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‘People don’t save for their divorce.’ Here’s what leaving your spouse might cost you, and how get a ‘divorce loan’

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By Lindsay Goldwert

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Divorce can be a one-two sucker-punch. First comes the emotional pain that goes with dissolving a marriage, and then the financial reality of the cost. While an uncontested divorce where all parties are in accord can cost just a few thousand dollars, according to a survey by Nolo.com, the cost can skyrocket when couples can’t agree. (See rates on personal loans you may be able use to pay for a divorce here.)

Depending on the situation, the divorce process can require a large amount of money in the form of retainers to an attorney, fees, court costs and if needed, a financial advisor, and even forensic business accounting and mental health counseling. Disputes over child custody, child support, alimony, and the division of their property and debts, can prolong the process and add additional expense. This can easily add up to tens of thousands of dollars. 

Without having cash at hand or a financial support system in place, a person may need to take out a personal loan to see them through the divorce process. Most divorce loans are personal loans, which are unsecured loans, meaning they don’t require collateral, but instead are lent based on your creditworthiness, how much money you have in savings and your general financial history. You will generally pay back the loan in monthly installments.

Depending on your situation, a personal loan can be anything from $1,500 to up to $100,000. According to recent data from Lending Tree, the average new personal loan is $6,092. In addition to using them to pay for costs related to divorce, personal loans are commonly used to consolidate debt or refinance credit cards. Interest rates can vary wildly depending on your credit score and credit history, starting as low as 3% and anywhere up to 36%. You can see the latest rates on personal loans you may be able to use to pay for a divorce here.

For people looking to pay their legal bills in a timely manner, a personal loan could be a better option than putting all the costs on a high-interest credit card, which can start at 16% APR. Like most loans, it benefits to use auto-pay to pay them back and not to get charged late fees. Some personal loans have origination fees, an additional charge for processing the loan. Defaulting on the loan will have a negative effect on your credit. 

People may decide they want to take out a divorce loan if their money is tied up in assets, like a home, or if there’s one person in a couple that holds the purse strings. And while there’s no concrete data around the number of men and women who take out personal loans or put legal bills on their credit cards, experts often see a pattern in those who find themselves without access to $5,000 to $50,000 or more in cash. “Usually, those who don’t deal with money in the marriage find themselves without access to money once the divorce process starts,” said Avani Ramnani, managing director at Francis Financial , a wealth management and financial advisory firm that specializes in helping women, many of whom are divorced, manage their money. “We’ve dealt with many cases where the marital net worth is in the millions of dollars, but the woman has to depend on the kindness of others for even daily needs such as food.”

Even before divorce proceedings begin, there are living expenses to consider. “Are you really going to put a line down in the middle of the house, ‘you just take this side, you take that side?’ No, that doesn’t work” said Nicole Noonan , a matrimonial lawyer and divorce finance specialist at New Chapter Capital. “It’s not always feasible that someone can actually move out right away. So you have to make up a plan of how to afford to be able to do that.” 

While she tends to deal with higher net worth clients (her company will underwrite loans based on the projected outcome of the settlement), she says anyone can get caught financially flatfooted, especially if the divorce becomes acrimonious and drawn out. “People will fight over worthless things, rather than sit down over a dinner out and hash out the ten non-negotiable things that they need to walk away,” she said. “It’s the sad truth.” 

How to financially prepare for a divorce before leaving the marriage

“The most important thing to do is to understand the size of the mortgage on the house. Which bank owns it, whose name is on it,” Noonan said. “Make sure you have your marriage certificate, the title of your home, and your passport. The more paperwork you have, the better prepared you’ll be.” 

If one spouse pays the bills and owns all the finances, now is the time to begin sitting down every couple of months and get a real understanding about how much is being spent on monthly bills, electricity, insurance, all the things that make the household work.

For those who are concerned about having access to cash or credit, Noonan and Ramnani recommend opening credit card accounts in their own names, and opening a bank account to keep separate cash. 

“People save for a wedding but they don’t save for your divorce and that’s human,” she said. “Start putting away a little bit of money here and there, cut back on extras. Everyone should have a little nest egg saved for a rainy day.”

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