Divorce is one of the most stressful and potentially expensive times in a person’s life. Whilst financial remedy proceedings often result in assets being divided between spouses at the conclusion of a case, what if at the outset one party boasts significantly more capital and income.
In such instances, the financially weaker spouse may request or hope that the wealthier party will cover the legal costs of both sides. In some cases, the parties will agree to this. Alternatively, they may agree to contribute to the financially weaker party’s fees, for example, by providing a fixed monthly contribution or offering a ‘pound for pound’ arrangements, which offers ‘equality of arms’ in legal support, i.e. whatever the financially stronger party spends on legal fees, they will contribute the same to the financially weaker party.
However, in many cases, particularly in the absence of financial disclosure, it may not be agreed, and funding of the financially weaker party’s legal fees may be less straightforward.
Indeed, the general position set out in the Family Procedure Rules reflects these difficulties in establishing that each party is responsible for their own costs.
There was a time when the wealthier party would be required to fund the other party’s case, but this is no longer true. Coupled with a significant reduction in the ability of Legal Aid, funding divorce proceedings funding of both sides legal fees has become more difficult to agree in recent years. If a party considers they may be eligible for Legal Aid, they should obtain legal advice after using the online government calculator.
Notwithstanding the default position, that everyone is responsible for their own legal costs - there can be situations in which a party may succeed in securing the payment of their fees by their spouse.
It is therefore important to consider when this might apply and the practical steps to be taken to ensure that the most appropriate arrangement is established from the outset.
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Can I get a Legal Services Payment Order (LSPO)?
A Legal Services Payment Order (LSPO) is the official channel through which a court may order that one spouse pays the costs (in full or part) of both parties. The difficulty of making such an application is considering how the fees of making the application will be met, and this is something that should be discussed with your solicitor as these applications carry a cost risk and can be expensive in themselves. That said, for some, there may be no alternative.
It is important to appreciate that there are strict eligibility criteria. LSPO are designed to assist a party who has no alternative access to funds and where a wealthier party can afford to assist with the other side’s fees. This will evidently not apply where the financially weaker spouse has sufficient savings or income to fund the case.
However, even without such obvious financial resources, there are further sources which must be exhausted before an LSPO will be made. The applicant will need to demonstrate that they do not have access to any other financial resources, for example, if they are not currently working, they will need to be able to explain why they cannot obtain work, they will also need to demonstrate why they cannot obtain a commercial loan etc. The applicant must also evidence refusals to lend from two litigation loan providers, these are specialist lenders who provide loans to cover legal proceedings. Applicants may be successful in obtaining funding where the lender is assured that they have sufficient capital to secure the repayment of the loan. This should prevent a LSPO on the grounds that assets are illiquid (i.e. cannot be easily converted into readily available funds).
If a financially stronger party has received a request from the other side to meet their legal fees, it would be understandable for them to ask to review refusals to lend from two litigation lenders, as this may indicate that the applicant could potentially make an LSPO application.
LSPO applications can attract costs risks, for example, if a party makes a successful application, they could seek an order that the other side meets the cost of making the application, the logic being they should never have had to go to the effort of drafting an LSPO statement or having an LSPO hearing. On the flip side, if an LSPO application is unsuccessful, the responding side may seek their costs on the basis that the application should never have been made. Therefore, it is always important to seek specialist financial advice in respect of making such applications as this is an exception to the – each party is responsible for their own costs general rule of thumb!
Other potential options to secure funding
Where litigation lenders will not provide the solution, there are still further options to be explored before accepting that one party will pay the costs of both.
For example, it may be worth exploring whether the financially weaker party has an interest in a property that could be subject to a further mortgage. Specialist property advice may be beneficial in considering the options available in such circumstances. Although solicitors cannot provide financial advice, commercial loans, mortgages or remortgages are areas a party may wish to consider and compare the terms of such loans with those offered by litigation lenders.
Furthermore, it is important to remember that the court will likely expect both parties to maximise their earning capacity. This may mean that a spouse who is not in paid employment but if able to work should actively pursue a return to the workplace. Of course, this will not be appropriate or practicable in all circumstances, particularly in relation to areas such as:
- Childcare arrangements
- Age
- Employability
However, where both spouses have good capacity to work, it may be appropriate for a new income stream to fund legal fees.
Sometimes a party can obtain loans from friends or family. In these situations, it is important that documentary evidence of the loan and the applicable terms be recorded in writing and legal advice should be taken in respect of the best way to contemporaneously document this loan. This prudent approach will minimise the scope of the other side potentially trying to argue that such ‘loans’ are instead gifts from generous friends and family i.e. ‘soft’ loans, that will not need to be paid back.
It is also important to remember that funding arrangements can be agreed with solicitors in some cases, for example:
- Sears Tooth Agreements
- Deferred Fee Agreements.
Conduct cost risk
Finally, both parties in financial remedy proceedings should always be aware that costs orders may be made by the court as a result of their conduct during proceedings. For example, the following behaviour can risk a cost order being made against that party:
- Making frivolous applications
- Reneging on proposals
- Failing to comply with rules such as disclosure
In such circumstances, the court may depart from the general rule and order that one party reimburses the other for the legal costs incurred.
Conclusion
Therefore, whilst in principle each party is responsible for their own legal fees, this rule is subject to various exceptions and practical considerations. To minimise costs and best preserve the asset base in a case it is important to obtain advice at an early stage to implement the most appropriate funding arrangement in the circumstances.
