out and allows a client to repay a friend or family member who has made them a loan to cover their expenses or legal fees. 

Soft debt

While the borrower may have taken such a loan in good faith, fully intending to repay it, the likelihood is that a judge would perceive it to be a soft debt on the balance sheet. 

By using a living expenses loan from a litigation funder, the borrower can repay the debt and have the reassurance of knowing it will show upon the asset schedule as a hard debt and therefore be much more likely to be taken into account. 

As long as there is a clear route to repayment, many funders will also lend for proceedings relating to children or unmarried couples, and funding will extend to alternative dispute resolution such as mediation or arbitration.

This kind of funding puts a fair outcome within reach of an individual who may otherwise be unable to access legal advice of a similar calibre to that available to the financially stronger spouse. 

Now that the UK is making  no-fault divorce law, there are high hopes in the family law community that the focus will move away from the culture of blame and acrimony towards an emphasis on fairness of outcome and minimising the consequences of divorce for adults and their children. 

Key Points

  • A new law was announced to introduce 'no-fault' divorce
  • It is possible to get a loan to pay for the costs of a divorce
  • The loan can be offset against the eventual settlement

George Williamson is managing director and Katie Alexiou, is a co-founder of Level, a family law specialist litigation funder