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When Saving Legal Fees Costs You

October 11, 2016

Rebecca had always been frugal. She and her husband, Brian, had scrimped and saved hard for everything they had. Where possible, they preferred to DIY as much as possible. This included avoiding legal costs.

Rebecca had been referred to me because she and Brian had separated and things were a bit of a mess.

When they met, Rebecca owned a home which she had bought her previous husband out of. She loved this home and although the mortgage payments were a struggle, she felt it was worth it to provide a family home for her young children. When she met Brian, he didn’t have any personal assets. He had a family trust which owned some investments which largely ticked along. The trust was for Brian’s children’s benefit. Brian moved into Rebecca’s home and they worked hard to pay down the mortgage.

I asked Rebecca whether she and Brian had completed a contracting out agreement to set out how their property was to be divided if they separated. Rebecca explained to me that she had trusted Brian completely and besides, she didn’t want to spend money on lawyers for something she was sure (at the time) would never happen.

Brian was now claiming half the home.

One of the reasons Rebecca and Brian had separated was due to the stress of financial issues within the Pomegranate business they established during their marriage. It had been Brian’s idea and Rebecca felt she really got dragged into it. Having said that, she enjoyed working in the business together with Brian. She felt they were a good team, trying to build this investment for their future. Things hadn’t been going well with the business recently, largely due to a particularly cold winter coupled with Brian being ill and unable to carry out some of the heavier labour required.

Brian borrowed $60,000 to prop the business up. He needed Rebecca to sign documents for the loan. She wasn’t happy about this and certainly didn’t want any borrowing that may threaten the family home. Brian assured her this wouldn’t happen and that the home was safe. Rebecca thought perhaps she should see a lawyer but she explained to me that she didn’t want to spend money on lawyer’s fees especially when money was already tight. Besides, she trusted Brian and he went as far as to write down on a piece of paper that should anything happen in their relationship, he alone would take responsibility for the loan.

Brian was now claiming that Rebecca should be liable for half the loan as it related to their family business. To make matters worse, he has told Rebecca there is a caveat against the home to secure the loan.

Shortly after the loan, Rebecca and Brian separated. Rebecca didn’t want to spend money on legal costs so she set about negotiating their property division directly with Brian. Rebecca desperately wanted to keep the family home. She got a valuation and arranged finance so she could pay Brian the price he had said he would consider. Brian then told her he had changed his mind. They kept trying to negotiate together and now some months had passed. The property market had increased considerably and the house value increased by another $80,000. The higher value of the home meant Rebecca could no longer afford to buy Brian out of the home.

At that point, she decided she needs the assistance of a lawyer to help her resolve things.

After meeting with Rebecca, I pondered the “cost” of her having “saved” on legal fees in the past. Ideally, Rebecca would previously have had a lawyer:

  • assist her to complete a contracting out agreement between her and Brian when they began living together. This could have preserved the home (or at least Rebecca’s initial interest in it) as her separate property. Instead, the law treats it as the family home which is to be equally divided. This has cost her $500,000.
  • advise her about the loan being incurred and how to create a legally enforceable agreement so Brian takes sole responsibility for paying the loan back. This has cost her $30,000.00.
  • assist her in early negotiations after separation and properly documenting the initial agreement for Rebecca to buy the home. The $80,000 increase in the house price has cost her the opportunity to keep her beloved home for her and her kids – for the sake of saving a few thousand in legal costs.

Her “savings” on legal fees over the years of probably less than $10,000, has cost Rebecca $530,000 in the divorce and the ability to keeping her beloved home.

I get it. Who wants to spend money on a lawyer, especially if money is tight. Legal costs are often a grudge purchase in the same way as a trip to the dentist is. However, just as spending a little on getting a filling now will save you pain and thousands on a later root canal, spending a little on good legal advice up front can save you a considerable sum later.

 

For help finding a cost effective solution to your family law issue, give us a call at Family Law Results on 09 297 2010 or email us at lawyers@familylawresults.co.nz.

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