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📅 Last Updated: May 18, 2023
✏️ Written By Bryan Daly
🕵️ Fact-Checked by Caitlin Wood

Divorces are not only emotionally challenging but then can add a lot of financial pressure as well. 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, it may be worth considering a loan.

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 finance your divorce expenses.

Personal Loan

A personal loan can allow you to fully or partially pay off almost any divorce-related expenses that come your way. Once approved, your borrowed funds will be deposited directly into your bank account. You will then repay the final loan balance through divided installments over several years (plus interest/fees).

Your chances of approval will depend on how strong your finances and credit score are. That’s why it’s essential to do research and be prepared before you go through the application process.

Credit Card

If you have a decent job and good credit, you may be able to finance your legal expenses easily. That way, you’ll have a replenishable income and the option of making minimum monthly credit card payments. Just keep in mind that some lawyers may not accept credit cards.

Home Equity Loan or Home Line of Credit

If you have at least 20% home equity, you could borrow against it. You could get a loan or line of credit that’s secured against it. You might even be awarded more credit than with any other product. However, this can get complicated if you’re already paying a primary mortgage that’s tied up in your divorce. Additionally, your equity could be seized if you default too many times.

Personal Line Of Credit

A line of credit works a lot like a credit card. You have access to a certain credit limit that you can reuse as you pay it back. 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.

What Can A Divorce Loan Cover?

First, let’s discuss the expenses that may come up during your divorce proceedings. After all, depending on what the conditions of your particular divorce and financial health are, a loan might be totally right or wrong for you. Before you commit to any loan or debt management solution, consider the basic costs of a divorce.

Hiring Legal Counsel

Like any court-related process, divorces can get complicated because of all the legal complications involved. Although hiring an attorney is optional, it’s a recommended way to smooth things along, defend your assets, and get your alimony payments reduced. 

However, since divorce proceedings can take a long time, you could rack up thousands of dollars in legal fees, more if the case goes to court, and that’s not including your attorney’s service rate and administrative charges.    

Acquiring New Living Quarters

If you’re not on good terms with your ex-spouse, finding a new place to live may be a top priority. In fact, you may want to purchase or rent another house, condo or apartment, any of which can quickly smother your budget with additional expenses.

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. 

Not sure how to deal with your mortgage during your divorce? Click here.

Covering Your Regular Bills 

Just because your assets and savings are tied up in your divorce, doesn’t mean the world stops turning. You still need to eat, sleep, go to work, and deal with recurring bills, such as your groceries, cell phone plan, and other household expenses. While most of these bills can be covered using cash or credit, a loan can also help greatly, provided you can afford the costs involved. 

Other Divorce-Related Expenses 

As mentioned, the vast majority of your divorce-related debt will be linked to all the associated legal costs, including but not limited to:

  • Spousal and/or child support payments
  • Custody arrangements
  • Appraisal & division of properties/assets
  • Professional counselling
  • Assorted legal fees (divorce certificate, motion for judgement, etc.)

While these expenses may not seem like much and will vary depending on your province/territory, an uncontested divorce can still lead to $1,000-$3,000 in legal fees alone and cost about $20,000 overall when coupled with your attorney’s rate. 

What’s worse, if the divorce is contested and goes to court, you and/or your former spouse could pay anywhere from $7,000 to $75,000 because of all different court-related documents and procedures required.

Find out what happens to your retirement savings in a divorce.

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 an emotinal process, it’s best to try and 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 process, a paralegal can help you with that. While they are less qualified than lawyers, they are knowledgle enough to carry out basic divorce legal process.

Learn more about how much a divorce costs.

Divorce Loans To Cover Your Divorce Costs

Pros & Cons Of A Divorce Loan

Because they can drastically affect your finances, another essential step to take prior to applying for a loan is to weigh its positive and negative aspects. For divorce settlement loans, the pros and cons are as follows: 

Divorce Loan Pros

  • No Collateral – Most loans are unsecured (no collateral necessary)
  • You Have Strong Finances – Strong finances and credit can help you obtain better loan conditions
  • Can Consolidate Debts – You can consolidate multiple debts and be left with a single repayment plan/rate
  • Under Your Name – The loan is under your name, so it’s protected from your ex-spouse’s legal efforts

Divorce Loan Cons

  • Predatory Rates & Scamming – Scamming and identity fraud are possible (without proper precaution). A bad divorce can temporarily cripple your finances and credit report. Even worse, scam artists know it and want to take advantage of that fact by charging illegal rates for ineffective loans or setting up fake companies to steal your money and identity.
  • Missed Payments – Defaulting on payments may result in penalties, unmanageable debt, credit damage, and more unwanted legal problems
  • Potentially High-Interest Rates – For all credit products, one of the most important considerations to make is how much interest your lender will charge throughout your repayment plan. Unfortunately, a client that’s in the middle of divorce implies an extra risk for most lenders, because it could mean you are struggling financially.
  • Overall High Loan Cost – If you have weak finances/credit, your options could be limited to subprime lenders. Despite approval restrictions being easier here, your divorce settlement loan is likely to be smaller and come with a higher interest rate, which could cost you more over time.

Learn how to apply for loans in Canada.

How To Avoid Divorce Loan Scammers?

No matter how bad your finances are, never forget to perform background checks when searching for lenders, whether online or on-location. If they send up any of these red flags, don’t give them any information and walk away if: 

  • You cannot confirm their address and/or business license
  • They aren’t listed with the Better Business Bureau
  • They don’t have a good reputation or customer reviews
  • Their loan information, fees and rates are not specified
  • Their rates are higher than provincial or federal laws permit 
  • They charge a fee before your loan is deposited
  • Their “customer service agents” are unhelpful, rude or aggressive
  • They offer a 100% approval guarantee

Learn more about how to tell if a company is legitimate.

Alternative Ways To Pay Your Divorce Settlement Fees

So, it appears that the most expensive part of most divorces is the legal aspect. Yes, hiring professional legal can be very expensive, especially if your attorney bills by the hour. On top of their regular rate, they may even charge you to file or photocopy documents, make phone calls, and send emails.

As helpful as divorce settlement loans can be, they aren’t the best products for everyone because of their high costs. If so, you might prefer one of these alternatives:

  • Friends or family – If you can pay them back responsibly, borrowing from those that support you may be the simplest answer to your divorce woes. At least you won’t be charged interest or penalties if you don’t pay on time.
  • Payment Plan With Your Attorney – Depending on the lawyer you work with, they may offer a payment plan to cover your attorney fees. These payment plans can be interest-free, but it isn’t always the case. Moreover, you’ll usually have to pay your retainer fee upfront, which is a fee to secure the services of your lawyer.
  • 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 the full costs.

Divorce Loan FAQs

Can I qualify for a divorce settlment loan with bad credit?

Sadly, there are many prime lenders who will deny you with a credit score that is under 600. Don’t worry, if your income can sustain your loan payments, there are plenty of subprime lenders across Canada who will approve you with bad credit (score of 300-600) and other debt problems.  Just keep in mind that these loans are usually smaller, more expensive and less adjustable. Since many subprime lenders operate exclusively online, extra research is also imperative to avoid predatory rates and scams.

How much money can I borrow?

Every lender offers different loans, rates, and approval restrictions. The loan amount you qualify for will also vary according to your financial health. That said, you can access larger loans and better rates with a prime lender, such as a bank or credit union (if your income, debts, and credit are acceptable).  

Would a payday loan be better option than a personal loan?

If your finances and creditworthiness are lacking, you might think about getting a payday loan, if only to finance a small portion of your divorce. Think again, because most payday loans are $100-$1,500 maximum, which would barely get the legal process started. Furthermore, payday loans can have interest rates over 300% APR and are outlawed in parts of Canada because of the debt they can cause. That, coupled with the exorbitant fees involved make payday loans extremely risky. Instead opting for

Can You Pay Off an Attorney Over Time? 

Costs can skyrocket if the divorce goes to court for months, so you might want to ask about setting up a payment plan with your attorney’s office. If it’s possible, all the better because a divorce settlement loan would be the perfect tool, as long as you can manage both plans.

Interested in More About Your Divorce Loan Options?

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. Loans Canada can help match you with the right loan, debt, or credit product to help you manage the cost of your divorce. 

Caitlin Wood Priyanka Correia Lisa Rennie Bryan Daly Cris Ravazzano Margaret Johnson Kale Havervold Liz Enriquez Sean Cooper Veronica Ott Corrina Murdoch Chrissy Kapralos

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