How Does Litigation Funding Work for Divorce?

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If you’re worried about how you’re going to fund the legal costs of your divorce, then litigation funding (or a ‘litigation loan’) could help.

Essentially, litigation funding allows you to borrow money to cover your legal costs and disbursements. The loan is repaid from the financial settlement you receive when your divorce is concluded.

A lender needs to know how they are going to get their money back, and so will want to know what assets they can secure the loan against. Often this may be property, such as the family home.

How do I get litigation funding?

Firstly, you should speak to your solicitor to understand whether litigation funding is likely to be available to you. If it is, an application is made to the loan company through your solicitor. The lender will need information such as:

  • The amount you need
  • What the likelihood of success is in your case
  • What assets are involved in your settlement
  • When you are likely to be able to repay the loan.

When your loan has been agreed in principle, you must then seek independent legal advice (from another firm) before you sign your contract. At this point your litigation funding is in place. You will also get a seven day ‘cooling-off’ period.

Note that loans and charges for finance vary from lender to lender. It’s important that you compare the various options before you make a decision. For example, some lenders will charge you interest on the total amount of lending, whether you use it or not. Others will only charge interest on the money your solicitor draws.

What should I look for in a litigation funding lender?

When comparing lenders you should look for:

  • Transparency
  • Personal service
  • The speed of a decision
  • Efficiency in processing and administration

How much will I pay for litigation funding?

Charging structures vary from lender to lender. You have to compare:

  • The headline interest rate (for example, 1.5% per month)
  • Whether interest is charged on the total facility or just the amount you use
  • Whether there is a ‘redemption’ fee
  • Whether the loan is offered on a no win/no fee basis (i.e. if the settlement does not cover the loan, the full loan will not be payable)
  • What administration charges apply

How is litigation funding paid?

The litigation funding is generally released in stages, directly to your solicitor. Often, money is drawn in three ‘tranches’:

  • The first appointment
  • Financial Dispute Resolution
  • The final hearing

By drawing the money in stages it means that, if your divorce is settled earlier your solicitor won’t have to draw all of the funds, saving you interest costs.

Is litigation funding a safe option?

In recent years the standards of litigation lenders has improved, and there is now a clear and transparent process in place. Underwriting is detailed, and so it’s more like obtaining a mortgage than it is getting a payday loan.

Your solicitor may have a recommendation as to which reputable lenders to consider, and a good divorce lawyer will know how best to apply and draw down the funds.

 


Do you need help with your divorce?

Get in touch now with one of our panel of specialist local family solicitors.

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