We all need financial stability to function in society, and divorce is a severe challenge to the financial lifestyle a couple may have been accustomed to during their marriage. Add in the fact that filing for and completing a divorce can be expensive with the professional fees and court costs involved and the idea of splitting up everything accumulated during a marriage becomes even more painful. Many find themselves in the situation of not being able to afford the upfront costs of the divorce process or seeing a dramatically reduced in financial capability. So, should financing a divorce instead of paying up front ever be considered?
Making an Informed Decision on Financing
The first thing is to ascertain and value the community. You have got to know what the pie is that you are trying to divide if you are dealing with property. Understanding the community will let you know, whether there are assets that can be distributed under Louisiana R.S. § 9:374 that can be used to pay legal fees and avoid the need for financing, if you are going to receive assets that can be sold and the proceeds used to pay off a loan or if you can expect enough income to pay the debt off after the divorce. While it’s always important to keep things in perspective and not let emotions make your financial decisions, financing the cost of your divorce magnifies the risk of the process as the financing has to be paid off. Hoffman Divorce Strategies will help you define what you have financially, what you are looking for and whether the litigation is worth the cost. If the answer is yes, because there is so much money at stake, then here are some options for financing a divorce.
Six Financing Options
- If you have a retirement plan that offers the ability to make a loan, this is usually one of the options that offers the lowest interest rate with repayment terms up to five years. However, you should understand that if you lose your job the loan may immediately be repayable. If you are unable to pay the loan, then it will be treated as a distribution and the taxable portion of the distribution will be subject to taxes and you will have another expense to pay. Also, the money that otherwise will only grow at a low interest rate and you may have been better off leaving the money in an investment that grew at a greater rate.
- Another option is a consumer personal loan. Essentially, one goes to a lender and applies for a consumer personal loan with a structured payment plan over time, most being about five years long. If the divorce is going to be between $5,000 to $20,000, a personal loan is very doable, especially if you have a good credit history. This is a better option than a credit card because each payment made reduces the amount due, and the interest rate tends to be lower than a credit card.
- A credit card is an option as well, but the interest rate charged can be high. This should be a last resort. However, if your credit score is already damaged, it may be the best option if a personal loan is denied.
- Peer to peer lending is another financing option. This is also like taking out a personal loan, but you are borrowing from other private parties via a third-party platform. The interest rate is far lower than a credit card. The application process is usually online, and others participating decide if this loan is a worthy risk. Just remember, with any loan, you will have payments due monthly for at least five years, regardless what happens with your divorce.
- Borrowing from family or friends is a fifth option and a viable option as well. However, the person providing the loan may feel that they are entitled to having a voice in the divorce proceeding and if you are unable to pay the loan back a personal relationship can be lost.
- Other companies will advance you professional fees and living expenses in return for repayment from the settlement. The advantage to the non-monied spouse is that no repayments are expected, but the loan, including interest and fees is paid directly from the settlement before you receive any money. This option is usually only available for multi-million-dollar communities.
Our job at Hoffman Divorce Strategies is to help you budget through the divorce process, make informed financial decisions about the cost of the divorce and if you finance the cost, how that might impact your settlement and your financial life after a divorce.