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‘A loan to fund my divorce left me homeless and £300k in debt'
Shelley Kavanagh knew getting divorced would be expensive. But she never imagined it would leave her homeless and saddled with a six-figure debt.
The 55-year-old mother-of-three went from living in a seven-bedroom house to struggling to rent a flat after taking out a loan to fund her legal costs.
She said: 'By the time everything unravelled, the combined loan and legal costs had far exceeded my assets, leaving me financially ruined.'
The Telegraph has spoken to several women who were advised by their solicitors to fund their divorces using huge loans that devastated their finances.
The loans – provided by litigation funders – were borrowed against the marital home so they could only be repaid following the sale of the property. Until then interest piled up at a rate of 18pc.
This eye-watering level of interest meant that by the time the women came to sell up, the debt had eroded the equity in their homes. Campaigners are now calling for tighter regulation of lenders trying to cash in on divorce.
'It had a direct impact on my children'
Ms Kavanagh's ordeal began when she was introduced to Novitas, one of the best-known divorce lenders, in 2015 by her solicitors.
A housewife at the time, she agreed to borrow £150,000 to finance her divorce. The initial interest rate was 18pc – adding £27,000 in the first year, not including other charges. By the time the divorce was over, the debt had ballooned to over £300,000.
She said: 'My credit rating was destroyed, and I became homeless. This had a direct impact on my children, as my unstable housing situation meant overnight stays with me were nearly impossible. Even finding a rental property became a challenge, as landlords were reluctant to accept tenants with poor credit histories.'
Ms Kavanagh, who now lives in Oxfordshire, had to move in with her father while she got back on her feet. She was only able to find accommodation after he lent her money to pay the rent in advance.
She said: 'Without that support, the outcome would have been significantly different.'
The Novitas loan was paid using the proceeds of the house sale, leaving Ms Kavanagh 'with very little remaining'. The lender agreed to a £50,000 reduction after she complained. But she still believes the company should not have lent to her in the first place.
'Targeted at the height of vulnerability'
Launched in 2011, Novitas at one point described itself as the leading provider of loans for people going through divorce. It claimed to work with 900 law firms, according to a post on the platform Twitter, now X, from 2019.
Documents show Novitas would carry out a credit check as part of an individual's application. It said it was 'unlikely' to lend if the applicant had a County Court Judgement (CCJ).
Ms Kavanagh had a CCJ – yet she was lent the money anyway.
She said: 'A CCJ is a clear warning sign of financial vulnerability, yet Novitas proceeded with the loan regardless. This suggests that they either failed to conduct proper credit checks or deliberately ignored red flags.'
She said women like her had been presented with the loans while they were at 'the height of their vulnerability'.
She added: 'We want justice for what we've been through.'
'My divorce debt snowballed to £700,000'
The litigation funding industry has grown dramatically over the past decade, filling a vacuum left behind by cuts to legal aid.
Lenders argue they give important financial backing to individuals pursuing fair divorce settlements.
However, in recent years a number of borrowers have lodged complaints about litigation loans with the Financial Ombudsman Service (FOS), some of which have been upheld.
Another mother introduced to Novitas by her solicitor was Rosie Heys.
In 2014, Ms Heys, 59, from Oxfordshire, agreed to borrow £100,000 to cover her divorce costs. Again, this loan, which carried an 18pc interest rate, was secured against her property.
At the time, she only earned about £1,000 a month working as a freelance personal assistant – although the stress of the divorce meant she eventually lost the job.
As the case dragged on, Ms Heys agreed to take out additional borrowing, taking her total debt to £230,000. She instructed a different solicitor and took out a personal loan with a lower interest rate from another provider. This was used to pay the new fees and the Novitas loan.
She said: 'I couldn't see a way out. I was stuck in a house I couldn't sell, with a debt that was accruing at £600 a day. I just didn't know what to do.'
It took Ms Heys a decade to sell the property, with £700,000 of the proceeds used to pay off the loan.
Ms Heys complained to Novitas who agreed to refund her £7,000 in interest because it had failed to provide her with regular statements about her debt.
However, it did not accept her other complaints and so Ms Heys approached the FOS, which concluded in 2023 that the loan was unaffordable and that Novitas had not carried out adequate affordability checks.
It ordered Novitas to refund the interest and charges, which added up to £50,000 in total, but not the capital, as this had been used to cover the solicitors' fees.
In a separate case, involving a woman who borrowed £45,000, the FOS went further and instructed Novitas to refund almost her entire debt.
The lender was told to cap her liability at £1,745 as this was the amount the FOS decided she might reasonably have spent on mediation.
'I wish I'd walked away and let my husband take everything'
Ms Heys and Ms Kavanagh have spoken to dozens of women who also took out litigation loans that significantly impacted their finances and mental health.
One mother, who asked to remain anonymous, told The Telegraph she wished she had just walked away and left her ex-husband everything rather than get divorced because at least then she would not be in debt.
Ms Heys said: 'Some people are so traumatised that they just can't handle it.'
She said the debt had also had a profound impact on the children of the women affected, as many were now living in rental accommodation.
'Renting in this country is very precarious because people can give you notice and get you out in two months. And that's the situation most of these children have found themselves in.'
Ms Heys and Ms Kavanagh want those affected to know they may be able to seek redress through the FOS. But they also want greater awareness of the risks of litigation loans for those going through a divorce.
Former MP Seema Kennedy, of campaign group Fair Civil Justice, said: 'These appalling cases highlight the urgent need for reform. Vulnerable individuals going through divorce should not be exploited by litigation funders with clear conflicts of interest, racking up excessive fees that can reach hundreds of thousands of pounds. Without proper regulation, consumers are left dangerously exposed.'
Litigation loans are regulated under the Consumer Credit Act 1974. But they are also part of the broader third-party litigation funding industry, which is largely self-regulated. Other agreements are 'non-recourse', meaning the litigation funder only gets paid if the case is successful.
The Civil Justice Council this week called for 'light-touch regulation' of litigation funding following a consultation. In a report, it said complaints about litigation loans with the FOS reinforced the need 'for effective financial services and legal services regulation' and highlighted the need for consumers to be 'fully informed' about the nature of this funding.
Novitas was bought by Close Brothers in 2017 in a £31m deal. However, it ceased lending to new customers in 2021 and is now in the process of being wound down. The banking group had to set aside over £100m to cover its bad loans.
In its 2022 accounts, Novitas earmarked £5.3m in redress for customers who took out loans to fund divorce and probate cases.
