Although we advise and represent many high net worth (HNW) people during their divorce, most of our clients are anxious about paying their legal costs, especially if the matter goes to the Family Court. HNW people are often wealthy in assets but short on liquid cash.
The perceived cost of litigation costs often results in people choosing to forgo legal advice and represent themselves in Court. This is a mistake as if your spouse has instructed an experienced divorce lawyer you will be at a significant disadvantage. Furthermore, it is extremely difficult for someone not trained and experienced in family law to successfully navigate the legal system and instruct expert witnesses etc.
There are several options available to cover your legal costs whilst your financial settlement is being agreed upon.
This is where you use your own capital to pay for your legal expenses. If you are in a financially stronger position than your spouse, you may choose to fund their legal costs. This will work to your advantage if it mitigates the risk of your spouse taking out a commercial loan at a high-interest rate, therefore reducing the capital available to be divided in the financial settlement. However, this should not be an open-ended commitment and your spouse should be encouraged to have a backup plan in case you have to withdraw your financial support.
Family and friends
If you receive financial help from a family member or a friend, make sure you ask your Family Law Solicitor how long they believe your divorce case will take to settle. Also, agree that notice will be provided if funding has to cease to ensure you do not continue to run up legal costs without any ability to pay them.
If the money from family and/or friends is in the form of a loan, it is always best to have a legal agreement drawn up. For example, you could agree that you will pay the money (plus any agreed interest) loaned for legal costs back once you receive the funds from your share of the financial settlement. The other reason for documenting the loan is so it can be presented in the Family Court as a debt that needs to be repaid.
Remortgaging your property
If you have enough equity in your family home, you can apply to remortgage your property. The advantage of remortgaging is the interest rate will be lower than that of a personal loan and the loan can carry on after your divorce is concluded.
Personal loan or credit cards
Personal loans are available from many financial institutions including high street banks, independent lenders, even Sainsbury’s and Tesco. Your financial circumstances and the value of the loan will determine the interest rate. You will also need to pay an administration fee.
A bank will require confidence that you will receive a substantial financial settlement. To this end, an undertaking from your Solicitor and you that the debt will be paid will be required. Other third-party lenders may require security such as a charge over your property before they lend you any money.
Sears Tooth agreements
A Sears Tooth agreement is a deed that assigns the settlement you receive from your divorce to your Solicitor who will pay themselves in full before handing over the rest of the funds.
The agreement will need to be signed and witnessed after you have received independent legal advice. Furthermore, you will need to tell the Court and your spouse that you have entered into a Sears Tooth agreement.
Sears Tooth Agreements are now very rare as they are inherently risky for Solicitors and generally not necessary given the introduction of litigation loans, as discussed below. They also require the Solicitor to cover any disbursements themselves. However, experienced divorce lawyers who know that their client will receive a high-value settlement may enter into one if it means getting their client’s case over the line.
Litigation funding (also known as a litigation loan)
Litigation funding for divorce is essentially where a commercial lender loans you the funds you need to cover your legal costs and disbursements. The loan is repaid from the financial settlement you receive when your divorce is concluded.
Because the lender needs reassurance that they will get their money back, they may secure certain assets against the loan, for example, any property you own or valuable artwork but many do not. The lender will make an assessment of your case (guided by your solicitor) as to the likely outcome and how bug a loan you might need.
Although your divorce lawyer can advise you on how to obtain a commercial loan, you must receive legal advice from an independent Solicitor before you sign the loan agreement.
Court-ordered interim financial provision
If the financially weaker party in a divorce has no income or capital to meet their legal costs, and for whatever reason they cannot obtain a litigation loan, the Court can order the financially stronger party to pay. This ensures both parties can fairly pursue their case. A separate hearing will be held to determine if an interim financial provision is suitable. The Court will consider the following:
- Is the dependent spouse’s case reasonable and are they taking every opportunity to settle the matter early? An example of this is trying mediation to resolve any disputes rather than insisting on going straight to Court. Any history of domestic abuse within the relationship will mean it is highly unlikely that mediation will be a suitable dispute resolution alternative.
- Have commercial lenders been approached?
Your Solicitor will advise you on the risks of an interim financial provision application and the steps that must be taken beforehand – court should always be seen as the final resort for legal fees funding.
Having the finances available to see your divorce case through to the end can result in shorter court proceedings and encourage your spouse to settle early. At Edwards Family Law, we will explore every avenue that suits your financial situation to allow you to receive our specialist, astute divorce law advice.
Edwards Family Law is a niche London-based firm specialising in high-net-worth divorce and international family law. To find out more about divorce and financial settlements, please phone +44 (0)20 3983 1818 or email email@example.com. All enquiries are treated in the strictest confidence.