We know that one of the biggest concerns for anyone facing divorce is how they are going to afford legal advice.
While the legal process of obtaining a divorce is often relatively straightforward, resolving financial matters can be significantly more complex. When there are properties, pensions, businesses or substantial assets to divide, legal costs can quickly become a concern.
Many people assume that if they cannot afford to pay their solicitor as the case progresses, they have no option but to represent themselves or accept an unfair settlement. Fortunately, that is not always the case.
For some clients, a litigation loan can provide access to the legal representation they need, with repayment deferred until the conclusion of their case.
What is a litigation loan?
A litigation loan (sometimes called legal funding or litigation finance) is a specialist loan designed to help fund legal costs during family law proceedings.
Rather than paying legal fees upfront, the lender pays agreed costs as the case progresses. The loan is then usually repaid from the client's financial settlement or the proceeds of a property sale once the case has concluded.
This means clients do not usually need to make monthly repayments while proceedings are ongoing.
Who are litigation loans designed for?
Litigation loans are most commonly used where one spouse has limited access to funds, while the other controls most of the family finances.
Litigation loans may also be appropriate where:
- There is a substantial matrimonial asset base
- The client has a realistic expectation of receiving capital at the end of the case
- One spouse refuses to contribute voluntarily towards legal costs
- A Legal Services Payment Order is unavailable or inappropriate.
Every case is different, and litigation funding is not suitable for everyone. However, it can be an important option where funding would otherwise prevent someone from pursuing a fair financial settlement.
What are the benefits?
- Access to justice
- No large upfront payments
- Repayment is deferred
- A more level playing field
Perhaps the greatest benefit is that clients can continue to pursue or defend financial remedy proceedings even if they cannot afford ongoing legal fees.
Instead of paying solicitors' and barristers' fees as invoices arise, funding can be provided throughout the case, reducing immediate financial pressure.
In many cases, repayment takes place only once a financial settlement has been reached, rather than through monthly loan repayments during proceedings.
Financial imbalance is common during divorce. If one spouse controls the finances, the other may feel pressured into accepting an unfair agreement simply because they cannot afford legal representation.
Litigation funding can help ensure both parties have access to experienced legal advice, allowing negotiations to focus on achieving a fair outcome rather than on who has the deepest pockets.
Avoiding unnecessary compromise
Clients who run out of funds may feel they have little choice but to settle early.
Access to funding allows cases to be prepared properly and, where necessary, pursued through court proceedings without financial pressure dictating the outcome.
Preserving personal assets
Rather than using savings, pensions or borrowing from family members, some clients prefer to preserve their own assets until their financial settlement has been finalised.
Funding beyond legal fees
Depending on the lender and the circumstances, litigation funding may also cover:
- Barristers' fees
- Court fees
- Expert reports, including pension experts and forensic accountants
- Mediation costs
- Private Financial Dispute Resolution (FDR) hearings.
Many lenders also release funding in stages as the case progresses, helping to match the costs of the litigation.
Will I have to secure the loan against my home?
Some litigation lenders assess the strength of the case and the likely financial settlement rather than requiring a traditional charge over the family home. This will vary between providers and individual circumstances.
Are there any disadvantages?
As with any form of borrowing, litigation loans are not without cost.
Clients should understand that:
- Interest and arrangement fees can be significant
- The loan will reduce the amount ultimately received from any financial settlement
- Lenders will usually assess the merits of the case and the likely recovery before agreeing to provide funding
- Independent financial advice is usually appropriate before entering into a funding agreement.
Your solicitor can explain how litigation funding works and whether it is likely to be suitable in your circumstances, but the decision to enter into any loan agreement should always be made carefully.
How can Coles Miller help?
We understand that concerns about legal costs should not prevent someone from obtaining expert legal advice.
Where appropriate, we can discuss the funding options available, including whether a litigation loan may be suitable for your circumstances. If we believe another funding option, such as a Legal Services Payment Order, may be more appropriate, we will explain that too.
Every family is different, and every financial situation is unique. Our experienced family law team will help you understand your options and work with you to find the most practical and cost-effective route forward.
Speak to our Family Law team
If you are worried about how you will fund your divorce or financial remedy proceedings, our experienced family solicitors are here to help.
Contact Coles Miller today for confidential advice about your options and how we can support you throughout your case.
Taking the first step
If you have been considering separation or divorce and are looking for clarity as the new year begins, speaking to an experienced family lawyer can help you understand your options and move forward with confidence.
Contact our Family Team to arrange a confidential consultation.
*This article is intended as general guidance only and should not be treated as legal or financial advice. Litigation loans are subject to eligibility criteria and individual lender requirements.
