It might seem pretty obvious that if your friends or family are able and willing to support you by paying your legal fees you wouldn’t need to get a loan that means you’ll be paying interest at a commercial rate. But it isn’t that straightforward.
When you’re sorting out the finances in a divorce you look at how you divide up the available assets. Assets can include for example your family home and other properties, cash savings, investments, valuable personal belongings, business interests and pensions. But before deciding on how they are to be shared you need to take account of liabilities to arrive at a figure for “net assets”. That’s where things can get complicated with loans from family and friends.
If you end up not being able to agree a settlement and have to get a court or arbitrator to decide what should happen, a commercial loan will nearly always be taken into account. It’s a debt that clearly has to be repaid, whether it’s the mortgage on your home, a bank loan for your car or a loan from Untangled to enable you to pay your legal fees and get the advice and representation you need.
The treatment of loans from family members can vary depending on the circumstances of the case and how the court assesses the evidence relating to the loan. Even if it's evidenced in a formal loan document it might still not treated as a liability. If the court doesn’t think there’s enough in the financial pot to get a fair settlement, there’s a risk that it will treat the family loan as a “soft debt”. In other words one that, if push comes to shove, the family might not enforce and that therefore should not be deducted from the assets to be shared.
Another point is that although most families will hopefully respect your independence and leave you to make the final decisions about your case, unfortunately sometimes they can feel that if they’re paying your legal costs they have a direct stake in proceedings. This can put pressure on you and be problematic.
Whilst in many cases borrowing from family or friends might be the best option, the way in which such loans may be viewed can make a loan from Untangled well worth considering when deciding how to fund your case.
Nigel Shepherd
Family law specialist and adviser to Untangled.
Important Information: Loans are subject to eligibility and terms and conditions. Interest and other charges may apply. Applicants should consider whether borrowing is appropriate for their circumstances and seek independent advice where necessary.
The views expressed are general information only and should not be relied upon as legal advice.
