No-fault divorce law puts focus on fairness of financial outcome

Last month, following a 12-week government consultation, it was announced that no-fault divorce will come into effect in the UK ‘as soon a Parliamentary time allows’. The announcement of this new legislation marks a major shift in the way divorce proceedings are perceived in the UK. Under the current regime, unless they have been separated for over two years and both parties consent to the divorce, the onus is on one party to convincingly demonstrate that the demise of the marriage was the other party’s fault, either by citing adultery or itemising their unreasonable behaviour. Needless to say, this emphasis on attributing blame only serves to stoke up the antagonism at what is already a turbulent time for divorcing couples.

Perhaps unsurprisingly, many spouses have used the legal requirement to attribute blame as an opportunity to stick the knife in – overflowing on continuation sheets in an effort to catalogue all the ways in which their former spouse fell short during the course of the marriage.  Interestingly, there is a common misconception that the more blame that can be attributed to one party, the more likely the other is to achieve a favourable financial settlement.  The reality is that behaviour has little bearing on financial outcome and is rarely relevant.

As we shift away from a culture of blame towards a fairer system, the main focus is designed to be on fairness of financial outcome. But what if it feels like a fair outcome is out of reach for one party because they can’t access funds to pay for legal fees?  This situation may arise when one party takes financial control and denies the other party access, or it may be a liquidity issue with all the marital assets tied up in property, business or offshore assets.

In 2017, the introduction of Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act removed legal aid from family litigation in all but a handful of cases. Meanwhile, banks very rarely lend for family law proceedings.  This has led many to feel they have no other option but to act in person, far from ideal when their former spouse may be busy gathering together a top legal team to achieve the result they desire.

A common approach is turning to friends or family for financial support, though many are unaware of the potential downside to this which is that this type of loan will show up as a ‘soft loan’ on the asset schedule, meaning that a judge may not take it into account when the financial settlement is considered.

Another option for the financially weaker party is to apply for a Legal Services Order, where a former spouse is ordered to pay the other party’s legal fees. This has its own pitfalls though and diverts the focus from the strategy of the main proceedings.

One potentially useful option for a financial weaker spouse is to seek litigation funding, as it enables a client to access a legal team that will put them on a level playing field with their former spouse. It also ensures that the strategy of the case is not impeded by a lack of funds.

Where previously one provider dominated the market, there has recently been an influx of new litigation funders, with varying approaches, terms and charging structures. It is important to understand the differences between the funders to understand which will work best for the client while avoiding common pitfalls associated with certain types of lending.

Most litigation funders will provide the client with a maximum facility from which they can draw down the amount they require once legal fees become due.  Interest is only charged on the amount drawn down. This structure is flexible in nature which suits family law litigation, where the time frame can be hard to predict. There is a relatively modest (1% of the loan facility) set-up fee which can either be paid at the outset or be rolled-up into the loan and paid once the settlement has been received.  The only upfront cost is for independent legal advice on the loan itself.

FCA-regulated funders have an obligation to lend responsibly and, as a result, can usually only lend up to a certain proportion of the client’s likely final settlement. It is important to look out for less clear costs, where the charging structure is slightly more complex and it may be difficult to see at the outset the ‘true cost’ to the client.  These costs usually lie in the amount charged beyond the ‘headline’ interest rate, such as higher set up costs and redemption fees (which are charged across the entire facility, not just on monies drawn down) because these are fixed costs levied on higher figures so, whilst the percentages sound relatively modest, the actual cost to the client could be considerably greater.

Some funders will also provide a separate, ’unrestricted use’ loan for living expenses, which may be worth considering. Not only could this be useful for clients who want financial flexibility while the divorce is ongoing, it also allows them to demonstrate their income needs to the court more accurately.  It also poses a genuine alternative to often lengthy and expensive MPS proceedings and allows the focus to remain on the heart of the financial remedy proceedings. In addition, this type of loan could be useful where a client has borrowed from a friend or family member in order to fund their legal costs.  Whilst the client might legitimately wish to repay their friend or family member, this form of borrowing will usually be considered a soft debt by the judge and not accounted for in any financial settlement. Because the living expenses loan has an ‘unrestricted’ use, it could be used to repay the soft debt before the proceedings have concluded, meaning the loan will be recognised on the asset schedule as a hard debt.

When choosing a provider, specialist matrimonial litigation funders can be a good option particularly if they have in-house family law expertise. Where high-value and complex cases are concerned it means lending decisions can be made more swiftly, saving time and money.

The significance of litigation funders has increased substantially, and with no-fault divorce now on the horizon, there is a real focus on fairness of financial outcome, which is now much more achievable.

 George Williamson, Managing Director of Level and Katie Alexiou, co-founder of Level – a family law specialist litigation funder

 

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