Funding Your Divorce
Funding your divorce can be challenging regardless of your circumstances. Here, we provide insight in to different ways you can help fund your divorce.
Funding Your Divorce Through Legal Aid
Since 1 April 2013, family law legal aid has been all but abolished – it is now limited to cases which involve domestic abuse. As a consequence hundreds of thousands of people can no longer afford access to a lawyer. Instead, people must try and pursue justice on their own, or look to alternative avenues such as arbitration.
Funding Your Divorce With A Bank Loan
You may be able to negotiate a bank loan so your solicitor is paid as usual during the case. Some banks will fund your costs if you undertake to repay them out of your financial settlement. Banks may also agree to ‘roll up’ the interest payments into the final payment. This means the repayment isn’t made until the case is over. There are a few banks that specialise in this type of funding. Your solicitor will be able to advise you.
Using Your Spouses income to Help Fund your Divorce
It is possible to apply to the court for an order to make funds available out of your spouse’s income. There are ingenious ways of doing this, such as an award of backdated maintenance. However, the income or capital has to be available in the first place.
The court will not make an order for payment of legal costs out of the other party’s income unless there is absolutely no other way. Evidence must be produced to that effect. This must include the solicitors of the applicant refusing to enter into a ‘Sears Tooth’ agreement.
A Sears Tooth Agreement
A Sears Tooth agreement is a deed signed by a client and their solicitor. When such an agreement is made, the solicitor agrees to fund the case. The client assigns part of the capital settlement to the solicitors to cover the client’s costs. This is then agreed or assessed by the court.
A Sears Tooth agreement is signed by the client and witnessed by an independent solicitor. If a dispute about it comes up in the future, it will be upheld by a court. A lump sum settlement awarded in a divorce can be legally assigned in this way.
Once the Sears Tooth agreement has been signed, it must be disclosed to the court and to the other party in the case.
Not many solicitors will take on such agreements. It is a gamble for them, especially if the case itself poses a risk. Furthermore, under such an agreement, the solicitors must fund the disbursements [expenditure] in the case. Disbursements include court fees, surveyors’ fees and barristers’ fees. Should something go wrong, then the solicitors will be left out of pocket.
However, there are times when it is the only way forward. Don’t be afraid to ask. If the client doesn’t have a choice, the solicitors may also take the view that they don’t have a choice.
Money can be a potent weapon. The party who has it can buy immediate representation, rather than waiting for legal aid or other funding arrangements. He or she can cut off the credit cards, refuse to pay the bills and reduce maintenance in order to put pressure on. The person with money can force the other spouse to fight to the bitter end. He or she can afford to take the best advice and use intricate arrangements to disguise finances. At the end of the day, the person with the money is the one who gives and the person without is the recipient.
But take heart. If you think the issues you have with your spouse are unique, rest assured that many other people will have faced the same issues. A good solicitor will know all the tricks and how to deal with them. So take comfort. Unless there is no money there, or far less than you had thought, everything that worries you can be dealt with. Just because somebody lives a flashy lifestyle doesn’t mean there is substance behind their style. Be realistic.
Acting swiftly is a good way to lower your costs, the longer your divorce drags on the more likely it is that costs will mount. Prepare details of the finances of each party, with supporting documentation, as soon as possible. Find a reputable solicitor who will provide a good steer on the outcome of your case and an estimate of likely costs.
Beware The Timing when Funding Your Divorce
If at all possible, don’t separate just before the end of a tax year, as you will not have much time in which to consider the most tax-efficient arrangements. In the eyes of HMRC, transfers of assets, like property or company shares, result in no immediate capital gains tax liability if they happen during the tax year during which you separate.
Remember Bills Still Need Paying
Even if your divorce moves quickly and you are comfortable with funding your divorce, it may still be months before any final settlement. If this is the case, make interim arrangements for bills. Don’t ignore debts and decisions about who will pay them. If you are unable to come to an agreement, you can submit an application to the court for an interim order, but, be aware that this may not be cost effective option. Another avenue is to see if the bank is willing to help until the house is sold.
Alternative Methods of Representation
Consider using a collaborative lawyer, mediator or arbitrator. It’s worth keeping in mind that other forms of dispute resolution such as arbitration are becoming increasingly popular. This is partly because legal fees can be relatively low. What arbitration and the other methods aim to achieve is a fair outcome for both parties whilst avoiding the need to go to court. With divorce lawyers’ fees being charged on an hourly basis, fees can mount up.
Keep valuing assets until the case is sorted, especially if it’s taking a long time. Understand the total value of everything you are settling and pay particular attention to pensions.
Mesher orders are best avoided. A Mesher order postpones the sale of the marital home until a specified event takes place. It originated in 1980, when the Court of Appeal permitted a wife to remain in the marital home with one child until they reached seventeen, or until a further court order. Orders like these were not uncommon during the recession, when there was often insufficient capital to rehouse a newly divorced mother and her children.
The difficulties with Mesher Orders, became apparent when the houses were due to be put on the market. In many cases, despite inflation, there still wasn’t adequate equity in the mother’s share to enable her to buy her own property. She was left in a worse position than before, because reduced remaining time in the workplace meant she was unable to raise a mortgage. Also in certain cases, capital gains tax has become a major issue.
Don’t be blind to the possibility that your partner may declare bankruptcy. If you suspect your spouse is going to do this make sure your solicitor gets you into court and obtains a court order as soon as possible. If the worst does occur, you may still have the right to stay in the family home for a year and you can still claim your share of that property’s equity.
Information kindly supplied by Stowe Family Law
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