Getting a divorce can be expensive, and how much it costs really depends on the complexity of your situation. Any divorce that requires retaining a lawyer can get pricey, which leaves people with a difficult choice: Borrow to cover the costs, or stay stuck in a bad marriage?
For some, getting a divorce loan makes sense — assuming it comes with a lower interest rate than alternative financing options. Learn more about how divorce loans work and when they’re worth exploring.
[Read: Best Personal Loans.]
What Is a Divorce Loan?
“Divorce loan” is more of a marketing term than a specific type of loan product. What you’re really getting is a personal loan that will be used to cover divorce expenses. A personal loan is an installment loan in which the borrower receives a lump sum of money to be repaid with interest over a predetermined period of time.
When to Consider a Divorce Loan
“Often, people who are candidates for these loans are non-monied spouses with very little credit, with family or friends who are not in the position to or not willing to provide financial resources,” says Sarah Jacobs, a matrimonial law attorney and co-founder of Jacobs Berger, a boutique divorce and family law firm in Morristown, New Jersey.
If getting a divorce loan is the only way to move forward, and the issues at stake in the case are substantive enough to justify the debt, Jacobs says it’s worth considering.
Some questions to ask yourself:
— Do you need an attorney? If you haven’t been married long, don’t have serious assets or debts together, and don’t have kids, then there may not be enough at play for the cost of a loan to make sense, says Marco Brown, divorce attorney at Brown Family Law in Sandy, Utah. “Honestly, that’s probably not enough at play to justify the cost of hiring a divorce attorney at all.”
— Do you have children? A situation when you are fighting over custody of kids can be very expensive, and ensuring your kids are treated properly makes sense, says Ashley Morgan, attorney and owner at Ashley F. Morgan Law in Virginia.
— Do you own a home? Depending on your situation, deciding how to split up a home or how to handle a shared mortgage in divorce can get complex. Most homeowners will want to retain a lawyer to help sort out those details.
— Are there significant assets involved? Spending $25,000 to get $35,000 in assets from the divorce may not make sense. “The issue tends to be with most legal battles, you never know for sure if you will win ,” Morgan says. “Even if you win, collecting funds can be difficult.”
How Divorce Loans Work
A divorce loan is a personal, non-collateralized loan offered by a bank, credit union or online lender. The application process is generally simple. Answer a few questions about your borrowing needs and current income and debt, share any necessary documentation with the lender, and see if you qualify for the loan.
The lender will then give you a quote, which outlines the repayment terms and loan costs. If you choose to move forward, most loans will process and provide funding within a few business days.
When shopping for a loan, be mindful about using a reputable lender. “The practices of many of these divorce loan companies have been predatory in nature, so it is crucial you read everything and go in eyes wide open,” says Jacobs.
[Read: Best 0% APR Credit Cards.]
Other Uses of a Divorce Loan
Because most divorce loans are personal loans, there usually aren’t restrictions on how you use the funds. “Most lenders don’t care what you use it for or why you are using it, just as long as the terms of the loans are adhered to,” says Jacobs.
Some divorce expenses you may wish to cover with your divorce loan proceeds include your divorce attorney, a mediator (if applicable) who helps negotiate a resolution to the divorce, and to various experts like child custody evaluators or forensic accountants, says Brown.
You might also use a divorce loan to pay off your portion of a shared debt so you can close joint accounts.
Divorce Loan Alternatives
A divorce loan may not be ideal for everyone. For example, if you have bad credit and can’t qualify for a competitive interest rate, or if you’re already carrying a lot of debt, adding a new loan might compromise your finances even more.
Here are some other options to consider.
— A credit card. “In my experience, about 95% of people pay for their divorce this way,” says Brown. “When they’re done with their divorce, they pay off the balance with proceeds from the sale of their marital home.” One strategy that can save you money is to open a credit card that has a 0% introductory APR period, which gives you a period of time (usually 12 to 18 months) to pay back the balance without additional interest.
— A 401(k) loan. If you have a 401(k), you may be able to borrow up to $50,000 from it, says Jacobs. Only go this route if your job is secure since you’ll want to gradually pay it back . The downside is that you may miss out on investment growth on the borrowed amount and reduce your retirement nest egg.
— A loan from family or friends. Borrowing from someone who cares about you can be a lifeline, especially since it likely wouldn’t have any credit impact. But be sure all involved parties discuss and agree to the repayment details. You don’t want to ruin important relationships over money.
— A payment plan with the attorney. “In a divorce case, generally, you pay by the hour, so paying at the end with a percentage of a settlement isn’t something divorce lawyers will do, unlike a personal injury attorney,” says Jacobs. However, she notes, some may make a payment arrangement with a client where they pay a certain amount weekly or biweekly until the balance is paid off.
— Buy now, pay later. “Some attorneys use LawPay for their credit card processor, and LawPay can offer Pay Later as an option for payment transactions,” says Morgan. This lets you break up your full amount due into smaller payments that are spaced out, usually over a few months. You can ask your attorney if this is something they offer.
— Local aid groups. If your case involves extreme circumstances like domestic violence, there may be organizations that provide legal advice — though not necessarily with direct financing. Explore avenues to find low-cost legal help if you can’t afford an attorney, but it’s likely that you will have to come up with your own funding for a divorce lawyer.
[SEE: Best Home Equity Loans]
A Means to an End
Deciding if you should get a divorce loan really comes down to your financial need and the outcome you are seeking in the divorce. You don’t want to put yourself in a worse financial position if you can help it.
However, if you share children, significant investments, properties or business interests — or simply need to get out of a toxic marriage — a divorce loan could enable you to get the best legal representation possible to protect yourself and your future well-being.
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You Want to Get Divorced But Can’t Afford It. Should You Get a Divorce Loan? originally appeared on usnews.com
Update 02/27/25: This story was published at an earlier date and has been updated with new information.
