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Family Law

Divorce loans and legal finance: the pros and cons

By March 23, 2020February 23rd, 2024No Comments

Going through a divorce is stressful enough, but it’s worse when the potential cost of litigation is causing further anxiety. It’s not unheard of for spouses to remain “trapped” in an unhappy marriage because they fear the costs associated with trying to get out. For those without ready access to cash, divorce loans and legal finance may be an option for moving forward.

Divorce funding is typically a loan against a potential property settlement, similar to an advance. Funds are borrowed from private lenders to pay for lawyers, other professionals such as valuers or forensic accountants, and even living expenses.

Because the funding is set against expected property settlement proceeds, it doesn’t usually involve the kind of credit checking otherwise expected from lenders, but it does usually involve an assessment of your case to ensure that there is an expected property settlement where the person would be receiving cash. Usually a borrower will sign an agreement which obligates them to repay the borrowed sum when the property settlement is finalised.

What’s to like about divorce loans?

Legal finance can provide an affordable source of funds so that people can undertake their divorce process without suffering interruptions caused only by their lack of cash. They can pay lawyers’ bills on time without creating cashflow problems for themselves. Funds from divorce loans can be used to help with the cost of living until a property settlement comes through and generally keep people financially afloat for the duration.

Most of all, divorce loans can increase fairness by levelling the playing field if there is a dispute with an ex with deep pockets. This is especially important in a high conflict or very complex divorce. The quality of legal advice absolutely can impact on the outcome in family law matters, so spouses who can’t retain a good lawyer are at a disadvantage. For this reason, some experts only half-jokingly suggest a divorcing spouse “begs, borrows or steals” the funds to pay for a good lawyer.

But what’s not to like about divorce loans?

The biggest issue with divorce loans is the question of whether it is wise to incur more debt for a divorce, in the face of the many financial unknowns ahead. Taking out a loan to cover the divorce could be enough to cause financial havoc and threaten bankruptcy for some people, especially if the loan itself was not particularly cheap to take out. This is why many financial counsellors do not recommend that low-or no-monied spouses go down this path.

Other financing options

Other than a direct divorce loan, there may be other ways to secure funding for legal processes. Speak to your financial advisor about home equity loans or a home equity line of credit (though you and your ex will both need to sign on joint property). You may also consider standard personal loans.

Out-of-court options

Processes like mediation, arbitration and collaboration are much more affordable than litigation and won’t require you to collect more debt as you go through your divorce.

These three Alternative Dispute Resolution (ADR) processes are out-of-court processes that can help you come to an agreement with your ex, with the assistance of professionals trained to help resolve issues surrounding child custody, financial and property issues.

However, ADR isn’t suited to all cases so give us a call to discuss whether it might be an option for you.

Other ways to cut the cost of divorce

There are other strategies you can use to save money on your divorce—you may like to read our recent blog with tips for lowering your divorce costs.

Please note this is not financial advice and we would strongly suggest you see a good financial advisor who can give you financial advice and also help steer you in the right direction so you can make the best financial decisions now and for your future. Your advisor will also let you know whether divorce loans or other legal finance would be a good idea for you.

And if you want to know how we keep your family law costs down, you might like to read this.

If you need family law advice, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.

Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family law.

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