Guidance note on funding options

This guidance was revised in April 2026. The law or procedure may have changed since that time, and members should check the up-to-date position.

It is also often the case that most of the assets are owned or controlled by one party, sometimes making it difficult for the other party to fund legal advice for themselves. Public funding (which is addressed in detail below) may be available to some clients in limited circumstances but with the reduction in availability it is even more important to consider and advise clients on all of the available funding options.

A clear explanation of the funding options, together with regular costs estimates, should reduce the number of complaints regarding invoices issued and the occurrence of bad debts. This is particularly of concern where third parties, such as barristers or experts, have been instructed and the solicitors will be liable for the costs incurred regardless of whether or not they are paid by the client. It is very important to provide a clear costs estimate at the outset, together with full transparency as to how costs are incurred, and to update these estimates regularly.

Where legal fees are significant, this could also be determinative in any eventual settlement. The client should be aware of the possibility that the way in which they (and indeed any other party) have chosen to fund the litigation may have an impact on the eventual outcome.

It is, of course, acknowledged that some clients will not be able to utilise any of these methods and, in those cases, the option of acting in person (with or without assistance in the background, about which see below) may be the only alternative.

Private borrowing

In divorce proceedings the first port of call for many clients will be family and friends. Where this is a possibility, it has many advantages. These usually include a lower rate of interest (if charged at all), more flexibility in terms of repayment dates and arrangements, quicker access to the funds required and no impact on the credit rating of the borrower.

However, the same advantages are also the reason why these are sometimes considered to be soft loans and the other party may try to argue that these debts do not have to be repaid or, if it is accepted that it is a loan rather than a gift, that the lender will not take any action to recover the debt and so the court does not need to accord it the same weight as other liabilities. Courts are usually much more likely to accept hard third party debts than soft friends and family debts. Clients need to be made aware of this risk, particularly in cases which are likely to be determined on the basis of needs.

If a client is considering this option, there are a number of ways to try to protect their position, with varying degrees of effectiveness.

Letter from the lender

This letter must refer to the amount of money loaned and should specify the purpose of the loan. Sometimes private borrowing will relate to general expenditure as well as legal fees and, if so, a breakdown is sometimes useful. Depending on the agreement, the letter will need to set out any agreed terms relating to interest charges and how these will be calculated and implemented, repayment dates, and any specific reasons that repayment is required by that date. The latter is particularly important. If the lender can show they will need the funds back by a given time, or to cover a given expense, this adds weight to the argument that the loan must be repaid. It is important to remember that vague wording such as repayment to be made ‘as soon as possible’ or ‘when the borrower is able’ may be used by the other party to support the argument that this is a soft loan (at best). The letter should be signed by the lender and dated. If the loan is provided by a more distant relative or a non-family member it may also be helpful to refer to this so that it is more difficult to argue that the loan will simply be written off at the end of the proceedings.

Loan agreement

This will usually include the same information as the letter, but set out in a formal contract that is signed by both the lender and the borrower. Whilst being a more formal and potentially more persuasive method, it may also be a fairly straightforward document to complete. This can be a factor as a lender who wishes to help out a friend or family member can be put off by a lengthy document that they consider to be jargon.

Charge

A private loan can be coupled with security provided by the borrower to allow the lender to recover the debt if repayments are not made as agreed. Clients (or the lenders) are often reluctant to enter into such formal arrangements when private borrowing is the source of funding. There can also be considerable difficulties in creating and/or registering charges over assets held in joint names, so it is easier to pursue this option if the secured assets are held in the sole name of the client – although in those circumstances consideration should also be given to whether or not this creates a perception (or reality) that the client is putting the assets beyond the reach of their spouse.

Commercial borrowing

Clients may be in a position to take loans from commercial lenders, including banks and credit card companies. There may also be the option of increasing existing mortgage facilities and using equity in property to secure funding.

The disadvantages of this approach include the high rate of interest which usually accrues and the fact that repayments will usually commence shortly after the loan is drawn down. If a client is considering this route then it would be advisable to investigate deals such as 0% interest credit cards, which will limit as far as possible the negative aspects of this option. These loans are likely to be considered hard loans by a court and taken into account in relation to a final settlement. The corollary to this is that any default is more likely to result in formal proceedings from the lender than with friends and family loans.

Clients should also be reminded that with commercial borrowing it is likely that repayments will most likely be due on a monthly basis from the start.

When using this option, clients must be aware that this may affect their credit rating and mortgage capacity. This is particularly important if, for example, they will need a mortgage to meet their housing needs and significant other borrowing could affect their mortgage capacity.

Litigation funding

There are a number of providers that offer loans specifically for the purpose of funding court proceedings for financial remedies and TOLATA (Trusts of Land and Appointment of Trustees Act 1996) cases. It is sometimes possible to obtain limited funding for other proceeding such as in relation to children. The terms will vary between providers. These loans will share many of the disadvantages of commercial loans and these may even be exacerbated under this option, although they also offer some advantages that the commercial loans do not provide.

There are some particular points to bear in mind when considering advising on litigation funding:

• The interest rates will often be very high, so a cost-benefit analysis should be conducted, bearing in mind the amount the client will eventually repay.
• Some providers enable the money to be drawn in tranches, given the high interest rates it is essential to negotiate this when funding legal proceedings where the funds will not all be required in the short term and may not be required at all.
• Certain providers may request guarantees that they will underwrite the loan being made to the client or even seek undertakings from a solicitor as to the anticipated outcome of the proceedings. This can be very difficult to predict and, in such circumstances, the solicitor will be accepting a risk by providing any such confirmations or undertakings requested.
• Dealing with the litigation funding provider may impose additional burdens on the solicitor in terms of updating and reporting to the provider at particular stages or if certain events occur within the proceedings. This will necessarily increase the client’s costs further.
• A loan at such high interest rates and with terms very often weighted in favour of the litigation loan provider could raise ethical concerns if the option is not fully explained when it is put forward to the client. There could be a significant financial risk involved in this route for a client. Solicitors should bear in mind the SRA’s Code of Conduct rules when advising about loans and ensure that they do not put themselves in the position of being a credit broker. In particular, solicitors should make it clear to clients that the funding is not being recommended by them and is only one of a number of funding options available. Most litigation funding companies require the client to take independent legal advice in respect of the loan agreement in any event before signing the loan agreement.
• Such providers will often require security (such as an equitable charge) over assets and are more likely to require undertakings as to outcome without it.
• Many providers will defer repayment until the conclusion of the matrimonial proceedings. Clients should be aware that whilst this can alleviate short-term needs it does mean that the total interest repayments are likely to be higher.

Deferred payment of legal fees

Some firms may be willing and able to carry out significant work without receiving payment before the resolution of the matter. Important factors to consider will be the assets likely to be available for distribution by the end of the proceedings, the chances of the client obtaining those assets (or such assets as would be required to cover the outstanding fees), the liquidity of those assets and the cash flow position of the firm.

This is clearly a risky option for the solicitor to suggest or agree to. It may be considered appropriate if, for example, there is a property with lots of equity held in joint names, but little available in terms of other liquid assets. If this is the basis on which proceedings are conducted, then it would be prudent to have protection in place to secure the accrued fees. It is also recommended that the solicitor obtains written authority from their client that any lump sum or sale proceeds will be paid to the firm rather than the client directly and that the outstanding fees can be deducted before onward transmission of the remaining funds.

Public funding

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) has governed the provision of legal aid since 1 April 2013. This means that legal aid for most children and finance matters in private family cases will only be available where a client has specific evidence in relation to domestic violence or child protection. Legal aid will continue to be available for cases concerning domestic violence, forced marriage, international child abduction and public law proceedings.

The evidence that is required in order for an application for legal aid to be made is prescribed in the Civil Legal Aid (Procedure) Regulations 2012, as amended. Regulation 33 deals with evidence relating to domestic violence. The Civil Legal Aid (Procedure) (Amendment) Regulations 2016 substitutes a new regulation 33(2), which sets out the new forms of evidence of domestic violence. Regulation 34 deals with evidence in relation to child protection.

Because the forms of evidence are prescribed by regulation, there is no discretion for the Legal Aid Agency to accept other forms of evidence or for the requirement to be waived in particular cases.

From 8 January 2018 changes to eligibility requirements for legal aid came into effect. There is no longer a time limit on domestic violence evidence, which previously stood at 5 years.  Additionally, the range of evidence has been widened to include statements from domestic abuse support organisations and housing support officers.

If a client provides one of the prescribed forms of evidence, then legal aid for certain finance issues (including divorce and dissolution of civil partnership) may be available, if the appropriate means and merits criteria are met.

For further information on the prescribed forms of evidence, practitioners should read the Act, the regulations and the latest version of the Legal Aid Agency’s guidance, “The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) 2012 – Evidence requirements for private family law matters”.

Legal aid is not available to enable a client to receive assistance from a solicitor to obtain the requisite forms of evidence. To assist such clients, the Ministry of Justice has provided template letters for them to use when seeking the evidence and template responses for use by health professionals, domestic violence agencies and social services. The template letters and responses can be found at  https://www.gov.uk/government/collections/sample-letters-to-get-evidence-of-domestic-violence

Insurance

Clients should be advised to check whether any insurance policies they hold provide assistance with the payment of legal costs. Some general insurance policies (which can include household contents cover) include an element of cover for legal expenses or advice and assistance, or it may be that the client has a specific legal expenses insurance policy. Whilst it is not usual for such policies to cover the costs in matrimonial proceedings or otherwise in relation to the breakdown of a relationship, it is worth establishing this in relation to each individual policy at an early stage.

Legal Services Payment Orders (LSPOs)

An application can be made to the court once a divorce has been issued for a costs allowance to be paid from one party to the other. The relevant legislation is  Matrimonial Causes Act (MCA) 1973 s22ZA(1).

The client should be advised as to the statutory considerations that a court must take into account in determining whether or not it can make such an order (s22ZA), and whether or not to do so (MCA 1973 s22ZB(1-3)). The solicitor should also consider the guidance suggested by Mostyn J in Rubin v Rubin [2014] EWHC 611.

In particular, in order to prepare an application for an LSPO, evidence should be obtained demonstrating that the client has no recourse to funds from other sources. This can include confirmation from the solicitors that a deferred payment arrangement is not available and similar letters from litigation loan companies.

The client should also be advised as to the discrete costs associated with the making of an application for an LSPO, which would not automatically be covered by the order itself and hence would require their own separate funding, although it is of note that these discrete costs are exempt from the no-order principle. The client should also be made aware of the potentially polarising impact that such an application could have on proceedings.

The client should also be made aware that the funds that are provided following an LSPO are to be used only for the purposes of legal costs and not for the meeting of any other income or capital needs.

LSPOs are by their nature and definition the last option to be considered in respect of funding financial proceedings. It should be noted that these orders are not available in Children Act proceedings (neither Schedule 1 nor section 8). However, an application for a payment to meet the costs of these proceedings can be made under Schedule 1 to the Children Act and the indications from the higher courts, including Mostyn J in Rubin (see above) are that similar criteria should apply to these applications as to LSPO applications.