Everything You Need to Know about Divorce-Related Loans
- Where your money goes in divorce
- I can't afford a divorce
- Can I take out a loan for a divorce?
- What can I use a divorce loan for?
- What if I have bad credit?
- How and where can I get a divorce loan?
- A divorce money-saving option
"I can't afford to get divorced. It costs too much!"
Have you ever said this to yourself? The truth is, some divorces cost several thousand dollars while others cost several tens of thousands of dollars. In this post, we explore divorce-related loans as well as other assistance programs you can take advantage of when facing this big life change.
But before we do that, a question begs to be answered: Where does all the money go? If you're shelling out thousands for this life-altering process, who gets the cash?
Where does your money go in divorce?
Let's take a look at some of the services you might need to pay for with a "traditional" divorce. The following list isn't comprehensive, but it includes some of the most common divorce-related expenses.
- Attorney retainer
- Filing fees
- Mediator fees
- Court costs
- Financial advisor services
- Mental health services
- Name-changing fees
If you're grappling with a contentious divorce – that is, you and your spouse can't agree on any aspect of the settlement and require expert help – you may also need to pay for things like a custody evaluation, psychiatric evaluation, family counseling, drug and alcohol testing, or a lawyer specifically appointed for your child or children.
These additional expenses not only fatten your final bill but also prolong the nail-biting experience of severing ties with your soon-to-be ex. But what if you, like so many others in this boat, don't have thousands of dollars ready to go?
I can't afford a divorce – what are my options?
Most people don't have cash earmarked in their budget for divorce. But we know that approximately half of marriages end in divorce. So, how do all of these people pay for divorce?
For people living in poverty, legal aid may be an option. Legal aid comprises free or low-cost legal services given to those who would face drastic or life-altering consequences without it. It's funded by private foundations, donations, grants, and a federally funded program called the Legal Services Corporation (LSC). Obtaining legal aid can be difficult, even if your situation is dire. Still, the only way to find out if you qualify is to try.
- Go here for more information about free or low-cost legal aid in California.
- Go here to request a potential referral or low-cost attorney consultation in Texas.
- Go here to learn about low-income legal services and other helpful resources in Colorado.
- Go here to find out about free legal clinics in Utah.
Pro bono help
"Pro bono'' is short for "Pro bono publico," which means "for the public good." The American Bar Association states that all lawyers should strive to provide a portion of their legal services to the public for free in the interest of goodwill.
If you're in need and your case strikes a chord with a willing attorney, you just might benefit from pro bono work. Due to the "charitable" nature of pro bono work, you may struggle to find a lawyer willing to take on a divorce case pro bono, according to Nolo.com. Still, an hour or two spent searching for pro bono help could be worth your while.
Even if your search doesn't turn up an attorney willing to represent you, you might acquire some helpful advice or contacts from those you meet along the way. Check any or all of these local resources for information or potential help:
Your local or state bar association
Local law schools
- List of California law schools
- List of Texas law schools
- Two law schools in Colorado: Colorado Law and University of Denver Sturm College of Law
- Two law schools in Utah: University of Utah S.J. Quinney College of Law and J. Reuben Clark Law School
Can I take out a loan for a divorce?
Although legal aid and pro bono services are wonderful concepts, actual opportunities to receive them may be hard to come by. In many cases, the next-best alternative is a divorce loan. If you visit your bank or credit union and explain your need for divorce financing, you will likely be pointed in the direction of a personal loan.
What is a personal loan?
A personal loan is money loaned to you with the understanding that you will repay it over time with monthly interest. If your financial institution grants you such a loan, you will likely be assessed other fees as well. The extra money you pay back beyond your loan is reflected in your annual percentage rate (APR).
When shopping around for a personal loan, compare the various APRs you are offered to find the best deal. Note that personal loans are usually considered "unsecured" loans. This means you put up no collateral for the loan, whereas with a mortgage or car payment, the bank could potentially "take back" your home or vehicle if you failed to pay the money back.
Pros and cons of personal loans
On the plus side, a personal loan can get you the cash you need to pay for your divorce, and the payments will be broken down into monthly amounts that you (hopefully) find to be manageable. If you make timely payments, the entire process could also boost your credit score. What's more, the interest rate of a personal loan will likely be much lower than that of a credit card.
Of course, there are downsides to personal loans, too. Even one missed or late payment can drag down your credit score. And, with the monthly obligation toward your personal loan repayment, you'll have less cash for other expenses.
As a newly divorced person, you might incur some expenses you didn't expect, such as higher childcare costs and new home or rental expenses. Tip: Some people are tempted to "charge" their divorce to their credit card. While this may sound like an easy option, bear in mind that credit card interest rates are often 16% or higher. Personal loans typically have interest rates much lower than this.
What can I use a divorce loan for?
If you take out a divorce loan in the form of a personal loan, you'll be subject to the restrictions imposed by your lender. Generally speaking, lenders prohibit borrowers from using personal loans to fund college tuition, real estate down payments, and business expenses. According to Experian.com, common uses for a personal loan include debt consolidation and unexpected expenses. You might classify divorce as an "unexpected expense." This means you could potentially use it to pay your filing fees, attorney fees, and incidental costs, such as moving expenses.
What if I have bad credit?
If you have bad credit, you may still qualify for a personal loan from an institution like a bank. Your interest rate might be higher than that of someone with better credit, but you could look at it as an opportunity to timely pay the money back and build up your credit score.
You might also consider asking a friend or relative to co-sign for you. Note that this puts the responsibility of the debt on the shoulders of your co-signer if you fail to pay it. But if you feel confident in your ability to repay, the creditworthiness of your co-signer can help you get a loan when you have bad credit.
Online personal loans
When taking out a loan, it's wise to shop around for the lowest interest rate you can find. This makes the search for an online personal loan highly appealing: From the comfort of your computer, you can learn about and compare various loans and terms to find the best deal.
We suggest performing an online search using the keywords "best online personal loans," including the year you are searching. For example, you might search for "best online personal loans 2023" to learn about what's available.
How and where can I get a divorce loan?
Your bank or credit union may seem like the most logical starting point, but before you submit a personal loan application, you might consider asking for a soft loan from a family member or friend.
What is a soft loan?
A soft loan, put simply, is a loan that imposes no late fees, interest charges, or other hard penalties. Yes, it's a loan, and yes, you'll pay it back. But you're not indebted to a financial institution.
Instead, you're indebted to someone in your personal life – a family member or friend. Whereas you'd face stiff consequences for making a late payment to a bank, a delayed payment to a person who loves you might be a lot less punitive. Borrowing money from family or friends can be a bit risky, however, and it may serve both you and the lending party to put your terms in writing.
Nolo.com explores the ins and outs of creating a promissory note in this article.
A divorce money-saving option
At Hello Divorce, our goal is to provide clients with a convenient path to low-stress, affordable divorce. If you and your spouse don't want to spend thousands of dollars on lawyer fees, consider a Hello Divorce flat-rate divorce plan. We specialize in making the legal stuff convenient and easy to understand. Best of all, you save money – the average cost of divorce for our members is just $1,500.
Stella Harris believes communication is key to satisfaction in relationships. Professionally trained as an intimacy educator, coach, and mediator, Stella brings empathy, expertise, and a fresh perspective to help clients find their sticking points and break through the roadblocks to their goals. Stella’s wide-ranging expertise has led to being featured on the evening news discussing the importance of sex education in schools, appearing as an expert witness in court, and even speaking as an authority on banana slug mating habits. Stella is the author of two books, Tongue Tied: Untangling Communication in Sex, Kink, and Relationships, and The Ultimate Guide to Threesomes. Learn more at www.stellaharris.net or follow her on Instagram @stellaharriserotica.
More articles by Stella Harris