Listen: How to pay for a separation

We’ve done our best to faithfully transcribe this podcast. However, the audio is the most accurate version.

Jack Whelan:

Good morning friends. It’s Jack Whelan here, Barrister, Mediator and FDRP.

And I’m delighted to be podcasting again, this time with Leigh McBean.

Leigh is the Head of Legal Finance at Plenti. And we’re going to be talking about costs associated with going through a separation process and also how to manage some of those costs as well.

Leigh, good morning, thanks so much for being a part of The Separation Guide and for your assistance today. Let me start by asking you a little bit about yourself. What’s your background firstly, and secondly, what is your interest in being a member of The Separation Guide network?

Leigh McBean:

Yeah, thanks Jack. Very happy to be here and talk to you about these things.

To answer your question, my background is, I’m a Family Lawyer, so I’m very aware of the process that people go through with separation and divorce and the struggles they face in a range of areas, not just the divorce process, but the pressure on the family unit and pressure on their finances and their lives in general.

So, I have a background in Family Law and then I moved over time into in-house and commercial roles for companies and I’ve come full circle back into finance, but focussing on Family Law solutions. So, I have finance background and a Family Law background and combine the two to hopefully offer a service that’s meaningful to people in difficult times.

Jack Whelan:

Okay. And how does Plenti provide that service Leigh?

Leigh McBean:

So Plenti is a larger organisation. We do a range of different things. We provide both an investment vehicle for people to put money into and we provide a range of options for people to borrow from, you know, from solar panels to automotive finance and stuff like that. So, we’re a mixed financial services provider.

But the function that I run within it is called legal finance. And what we do specifically is provide what is a line of credit to people for solely divorce purposes or Family Law, I should say. Cause we have people coming here that are not married. So de facto is covered as well.

But at a high level people can draw upon a facility from us, use that to pay the fees associated with the Family Law process. And then they repay us at the very end.

What people need to pay for in a separation

Jack Whelan:

That’s a very, it’s a very specialised service isn’t it? It’s an expert service in relation to this particular human experience, which is something which is very challenging for a lot of people.

Leigh, in my experience, people have a real sense of fog when they’re going through this. It can all be a little bit much. Going through a separation can be a cause of great stress and one of the biggest stresses are financial implications associated with separating.

So let’s talk about those.

Let’s talk about what people actually need to pay for in a separation.

So what kinds of things do people need to pay for in a separation in your experience?

Leigh McBean:

Good question.

Your comment about fog is quite relevant and we’re here to help remove the pressure.

You know, there’s so many pressures on everyone at different stages and we want to take one piece of pressure away and that’s the finances. So the things that people need to pay for, aren’t just the obvious things.

So they need to pay for their Lawyer. You know, nine times out of 10, the Lawyer wants to be paid each month and that’s the most obvious cost.

There’s also, if they’re in Court, the Barrister, it’s Court fees.

There’s also things even if in they’re not in Court, there’s things like property valuers, accountants, financial planners that might be supporting people through the process of providing financial advice, the financial planners want to be paid.

You might have an accountant who is valuing business interests — that’s fine to be covered.

We also enable Mediators, arbitrators, anything who, people who want to avoid Court and want to do an alternative dispute resolution process.

But there’s also things that we assist people with that are outside the Family Law process specifically. So we do enable people to draw upon some funds to take the pressure off their day-to-day life.

They might have a high cost credit card they want to pay off and transfer to a lower cost option, or they want to pay back mum and dad who helped them the first part of the way. And then, you know, friends and family that have been borrowing from, people who need to, might want to move home so the removalist or a bond on a new house.

And some people want to paint the house prior to sale and get a better price. So there’s a range of things there on the periphery that we support with as well. But the primary focus is legal fees and then all the things connected to the legal process.

Jack Whelan:

It’s a lot, isn’t it it’s a lot just when you’re going through that list.

One of the things that strikes me about having discussions with people going through a process of separation is just a list of unknown unknowns.

And I think that’s the cause of stress. And that could be in relation to the process itself. You know, what is a mediation? What is an application for consent orders? What is a separation agreement? What is a binding financial agreement? All these things it can be. And what is fairness in a Family Law context? Which is obviously a big question.

But the list of unknown unknowns also extends to: what am I going to have to pay for during this process?

Do you find in your experience that people often don’t have a complete picture of the full extent of the services which they may need and may have to pay for? And what would be an example of something which people will need which they tend not to understand that they’ll need.

Leigh McBean:

Yeah. People don’t, and it’s probably a good reason for that, that the Lawyers they’re going to is often the first point of contact to guide them through the process.

And The Separation Guide is here to help try and fix that or address that probably, coming earlier into the piece and providing a range of services to people from an education point of view.

But, for most people they wanted to get divorced from separating, go see a Lawyer and the Lawyer then begins the process for them. And the Lawyer is providing legal advice, but they’re not going to provide financial advice and they’re not allowed to.

You need a financial services licence to give advice. So they’re not going to be giving financial advice. They won’t want to and they won’t be allowed to. So that immediately puts people in a position where they’re not going to be receiving advice.

Not for a lack of trying, but just circumstance. So straight off they’re in the dark in some respects about options.

A good example is all the things that come up along the way. You’ve got to pay for Court filing fees, or you’ve got to pay for this step and that step. Even a real simple one might be if you want to get access to some financial information, you’ve got to issue a subpoena, for example, so what does the bank say about this?

Well that costs money. So just to get access to information, I’ve got to pay money to issue a subpoena, to see what’s going on. And that’s just one little example.

And also it’s the range of costs that add up on an invoice and need to be paid within 14 days. And that’s a lot of pressure on people’s cashflow. And particularly for stay-at-home parents who don’t have an income: how do they meet the bills and the payments each month?

Everyone’s well-meaning and have good intentions to try and maintain costs for everybody, but they just creep up.

The consequences of not being able to pay for separation

Jack Whelan:

It’s, there’s often this really difficult collision of both bill shock for people and also very low cash flow.

Which brings me to the next question, and that can happen a lot. What happens when people simply cannot pay what they need to pay? What are the consequences of that?

Leigh McBean:

Yeah, it’s very stressful for a lot of people and it depends. Different groups of people that, you know, one person might have all the wealth of the income and the other person doesn’t, and that person is struggling to keep up with what the wealthier side or the other, the spouse has got, the money can pay their bills, but the other one doesn’t, so that can lead to a lot of unfairness.

It also gives the two working partners who just don’t have enough spare cash flow each week to pay excess bills on top of their day-to-day living costs.

But your question about: what are the consequences if you can’t pay?

Well, it’s up to the Lawyer, the Lawyer might say, go find another Lawyer who’s happy to wait. Or that Lawyer might say, look I’ll wait till the end and you just don’t pay me along the way.

And then the Lawyer is essentially financing in a certain way, the process which works to some extent, some Lawyers do that. But there’s other costs we said before the Barrister and the Court and all these other things that don’t wait. So it only sort of solves half the problem.

So you know, your question, what happens to people? Well the Lawyer may back out, the Lawyer might ask you to find another Lawyer. The Lawyer might carry you out of the goodness of their heart, which is, which is wonderful if they do there’s other costs that still need to be met. So it doesn’t solve all the problems.

People turn to credit cards, people turn, which is not ideal, because it’s very high cost and monthly repayments and consequences of default can have seriousness to your credit score over time.

The other options people might turn to friends and family, which becomes stressful on the, on the family unit and your relationships.

Sometimes people just settle, just to get it over and done with. And then it’s probably most likely for something that’s less than what’s fair and reasonable.

Jack Whelan:

Well, yeah, there’s a lot of that and that’s a real shame. I see a lot of people will settle and they’ll take less than fair settlement. They’ll take what we’ll call unders because the litigation or the whole process can be too expensive or it can take too much time.

And one of the reasons that The Separation Guide exists is because and this is just a very practical intention, a very practical goal is that as difficult as this period actually is and I say this to a lot of the people who I work with.

As hard as it is, it’s actually possible to make it worse. And if you are facing escalating bills and you can’t pay them in those sorts of scenarios that you’re referencing that’s really an example of things becoming worse.

Leigh McBean:

Oh, one other thing I thought about was in making it worse, people self-represent, they back out of the process. They’ll act for themselves and the whole legal system is complicated enough as it is.

If you’re navigating it on your own without support, it can certainly make it worse as well, because you’re trying to save costs, which is good intentions, but it can absolutely lead to outcomes that are not good.

Options for financing a divorce

Jack Whelan:

Given that the point of The Separation Guide is to help people actually make things a bit better and make this experience a bit more manageable and provide some hope.

Let’s talk about that. Let’s talk about solutions.

What are some examples of how people can actually make these circumstances better when they are looking at all manner of financial costs associated with the legal process and they just don’t know how to find them?

What are some solutions, Leigh? Let’s talk about solutions.

Leigh McBean:

Yeah. So I mean, solutions are, there’s not many a lot all the time. Hence, the problems we were just discussing. There’s good conversations with your Lawyer, about what options they might have and some law firms are stricter than others in terms of, you know, deferring fees or waiting until later. I mean, that’s an option.

Friends and family is an option.

If you’re on good terms with your former partner, then jointly drawing down on the home loan.

If there’s the first facility in your home loan or you’re ahead on your payments and you’ve got credit built up in there, that’s probably the cheapest option for finances.

Your home loan is pretty affordable in this country at the moment or a joint line of credit or something like that through the banks.

In terms of finance, they’re probably the best options, but it requires consent from the other side. And, you know, hopefully through a lot of people through The Separation Guide, they are on good terms with their partner, but that doesn’t always last.

It doesn’t always happen and it’s, there’s no judgment one way or the other. It just, it is what it is. So sometimes the bank isn’t an option for that reason.

And also the bank might not also be a good option for people because the bank is going to want monthly repayments. Unless the other side, say you’re a stay-at-home parent, you’re not making them up through payments to the bank.

If assuming that you’ll be tight on cash, because you’re a stay-at-home parent working parent at home then, then without an income earning job you’re going to struggle to make bank repayments unless you push it to the other side on the side, pays at all for you, which may not be sustainable either.

So people get into a squeeze. And so in terms of your answer to your question, what are the solutions?

There’s not many, unfortunately that’s the reason why we exist.

We exist to be a solution.

We’re not going to be a solution for every single person, but our solution is to identify these problems and to say, people are struggling for cash. People might have cash flow, but just don’t have enough after they pay the school fees and the mortgage and all that sort of thing.

How do I pay on top of that my legal fees? We’ve got the working stay-at-home parents, who’ve got no cash flow. What do they do? So we exist as an option to solve that problem, provide them with the finance. They draw upon it over time to pay the bills and then they pay us back at the end.

So we are a solution. But apart from that, there’s probably one other option to people.

And that’s generally you go to Court and ask the Court to make an order forcing the other side to give you some money in the meantime, part-property settlement, or an interim distribution.

And that in itself though costs money, it costs legal fees to run that argument. You know, the Judge might not always say yes, it might be defended, opposed.

But that’s an option. It’s actually an option for a lot of people who have higher net worths, larger asset pools. Just give me some chunk of money now…but still you have to go through a process. It costs money to get money.

And I think that’s pretty much your options at the moment.

There are some companies out there that provide invoicing, finance to law firms, the law firm can draw upon a line of credit at the law firm level. Not necessarily connected to the client but they’re few and far between as well.

So I hope that answers your question Jack, around what the options are. I think the answer is not many.

Family law loans in action

Jack Whelan:

It does, but let’s give an example and obviously both in your field and mine, we’re very, very mindful of our professional obligations, obligations to clients, keeping confidences. In particular confidentiality is very, very important.

But can you share an example, obviously anonymised and treated in the right way?

Can you share an example of assistance which you’ve provided which is an example of this process working well?

One of the things I ask people to try and conceptualise a lot at the start of perhaps a mediation or at the start of a mediation or at the start of their separation journey is what does success look like?

What is this process working well?

What does this process working well, actually look like for you?

So reality testing and what is a good outcome, what is a good process. So, with that in mind, what’s an example of a client working with you and a process working well, and meeting their needs?

Leigh McBean:

We have a range of different people coming through in different circumstances.

A really good one that comes to mind recently was a husband and wife separating. The wife was coming to us.

They had a home and they had an investment property. And it was being proposed that the investment property be sold in the meantime to create money so that each of them could have access to funds to pay for legal fees.

And we see that a lot where people are selling assets to pay for legal fees, they’re selling shares, they’re selling a property.

And for a lot of people, you know, for a lot of the time, the Lawyer is going to be saying, well, you know, it’s not none of my business what you do with your finances and your property for the time being. They are constrained by these rules around what you can and can’t do in the mid proceedings, but, you know, let’s sell something and then you’re selling an income stream to the future.

You’re incurring capital gains tax at a time that you might not be prepared for it.
So someone’s able to use us, got the money through us instead, and then they’re be able to live into that.

They moved into that investment property as their principal place of residence post the divorce was over. So that was a good outcome. They didn’t want to sell the holiday home, they wanted to live in it, they were able to keep it. And they were able to repay us from another means separately at a later point. So there’s a good example of someone who didn’t have to sell something that they didn’t want to.

And then we also had others, we had another one. It was also a wife.

We have a lot of. About 70% of our borrowers are women. We find that regularly. A lot more women need or choose us than men. And of that a lot of stay-at-home mothers, a group of people that make up the bulk of our clients.

And so, you know, there are mothers who are, how do I pay for my school fees? How do I pay for, you know, everything for the children? And they’re just completely overwhelmed.

And to answer your question about what’s a good outcome. It’s the feedback that comes to us at the end that says ‘you lifted a weight off my shoulders. I was so stressed. I couldn’t think straight. I was able to have a big piece of pressure taken away from me. Thank you so much.’

And I think that is a really good example of what is a good outcome. Is someone feeling better about the process, feeling more, it’s horrible as it is, but they’ve come through the process with less stress and less anxiety.

Levelling the financial playing field

Jack Whelan:

Yeah, absolutely. Absolutely. I suppose also often when couples are not amicable and there is a primary breadwinner and, you hear this a lot, you’ll hear someone saying and it’s quite a disgraceful thing to say, but it does, it does happen.

Someone saying, well, look, I’ve got the money and I’ll take you to Court and you won’t be able to fund a way of fighting that you won’t be able to fund a way to getting a fair outcome.

So in that sense you know, alone for Family Law fees, which we’ll talk about now that can have the effect of equalising that power imbalance, can’t it?

Leigh McBean:

Yeah, yeah, absolutely. Absolutely.

And the legal system is designed to be fair, meant to be, and the Courts and the legal profession doesn’t like the idea that someone uses the legal system as a weapon against somebody else. It defeats the whole point of equality and equal access to justice and all those principles.

But the reality is in divorces, it can be used as a weapon if you’ve got the money and the other side does not. So yes. Not that we are here to help support litigation. We don’t want to be supporting speculation and fuelling proceedings. That’s not what we’re there to do.

But for the people that would be otherwise disadvantaged by not having access to funds and having the system wear them down, it absolutely can level that playing field and make things equal.

Jack Whelan:

And that is, that’s a fascinating statistic, which you’ve just referenced that the majority of your clients who are seeking loans for Family Law fees are women.

Leigh McBean:

Yeah. I wonder whether that reflects stereotypical, you know, traditional sort of roles within the household where we’re sort of seeing the stay-at-home mothers and working fathers potentially. I know that certainly shifts in different generations within this country but the stereotypical household breakdown still exists.

But yeah, or whether or not women are more open to wanting and asking for help and men less so. I don’t know. It’s interesting, and that’s a stable statistic cross over the last four years.

How family law loans work

Jack Whelan:

There you go. I think it’s probably a combination of all of those things Leigh. The Separation Guide is practical. And people need practical systems. So let’s just talk practically about some of these services, which you provide.

So precisely, what is a loan for Family Law fees? How does it work and what can it cover?

Leigh McBean:

Yep. So it’s for people who need to have engaged a Lawyer already. So it’s not one that I’m thinking of divorcing or separating, can I borrow some money to start the process?

The matter needs to have been sort of advanced a little bit. And there’s a reason for that. I’ll tell you about that in a second, but once the Lawyer is involved it’s a and even people who want to avoid too much cost, it doesn’t need to be litigious Lawyers. It can be Lawyers who are assigned to the collaborative process and ADR (alternative dispute resolution).

So the process is you apply for an amount that you think you need to get to the finish line. We don’t want to be giving people debts that only get them halfway. And what was the point if they’re still struggling halfway through and the money’s run out?

So we want a good estimation of what the Lawyer thinks, and everyone thinks we need to get to the finish line. Appreciate, how long is a piece of string? Noone always knows these things, but that’s why it’s a line of credit. You don’t need to use it all at if you don’t have to, or don’t want to, to apply for an amount.

We then reach out to the Lawyer and say, we’ve had an application from client Mrs. Smith for $30,000? Can you answer some questions please?

And we get from the Lawyer some information about the issues in dispute, the matter, the length of the relationship, essentially a really high level case summary of what’s going on between the parties.

And then, based on that, we make a view or form a view as to: can this person safely repay a loan? Because we’re under the National Consumer Credit Protection Act. We’re a regulated credit provider just in the same way that the banks are.

So we’re governed by responsible lending rules, which means we can’t give people debts that they’re going to struggle under. So we’ve going to lend to them responsibly.

And we do that by looking at the future property settlement they’ll come into at some point in the future and we’ve got to make sure the loan is in proportion to what they’re going to receive at the end of the day. And it doesn’t leave them with nothing. Doesn’t leave them destitute.

What’s the whole point if then the entire property settlement is soaked up in legal fees and a loan and interest repayments to us? So everything has to be fair, proportionate, not burdensome. It’s a portion of their ultimate settlement. And if that all is ok, then we approve a loan and then they’ve got access to funds.

And that in itself is often valuable to people just to know that it’s there in the background.

And then what happens each month is the Lawyer issues a bill or a Mediator gives a bill or whatever it might be.

They approve that with us. And then we make the payment on their behalf. So we’re not giving them the money to pay. We’ll pay it directly to the mediator or to the Lawyer and normally it’s the Lawyer. And then it’s supporting it that way. They just make the approval. And then at the end they repay it normally through the Lawyer. So normally what happens when the clients receive X dollars or the settlement in that transaction, they would pay us at the same time.

When to spend money on legal fees

Jack Whelan:

You’ve mentioned a golden word there: proportionality. Just very briefly. It’s, it’s just so important.

There’s something tragic about a couple spending a significant proportion of their accumulated wealth, their pool of assets on legal fees.

There’s something equally tragic about not spending enough and getting an unfair outcome.

The solution to that is obviously good informed discussions around what is a proportionate response, what is a calibrated response?

It’s so context specific, isn’t it?

But I always say to people, ‘gather as much information as you possibly can to make the best decisions that you can make’. Sounds like the process that you are talking about allows for that, that it really caters to that. That is just so, so important.

Because it is, it is tragic either way to not be advised and get a poor outcome or to spend too much trying to get what may or may not be a fair outcome in the end.

Typical people who use family law loans

Let’s just talk again about a loan or a line of credit for Family Law fees.

Is there a typical person who uses this facility? Is there such a thing as a typical person? And who would you say it’s for and also who’s it not for?

Leigh McBean:

I’ve often thought about who’s the typical person that needs support.

I’ve got four groups of typical people. Well, the overwhelming one is a stay-at-home parent. My work is the family unit. I don’t earn an income. How do I manage now that my life support in my partner has turned the tap off or just in general, I’m struggling.

So stay-at-home parents number one.

Number two would be just working people, house and garden, you know, a house, superannuation, cash, some shares, a couple of children, both got jobs.

How do we just manage the additional cost on top of our day-to-day life. Most people don’t have thousands of dollars each month in savings, accumulating out of income. So how do they manage?

Working parents is probably the second group of people.

The third is an interesting group and that’s people who could afford legal fees if they wanted to, but choose not to because they want to spend that money on investments or they want to spend that money on a holiday or school fees. It’s opportunity cost it’s: ‘I would rather move that money over there in a development of a renovation of an investment property or something’.

So they’re probably wealthier people and just make a trade-off on where I want to spend my money right now. So I don’t want to spend it on legal fees. But I could if I wanted to. So that’s a really interesting group of people. Not all ones that we would normally think about.

Certainly not ones that Lawyers would think about as needing us because here’s a wealthy client, large asset pool that can pay. So they’re not on anyone’s radar, but there are people out there that would commercially decide to use us for other reasons.

The fourth group is a growing group and this would probably resonate with you Jack. And that’s those wanting to avoid litigation. People who want to stay out of the Court system. It doesn’t matter what their financial circumstances are necessarily. I want to go down the collaborative path, the ADR (alternative dispute resolution) path, the, you know, I’m on good terms with my partner. I don’t want to ruin that we have to co-parent for the next 20 years…meet them at the McDonald’s car park and drop my children off and we’ve got to engage still in that relationship. Let’s not ruin it.

How do I pay for my legal fees through a peaceful process? And that’s the fourth group as well.

Jack Whelan:

Absolutely. Yeah. It’s just fascinating in that and that fourth cohort I think is growing and respective parents parenting.

And I’ve podcasted about this with other professionals as well, just the importance of modeling the right behaviors. And there’s a lot of information around the benefits for the kids of being able to do that even when one is going through a separation.

Leigh I’ve got one, one final question. Who could people seek advice from to understand their financing options when they are going through or preparing for separation or divorce?

Seeking advice on legal finance options

Leigh McBean:

Yeah, it’s a good question. We can’t give advice. We can explain our service, but we can’t compare and contrast that to others and give the advice, the balanced advice that, that people are wanting.

So I think the only group of people that can properly give advice on that stuff would be financial advisors which, you know, how do you find them, hopefully, through The Separation Guide can connect people to good financial advisors, financial planners as well, often have a good view around these things.

Accountants often give advice sometimes, depending on the relationship you have with them. They’re probably more likely to compare, I have this agreement or this option with Plenti. How does that rate look compared with the bank? You know, they’re probably better at comparing.

But if you’re just starting from scratch, I think something like yourselves, you know, you’re providing a place where people can seek a range of information on a range of topics and sort out their options as well.

But I think, you know, if you’re looking for a one-stop shop, a good financial advisor is probably the best, the best place, but again, that costs money.

How do you find them? But I think that’s probably the best.

Jack Whelan:

Leigh.

Finally, you’re someone of long experience and very, very high level expertise and plainly listening to you today you’re someone with real passion about trying to help people find their way through.

What’s your final message today Leigh today for anyone who’s on the verge of, or mid mid-separation process and seeking some good counsel about how to go about doing this well? What’s your final message Leigh.

Leigh McBean:

Final message would be, don’t be afraid to ask questions. Just reach out and ask people questions.

Jack Whelan:

Fantastic advice. I completely agree and there is no shame in it. There’s no judgement in it. It’s right to ask questions because people do need good information to find a way through.

Leigh it has been an absolute pleasure. Thanks for your contribution today and for being a member of The Separation Guide. Thanks again and we’ll speak again soon.