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Friends, Family and the Cost of Divorce

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DIVORCE STORIES
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It has been said that breaking up is hard to do. When a divorce isn't amicable and involves former spouses determined not to give ground in their attempts to exit a marriage with the means of making a fresh start, it can sometimes be expensive too.

The impact which divorce has on the pocket has, since 2006, been reduced because of the availability of so-called 'litigation loans', providing individuals - usually women - with sums to obtain a fair settlement.

A number of banks saw the commercial opportunities presented by London's growing reputation as "the world's divorce capital". They also realised that few husbands are so agreeable as to pay their ex-wives' legal bills, especially if discussions about how to divide the marital assets involve heated exchanges.

It is understood by the courts, lawyers and their clients that litigation loans can also speed up and even reduce the cost of the divorce process. An alternative step is an application for interim maintenance which, if awarded, can include a monthly allowance for legal fees. However, even applying for such an order can in itself be costly and there's no guarantee of being successful. If it's not, women who fall short may not be able to recover the costs of their application which may exceed the interest they would have been likely to pay on a litigation loan.

In addition, women who may have devoted themselves to raising a home and children instead of building a career and income often don't have the resources to pay for legal bills and the usual living expenses while a divorce is ongoing.

However, as with other areas of the economy, the recession has intervened. Some couples have simply seen their financial position so eroded that they have remained under the same roof, separated in all but law and living arrangements.

Those women who have relied on litigation loans to pay for their separation have, in the last two years, found it more difficult to find banks, investment companies and hedge funds willing to lend them the money they need. As a result, many are turning to friends and family to help meet the cost of their divorces.

I and my colleagues have seen a threefold increase during the last two years in women, including those with wealthy partners, being forced to obtain such "informal" sources of funding.

One of the issues that they face is the sheer unpredictability of some divorce cases. A simple, straightforward and amicable divorce may take little time and cost a relatively small amount but if couples can't agree the terms of a settlement, they may end up in a lengthy process involving court hearings and with legal bills amounting to many tens of thousands of pounds - at least.
The situation does not only affect women of relatively modest financial circumstances. The ex-model Michelle Young, whose former husband was said to be worth £400 million ($636 million), has reportedly had to turn to retail tycoon Sir Philip Green and entrepreneur Sir Tom Hunter to help pay rent, clothes, school and legal fees.

Banks nervous about granting loans which subsequently go 'bad' are being cautious when it comes to considering hoping to borrow. Whereas a sizeable house might have been enough to loosen a bank's purse strings in previous property boom times, now financial institutions are only willing to advance the cost of a divorce if it can be repaid immediately in cash once a settlement is finalised.

Those women who manage to get a loan are also having to pay handsomely for the privilege, with interest rates quoted by those few lenders still active in the market hovering between 11% and 17%.

Most, however, will be forced to turn to friends and relatives until the world's money markets stabilise and the threat of recession has passed. Divorce, it seems, seems set to exact an emotional and financial toll for some time to come.

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