Getting Through Your Divorce with Pre-Settlement Loans

Going through a divorce can be an extremely difficult and stressful time. Between dividing assets, determining child custody, and simply adjusting to the end of a marriage, there is a lot to handle. One major challenge that arises during many divorces is finances – how to pay for the divorce itself, as well as manage your finances afterwards. This is where pre-divorce settlement loans can help.

What Are Pre-Divorce Settlement Loans?

A pre-divorce settlement loan, also sometimes called a “divorce loan,” is a personal loan taken out by one spouse to help cover divorce-related costs and expenses. These loans allow you to access cash before the final divorce settlement is reached.

Since divorce proceedings can drag on for months or even years this influx of cash can provide much-needed relief at a difficult transitional period. Pre-divorce settlement loans act as a cash advance on the settlement funds you expect to get once the divorce is finalized.

Why Get a Pre-Divorce Settlement Loan?

There are several reasons why getting a loan prior to your divorce settlement can be beneficial

• Cover legal fees and expenses – Divorces aren’t cheap. Attorney fees, court costs, mediator fees, expert witnesses, and more can add up quickly. A pre-settlement loan provides funds to pay these divorce-related costs upfront.

• Maintain your standard of living – After separation many people experience a drop in income. A loan allows you to sustain your standard of living during the divorce process.

• Pay bills/debts – You may need access to cash to keep up with mortgage payments, car payments, credit cards, and other debts and expenses.

• Move out/find new housing – If you need to move out of the marital home, a loan can fund your security deposit, rent, and moving expenses for your new place.

• Avoid liquidating assets – Instead of having to sell assets like stocks or dip into your retirement savings, a loan allows you to access cash without liquidating other assets and investments.

What Does a Pre-Settlement Divorce Loan Cover?

Pre-divorce settlement loans are flexible personal loans, meaning the lender does not restrict how you use the funds. You can use a pre-settlement loan to cover any costs related to your divorce, including:

• Attorney fees
• Court fees and costs
• Mediator fees
• Housing costs
• Moving expenses
• Paying off joint debts
• Credit card bills
• Car payments
• Personal expenses and bills
• Expert witness fees
• Forensic accountant fees
• Therapist/counseling fees
• Any other divorce-related costs

Essentially, the loan provides an influx of cash to help you get through the divorce process until a final settlement is reached. Then, you can use your settlement funds to pay off the loan.

How Do Pre-Divorce Settlement Loans Work?

Pre-settlement divorce loans function similar to other personal loans. You can apply through a bank or online lender. The lender will assess your credit, income, and other factors to determine if you qualify and at what interest rate. Importantly, you do not need your spouse’s consent to apply.

If approved, the lender will deposit the loan amount directly into your bank account. Then you repay the loan in fixed monthly payments over a set repayment term, typically 2-5 years. The loan is unsecured, meaning no collateral is required.

Once you get your final divorce settlement, you can use those funds to pay off the outstanding loan balance. This allows you to tap funds now against money you expect to get later.

Some key things to know:

• Interest rates are typically lower than credit cards but higher than secured loans. Expect rates of 5-35%.
• Loan amounts usually range from $2,000 – $15,000.
• Approval often takes just 1-3 business days.
• You can use the loan for any purpose – the lender places no restrictions.

Benefits of Pre-Divorce Settlement Loans

There are many advantages to securing a personal loan before your divorce settlement:

1. Access cash quickly – Unlike your settlement funds, loan funds can be deposited in your account within days of approval. This provides fast access to money when you need it most.

2. Lower interest than credit cards – Credit cards often have exorbitant interest rates of 15-25%. A personal loan will likely offer a much lower rate.

3. Maintain good credit – Relying on credit cards can damage your credit through high balances and missed payments. A pre-settlement loan can help you keep accounts current.

4. Payday loans alternative – Payday loans have APRs of 400% or more. A pre-divorce settlement loan is a much less predatory option.

5. No collateral required – You don’t have to put up your home, car, or other assets as collateral to get approved.

6. Lock in funds now – Get access to cash now before finalizing the divorce settlement. Don’t wait months for settlement disbursements.

7. Flexible use – Spend the funds however you want without restrictions from the lender.

8. Improve post-divorce finances – The loan provides stability during the transition and allows you to enter your new single life in a better financial position.

What Are the Risks?

While pre-settlement loans offer many benefits, there are some risks to consider as well:

• If the divorce drags on, loan repayment may become difficult if new income sources haven’t been established yet.

• If the final settlement is less than expected, it may not be enough to fully repay the loan. However, the lender has no recourse to go after your ex or the settlement funds.

• Taking on additional monthly payments adds more financial obligation during an already stressful period.

• If you default on the loan, it could negatively impact your credit score.

• Higher interest rates mean paying more overall compared to lower-rate products.

Tips for Getting the Best Pre-Divorce Settlement Loan

If you decide a pre-settlement loan is right for you, here are some tips to get the best loan:

• Shop and compare offers from multiple lenders. Rates and fees can vary greatly.

• Look for a lender that does a “soft” credit check that doesn’t hurt your score.

• Choose the shortest repayment term you can afford to pay the least interest.

• Make sure you understand the repayment terms and avoid lenders with prepayment penalties.

• Ask about discounts for setting up autopay or for borrowers going through divorce.

• Take only what you need – don’t borrow excessively.

• Have a repayment plan and stick to your monthly budget.

Alternatives to Consider

While pre-settlement loans allow you to tap funds from your expected divorce settlement, other options exist too:

• Use joint savings/assets – If you have money saved in joint accounts, use those funds first before borrowing.

• Borrow from family/friends – People close to you may offer better terms and interest rates. Just be sure to document the loan.

• Credit cards – Although not ideal, credit cards provide access to revolving credit. Try to pay off monthly to avoid interest.

• Home equity loan – If you have enough home equity, a secured home equity loan or line of credit is a lower-cost option.

• Retirement account loan – You may be able to borrow against your 401(k) or IRA, but this should be a last resort.

• Bank/credit union loan – Local banks and credit unions may offer better rates and be more accommodating.

The Bottom Line

Going through a divorce is never easy, but it becomes even more challenging when finances are strained. While not ideal, using debt to navigate the transition to single life is understandable. Pre-divorce settlement loans allow you to access cash from your expected settlement funds to cover costs in the meantime. If you need money before the divorce is finalized, a pre-settlement loan can provide temporary financial relief, just be sure to shop around for the best rates and terms. With proper budgeting and planning, a pre-divorce loan can help you start your new life on solid financial ground.