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Funding Options for Financial matters

Funding Options for Financial matters

21 March 2017 Olivia Lowen

Funding Options for Financial Matters: Addressing the “Power Imbalance”

It is often the case that parties to a divorce do not have the same financial resources at their disposal, for example, one party may have been a stay-at-home parent allowing the other to climb the career ladder to a well paid job. Similarly, one party may have a steady, ready income whereas the other may have money, but that money may not be readily accessible for instance where it is tied up in property.

In a divorce, parties can agree that one will pay the full amount of/a contribution towards the costs of the other, or the petitioning party can ask the court to order that the respondent party pay their costs and the court then has the discretion to award this. Financial proceedings, though often inextricably linked to divorce itself, do not work in the same way. Of course parties are free to agree that one pays the costs of the other, but this does not often happen in practice. The general rule under FPR 28.3(5) is that the court will not make an order requiring one party to bear the other’s costs in financial proceedings.

This can leave one party in a difficult position; do they take the risk of representing themselves and potentially not getting as good an outcome as they would have had they been represented, or do they find another way of funding the proceedings so that they can be on an equal footing with the other party and have the opportunity to properly engage with the matter? If the latter, what are their options?

Option 1: Maintenance pending suit

The party with the lesser funds can make an application to the court for maintenance, which can then be used to meet legal costs. Maintenance is often ordered in cases where one party is financially better off than the other to redress the balance. Maintenance pending suit allows this payment to be made during proceedings rather than at the end of proceedings, and can be backdated to when the divorce was started. The amount awarded will be whatever the court deems reasonable, and it must be paid directly to the receiving party.

Option 2: Legal Fees Order/Legal Services Payment Order 

Amendments were made to the Matrimonial Causes Act 1973 which came into effect on 01 April 2013, the same time legal aid was withdrawn for financial proceedings. These changes allow the court to order one party to proceedings to pay money to the other party specifically for legal fees incurred in respect of those proceedings.

The Order may be only for a specific duration or for a specific part of the proceedings. These orders can be quite flexible and varied if required. The court must be satisfied that the party who is to receive the money would not be able to obtain a loan  to pay for legal services, could not enter into a charge over an asset, or would otherwise not have access to legal services without this order being made. This has the effect of considerably decreasing the amount of people who could be eligible for such an order.

Option 3: Obtain a Loan 

It may be possible to obtain a commercial loan, or a loan specifically offered to people who are funding legal proceedings. These often attract quite high interest fees, but being able to fund a solicitor to represent you might mean you end up with more than you otherwise would have done, which may mean the borrowing cost is a good investment. It may be possible to obtain a loan from a family member or friend on more favourable terms. Putting the fees onto a credit cards is also an option, especially if interest free, but should be carefully considered.

Option 4: Sears Tooth Agreement 

Under a Sears Tooth Agreement, the client agrees to pay their solicitor’s fees from the settlement they receive at the end of the case, and often interest will be charged. Very few solicitors firms operate Sears Tooth arrangements as they are very risky, not least because it cannot be guaranteed at the outset of a case what settlement will come about.

Option 5: Granting a Charge 

Similarly to Option 2, above, the client could grant a charge over property to a lender by way of security for an amount of money. A charge could be granted to a lender of any type, for instance a commercial lender such as a bank, or a family member or other third party. It should be borne in mind, however, that drawing up (and registering) the charge would usually involve solicitors’ fees of its own.

Clearly there are options for the party who needs financial assistance, but it should be borne in mind that some options can be a false economy.

Petitioning party: the person who starts divorce proceedings and files the divorce petition with the court.

Respondent party: the person who did not issue the divorce proceedings.

FPR: Family Procedure Rules 2010.

Sears Tooth Agreement: so called because of the case which established it (Sears Tooth v Payne Hicks Beach, 1997). An agreement between solicitor and client to ensure payment of the solicitor’s fees.

Charge: a legal instrument which gives a lender an interest in the borrower’s asset like a mortgage.

All information correct at the time of initial publication.