By Ellery Johannessen
September 21, 2022
A little bit about me. I’m a husband and father of two. I’m the primary wage earner in my home. I am a solo practitioner (save for my exceptional wife Stephanie, who handles our small humans in addition to estate planning matters) and manage a surprising amount of overhead for such a small practice.
The bulk of my household income rests on me. I appreciate the value of a dollar and I am acutely aware of how expensive it is to go into court. In fact, my third “P” of successful litigation is pragmatism because I try to save clients money by avoiding losing fights.
But if you find yourself in litigation, you need to be able to fund it.
Litigation is Expensive
“What’s this going to cost me?” This is among the first questions asked of most lawyers. There are a host of answers a lawyer can give. “A lot” is a fair example. I gave a recent shoutout on social media to my friend, colleague, and mentor Michelle Dellino. When asked how expensive a case might be, Michelle likes to say, “as much as the two of you make it cost.” What does this mean?
It means that, in litigation, you spend money on both sides of the argument. If you want to file a motion because the other side isn’t doing what they’re supposed to do, it’s going to cost money. If the other side gets upset about or wants something, they might file a motion and you now have to respond.
There are five distinct phases of litigation that can get expensive. The first is the pleading phase. This is the very beginning of the case when parties are either filing or responding to the initial court papers. This involves some drafting and a lot of review of supporting documents. The second is motions. Motions are where you’re asking the court to do something in your case, up to resolving the whole thing without a trial. Most motions can come at any time involve heavy drafting and legal research by the lawyer, as well as a decent amount of evidence gathering. The third is discovery. Discovery is where you and the other side ask each other questions, exchange documents, hold depositions, and conduct property inspections. Discovery is tedious and requires heavy document production, review, and preparation of written answers by you and your lawyer. The fourth is alternative dispute resolution, or ADR, which is where you try to resolve your case outside of court. ADR is document-and-writing-intensive. The last is trial, which requires literally a full month or more of preparation in addition to committing your case, all day, every day, for a week or more.
Do that math. If you’re paying your lawyer hourly (and most of you will), most cases that go from pleading all the way to trial cost at least $100,000. Sometimes they cost more when you factor in post-trial activity. If you plan on having a contentious case, plan on having the money for it.
Lawyers Don’t Work for Free
You’re in a tough spot. You’re facing a tough case. You and the other side are at loggerheads. You earn a living wage, but you don’t have a reservoir of cash to go to court and pay all these attorneys’ fees. Do you go into court? Do you file that lawsuit and risk a hundred thousand dollars or more on legal fees? Are you prepared to incur those costs?
You need to have an answer to that question before you pick up the phone and call a lawyer. If you don’t have that answer, one of two things is likely to happen: either (1) you’re going to run out of resources halfway through your case and your lawyer is going to withdraw, or (2) you’re going to start taking shortcuts to try and save money. When you decide you want to pull the trigger on filing a lawsuit, or filing a motion, or going to trial, your lawyer expects you to be able to fund your decision. If you can’t, Washington’s ethical rules permit your lawyer to get out of your case. Unless you’re working with a decidedly pro bono or low bono attorney, expect to pay their going rate.
If you plan on going into court, discuss the financial implications with your lawyer beforehand. This financial discussion is a cornerstone of the first “P” of litigation, Planning. It is nearly impossible for a lawyer to give you an estimate of the total cost of your case, but it might be doable to break it down into chunks. See whether there are issues that can be simplified, condensed, or even settled without litigation.
Find a Source
I always tell my clients the potential cost of a case going all the way to trial. I don’t do it in an effort to scare them away, but to give them an honest assessment of what they will be confronted with. As I previously noted, most folks don’t have a reservoir of cash sitting around to spend on lawyers. So, how are you going to pay for this endeavor? There are options you may not have considered.
- Liquidation of retirement assets. This is a popular option among clients that earn good salaries and have IRAs or 401ks through their employer. Clients can gain quick access to tens or hundreds of thousands of dollars with relative ease. But there are three big concerns to consider before going this route. First, you’re going to pay a 20% tax penalty. That’s a huge chunk of change and you aren’t likely to get it back. Second, if you’ve accumulated these funds during your marriage, they will be considered community property and will likely be considered a pre-distribution to you if you are getting divorced. Third, most Washington usually enter automatic orders in divorce cases that restrict parties from liquidating assets. There are generally exceptions for a need to pay regular living expenses and attorney’s fees, so you need to consider whether these exceptions are within your particular order. However, is no restriction on doing this before your case is filed. Obviously, this is not an issue if you are pursuing or defending a civil case.
- Tapping into home equity. This is among the most popular options for homeowners. It’s among the best options for those clients who own homes and have enough room in their budgets to weather a higher monthly payment to their mortgage company. Unlike liquidating a retirement account, there’s no large tax penalty and interest rates are usually low and fixed. The payoff period is usually between ten and thirty years and the payments can become part of your regular household budget. If you don’t use all of the money you take out, you can either keep the cash or repay it. And, if you are getting divorced and need to sell your home, the sale will take care of any repayment (although you will receive less cash).
- Personal loans. If home equity is not an option for you, most lending institutions offer personal loans. Personal loans are stable, but somewhat limited by how much can be borrowed and the repayment period. These loans also tend to bear higher interest rates than home equity loans because there is usually no collateral and therefore greater risk to the bank. On the upside, they are far, far less expensive than credit cards. They also do not run the risk of butting up against the financial restraints in divorce cases because there is no collateral to encumber. Be wary of hard money and payday loans.
- Family loans and gifts. Family (usually parents) and loved ones often comes to the aid of parties to litigation. Parents are often retired and have built wealth during their lives. As long as you don’t mind mixing money and family, this is an acceptable option. But you need to take precautions. If a large sum of money suddenly arrives in your bank account, there are going to be questions, especially true in divorce cases. Treat loans from family members like loans with lending institutions. Create a chain of correspondence discussing the loan, draft and sign a promissory note, and make regular payments. If a family member wants to give you a gift to fund litigation, be aware that it may be counted toward your assets in a divorce.
- Credit cards. Credit cards are always an option, but you need to be prepared for the significant interest rates. Opening multiple credit cards means juggling multiple revolving lines of credit and increasing monthly payments the more you spend. The interest rates on revolving balances are usually in excess of 20%. Weigh the cost/benefit analysis before you choose to go this route.
This list certainly isn’t meant to encompass every potential funding option, and there are plenty more out there. Consider the type of case you’re facing, how much litigation you are expecting, and feel out the solution that best suits your needs.