Divorces are not only emotionally challenging, but they can also introduce significant financial strain. Paying off debt can be difficult when your finances are tied up with alimony payments, legal fees, and all the other costs associated with a divorce. If those expenses are too much for your wallet, consider a divorce loan.
Key Points:
- A divorce loan is a type of loan designed to help cover the costs of divorce-related expenses while maintaining financial stability.
- Several expenses can be covered by a divorce loan, such as lawyer fees, settlement expenses, and new living arrangements.
- Just keep in mind that a divorce loan means taking on additional debt, so you’ll want to ensure you can manage this extra loan payment.
What Is A Divorce Loan?
A divorce loan is a type of financing designed to help individuals cover the costs associated with divorce, such as legal fees, settlement expenses, and living costs during the process. These loans offer financial breathing room during a difficult time, enabling borrowers to deal with divorce proceedings without draining their overall finances.
Can You Finance Your Divorce Costs With A Loan?
Yes, you can finance your divorce costs with a loan. In fact, there are many different ways you can fund your divorce expenses.
Personal Loans
A personal loan is one of the most common financing options used to cover the costs of divorce. These loans provide a lump sum of money that can be used to fully or partially pay off almost any divorce-related expenses that come your way. You will then repay the final loan balance through divided installments over several years (plus interest/fees).
Your chances of approval will depend on the strength of your finances and credit score. That’s why it’s essential to do research and be prepared before you go through the application process.
Personal Lines Of Credit
A line of credit works similarly to a credit card. You have access to a specific credit limit that you can reuse as you repay it. Similarly, you can take your time repaying the amount you use by simply paying the interest.
A personal line of credit is a good option to cover your divorce settlement fees, as you can simply pay interest on the amount you used until you’re ready to pay the balance.
Credit Card Cash Advances
If you have a high credit limit on your credit card, you may be able to finance your legal expenses through a credit card cash advance. That way, you won’t have to apply for a loan and will have immediate access to the funds needed to cover a variety of divorce-related expenses.
Alternatively, you may be able to put your expenses directly on your credit card as a purchase. Just keep in mind that some lawyers may not accept credit cards.
| Note: Credit card cash advances come with higher rates than purchase rates, making this a potentially expensive way to borrow. Plus, this will increase your credit utilization ratio, which may have a negative effect on your credit score. |
Learn more: What Is A Credit Card Cash Advance?
What Can A Divorce Loan Cover?
Divorce loans can cover a myriad of expenses related to your divorce, including the following.
Legal Fees
Lawyers may not be required in a divorce, but having legal representation is highly recommended to ensure you’re protected. However, lawyer fees can be extremely high.
A divorce loan provides quick access to funds that can be used to cover legal fees. These loans are especially helpful if you’re not the primary income earner or if your assets are tied up during your divorce.
New Living Arrangements
A divorce loan can provide the upfront cash needed to secure new housing, pay for moving expenses, or furnish a new residence while you move out of your marital home. If you’re still fighting to retain ownership over your current home, you can also use a loan to finance a shorter stay somewhere else, like at a hotel, motel, or Airbnb rental.
Regular Bills
A divorce loan can help you stay on top of everyday expenses, like utilities, groceries, insurance, and phone bills. That way, you don’t have to worry about service interruption if your finances are tied up in your divorce.
Debts
Debts accumulated throughout your marriage can be difficult to manage on your own. A divorce loan can help cover these costs, giving you the financial support you need to start fresh after the dissolution of your marriage.
How Much Does Divorce Cost In Canada?
The cost of divorce in Canada varies significantly, depending on the exact scenario. A recent Canadian Lawyer’s Legal Fees Survey found that an uncontested divorce in Canada costs an average of $1,845 in legal fees, while a contested divorce can cost as much as $13,638. The average cost of a divorce trial can range from $18,706 to $35,950, for a 2-day to 5-day trial, respectively.
Learn more: Divorce In Canada: How Much Does It Cost And How Are Assets Divided?
How To Reduce Divorce Fees
If you’re going through a divorce, here are some tips you can use to lower your divorce fees.
- Uncontested Divorce: While a divorce can be a complicated and emotional process, it’s best to try to come to an agreement with your ex-partner. That way, you won’t have to hire a lawyer or go to court to have the divorce settled. This can reduce your costs significantly.
- File The Divorce Online: By filing online, you’ll reduce the need to hire an attorney and have fewer visits to the court, which can quickly add up in fees.
- Paralegals Over Lawyers: If your situation isn’t overly complicated and you need help with basic legal processes, a paralegal can help you with that. While they are less qualified than lawyers, they are knowledgeable enough to carry out the basic divorce legal process.
Learn more: What Happens If You Lose A Lawsuit And Can’t Pay In Canada?
Pros & Cons Of A Divorce Loan
Before applying for a loan to cover your divorce costs, be sure to weigh its pros and cons:
Divorce Loan Pros
Taking out a divorce loan comes with certain perks:
- No Collateral Needed: Most divorce loans are unsecured, so you don’t have to put a valuable asset at risk.
- Helps Maintain Financial Stability: If finances are tight, a divorce loan can ensure you stay afloat financially so you don’t miss any bill payments.
- Flexible Repayment Options: With flexible repayment options, you can manage all expenses without throwing off your long-term financial goals.
Divorce Loan Cons
A divorce loan may also come with potential drawbacks to consider:
- Additional Debt: Divorce is already financially stressful, and taking on more debt through a divorce loan can add to the strain if you’re not careful. Plus, if your divorce settlement doesn’t go as expected, you could be left repaying a loan without sufficient finances.
- Potential Effect On Credit: If you miss your divorce loan payments, this could result in credit damage, along with penalty fees and potentially more unwanted legal problems.
- Potentially High Interest Rates: Divorce loans can carry high interest rates, especially if your credit score is low.
Alternative Ways To Pay Your Divorce Settlement Fees
As helpful as divorce settlement loans can be, they may not always be the best option for everyone. Fortunately, there are other alternatives to consider to help deal with financial issues during divorce:
- Borrow From Friends Or Family: If you can pay them back responsibly, borrowing from those who support you may be the most straightforward answer to your divorce woes. This is especially true if no interest is charged on what you borrow.
- Arrange A Payment Plan With Your Attorney: Depending on the lawyer you work with, they may offer a payment plan to cover your attorney fees. In some cases, these payment plans can come with low interest or even be interest-free.
- Make Your Ex-Partner Pay: Depending on the province you live in, there may be certain laws on who will cover the costs associated with the divorce. Generally, the higher income earning spouse may be obligated to pay part or all of the costs.
How To Manage Debt In A Divorce
Maintaining a cooperative relationship with your ex-spouse during a divorce can make managing any shared debt much easier. Consider these tips to manage debt in a divorce:
- Be Transparent: Be transparent with both your ex-spouse and divorce lawyer about the full extent of your debts.
- Freeze Joint Accounts: Put a freeze on joint credit card accounts to prevent new charges and only allow payments to be processed.
- Make Minimum Payments: Stick to making minimum payments until the court determines how the debt will be divided and repaid.
- Remove Your Ex As A Secondary Cardholder: Take your ex-spouse’s name off your credit cards to avoid being responsible for any new charges they make.
- Deal With The Matrimonial Home: Consider selling your home and splitting the proceeds, or buying out your ex-spouse’s share, if possible.
Learn more: How To Manage Debt In Divorce
Final Thoughts
While any divorce can be stressful and expensive, the sooner you get it done, the sooner you can get back in control of your life. If finances are tight, a divorce loan can offer the financial relief you need to ensure your divorce-related expenses are covered while you continue to uphold your current financial obligations. Loans Canada can help match you with the right loan, debt, or credit product to help you manage the cost of your divorce.
