Regulation  

Fairer way to fund a divorce

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.