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Managing finances can be stressful at the best of times, what with rent or mortgage payments, household bills, and those expensive (but much needed) morning coffees. Yet, it goes without saying that the stress surrounding finances has only increased during the global pandemic.
Normal routines and social activities have been disrupted, and many people across the country must now also contend with being furloughed, taking pay cuts, being laid off, or losing their jobs altogether. Since 16th March, 1.5 million people have applied for Universal Credit, and since 21st April, over 1.3 million people have been added to the Government’s furlough scheme.
Undoubtedly, the uncertainty surrounding finances and increasing strain to make ends meet may cause individuals to reassess their monthly outgoings, and to cut back on luxuries such as unnecessary direct debits, takeaways and online shopping sprees.
Concerns about funding legal fees for your divorce, whether you are currently in proceedings, or want to instruct a new solicitor, may be a growing source of distress for many. There are several options for those concerned about funding their legal fees, both during the Covid-19 lockdown, and generally.
Solicitor’s fees can be privately funded, meaning that they are paid out of your own pocket. The usual rule is that you will pay for your own solicitor’s fees and your spouse/partner will pay for theirs, unless a costs order is made by the Court (see below). Solicitors will usually ask for a payment on account at the start of the case (usually £500 to £1,000) known as a retainer fee, and then on an ongoing basis until the conclusion of the case. Any additional expenses (also called disbursements) such as court fees, report/valuation fees or barrister’s fees will also be asked for in advance.
Solicitors may charge a fixed-fee or on an hourly rate basis. The most common charging method is on an hourly rate, however there are some firms that will charge a fixed fee for certain types of work. You should ask your solicitor so that at the outset, you are clear about the basis of charging. When formally instructing a solicitor, they should provide you with their client care letter clearly setting out likely costs with either a quote (fixed fee) or estimating the costs of the matter based on their hourly rate. Any additional expenses, such as disbursements and VAT will also be stated or estimated. The estimate will be based on the number of hours of work they think they will need to spend on the case and this can vary widely depending upon the circumstances of the case. In some cases a cap can be agreed on the work ‘capped fee’, however certain conditions may apply to such a capped fee as with a fixed fee.
Law firms may have differing policies regarding the payment of invoices; details of which should be found in their terms and conditions, or client care letter. Those payment terms will usually be strictly enforced. Most firms will not offer any regular payment plans by instalments, however there is no harm in asking about the options if you are struggling to fund legal fees, especially in light of COVID-19.
In April 2013, the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) drastically changed who is eligible for Legal Aid for family matters. Whether you qualify for Legal Aid can depend on the area of law, and your financial circumstances.
Legal Aid for family cases is means tested, meaning that your gross income, disposable income, and disposable capital will be assessed to see whether you qualify. Your financial circumstances are not usually considered where the case involves children in care, or child abduction and often you will be automatically entitled to Legal Aid in these cases, depending upon your relationship to the child and the stage of the case. Legal Aid is also available for victims of domestic violence, or where children are at risk of violence.
In some circumstances, Legal Aid may not cover all costs, meaning you may have to pay some costs up front, or pay back some costs if you are awarded money or assets by the Court.
In light of COVID-19, the Government has extended the scope of Legal Aid, meaning that more people may become eligible for Legal Aid. If you have been furloughed, or your financial situation has changed, and you can provide evidence about your change in financial circumstances you may need to have your Legal Aid application reassessed. It is also now easier for victims of domestic violence to access Legal Aid.
Some insurance companies will offer legal expenses insurance when you buy home or motor insurance, which can help fund or cover the costs of your legal fees, depending on the area of law, and how much you are covered for.
You can also buy legal expenses insurance on its own specifically for family law matters, without it being a bolt-on to another insurance policy.
Each insurance company will have different terms and conditions when it comes to what matters are covered by the insurance, and which solicitor/firm can be instructed. It is worth checking with your insurance provider before you enter into legal proceedings.
Obtaining a loan from your bank or another commercial lender may need to be considered to privately fund your legal fees. The loan may be a personal loan, or indeed a secured loan (usually secured against a property as a second charge). The interest rates and repayment amounts will vary between lenders. You should discuss this with your solicitor before taking out the loan, so you can be sure that you borrow enough and also to obtain advice upon how the loan may be treated in any divorce settlement.
Re-mortgaging your home may be an option, depending upon ownership of the property and the amount already owed on an existing mortgage. The interest rates on re-mortgaging your home are likely to be lower than alternative borrowing such as with litigation loans or a loan from the bank, perhaps saving you money in the long run. However, choosing to re-mortgage your home should be considered very carefully. You must ensure that any co-owners consent to the re-mortgage, and you must ensure that you can afford the repayments. Again, you should discuss this with your solicitor before taking out the mortgage, so you can be sure that you borrow enough and also to obtain advice upon how the loan may be treated in any divorce settlement. Independent legal advice should be sought when considering re-mortgage.
Litigation loans for divorce matters are also offered by specialist providers. These differ from commercial loans as the funds are paid directly to your solicitor to fund your legal fees. You will usually not have to make monthly repayments (or there will be very low repayments of interest only) during the loan period. The final loan balance will usually be paid off directly by your solicitor once you receive your financial settlement at the conclusion of the case. These loans are based upon the likelihood of a person receiving a certain amount by way of a cash settlement and payment is advanced directly to the solicitor in tranches. As such, these loans are only available in specific cases.
Loan agreements may be complex. Providers may charge high interest rates and will have differing policies when it comes to repayments and time frames; details of which should be found in their terms and conditions. Independent advice should always be sought before entering into a litigation loan agreement and your solicitor is also likely to have to sign an agreement. Some solicitors may not be prepared to enter into such litigation loans, depending upon the agreements they are required to sign.
A Sears Tooth agreement is an agreement that you can enter into with your solicitor, whereby legal fees are paid to the solicitor upon settlement of the case. Therefore, when you receive a settlement at the end of the case, your solicitor will be paid first before you receive your remaining settlement funds. Interest is also likely to be payable on the debt accrued.
Sears Tooth Agreements are potentially high risk for solicitors and they may not offer them, however, some solicitors may agree to be funded in this way.
There are some conditions that come with a Sears Tooth Agreement. For example, a solicitor may only agree if they are confident that you will be awarded capital upon settlement. The agreements can be complex and independent legal advice should be taken before signing such an agreement.
Borrowing money from family members may be an alternative way to fund legal costs that may allow you to avoid high, or any, interest rates. Before borrowing any monies, you should discuss with your solicitor how this loan will be treated within any divorce proceedings, as they are likely to be treated differently to a loan from the bank.
In some circumstances, the Court may grant a Legal Services Payment Order (LSPO), meaning your spouse must fund your legal fees, either through monthly instalments or a lump sum payment. There are strict requirements that must be satisfied in order for the Court to make a LSPO, the main being that you have no other source of funds available to you to pay your own legal fees. Specialist legal advice should be sought from your solicitor before making such an application.
In some cases, you may be able to apply to the Court for an Order for Costs, meaning that some or all of your legal fees may be paid for by your spouse/partner. Costs orders are rarely made in family cases and will usually only be considered where the other party has behaved in a way that constitutes ‘litigation conduct’. The costs are usually paid at the end of the matter and you will be personally responsible for your own costs initially, with any costs order being a reimbursement of legal fees. Specialist legal advice should be sought from your solicitor before making such an application.
We are committed to offering a helping hand during these difficult times. For further information or advice, please call us on 02380 713 060, or email firstname.lastname@example.org book a free initial consultation with a solicitor.
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