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Guide to Divorce Loans and Their Uses

Divorce Loans: What Are They & How Do They Work?
Nancy Bilyeau
Nancy BilyeauUpdated April 28, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
When you’re in the middle of a divorce, stress could be coming at you from every direction. One source of major anxiety is money. That’s why some people turn to a loan to pay for their divorce.Learn what the term “divorce loans” really means, whether a divorce loan will hurt you or help you, and how to make sure it benefits your finances.

What Is a Divorce Loan?

Just like couples may take out a wedding loan, there are also loans that can help you when you’re figuring out how to finance a divorce. But here’s the thing: There are no loans carrying the name of divorce loan. In fact, if you walk into a bank and say, “I’m here for a divorce loan,” you might get a blank stare. Put simply, a divorce loan is this: a personal loan used to pay for the expenses connected to a divorce. You don’t have to explain to the lender what you need the money for. A personal loan is exactly that: personal. In this case, you are interested in borrowing money to pay for your divorce.Personal loans are flexible and can be used for virtually every purpose. For instance, there are even such things as engagement ring personal loans and home renovation loans.As for the definition of a personal loan, it’s a loan taken out from a bank or other lender that is deposited into your account. It is an unsecured personal loan, which means it doesn’t require any type of collateral. The lender makes the decision based on how good a risk you appear to be. You must pay back a personal loan with interest. The interest rate depends on your credit score, the loan amount, and the length of time set for repayment. Personal loans generally have lower interest than most credit cards. 

How Much Do Divorces Cost?

Divorces are expensive. The average cost of a divorce in the U.S. ranges from about $15,000 to $20,000. Typically, the more complicated a divorce is, the more costly it will be. This is why some people consider getting a loan during divorce.

Why Are Divorces So Expensive?

Each divorce is unique, and many different things can affect the cost. If a divorce is “contested,” meaning that the couple has disagreements about assets, property, child custody, or alimony, the process will likely cost a lot more. For instance, there may be more legal fees involved if the divorce drags out and the parties have trouble reaching an agreement. Other factors that influence the cost of divorce include where you live, the type of lawyer or professional legal help you use, how complicated your financial situation is, and whether you need to work out child custody arrangements.Couples who find it easier to agree on the issues involved in the divorce generally pay quite a bit less. 

3 Reasons to Get a Divorce Loan 

Because of the cost involved, it’s important to decide how to finance a divorce. A lump sum of money from a divorce settlement loan may hold a special appeal. Here's what a divorce loan could help you cover.

1. Financing the Start of a Divorce

When you’re getting a divorce, there are fees you have to pay from the very beginning.  For example, simply filing the paperwork for a divorce costs about $100. If you serve your spouse with divorce papers, you’ll need to pay for a process server as well. In addition, if one of you moves out of your home, there may be expenses for moving, paying for and furnishing a new living space, and so on. 

2. Paying for Legal Fees

You might find it of the utmost importance to protect yourself and get a good attorney and hire the best experts. The average cost of a divorce lawyer is $11,000. Additionally, you’ll also pay court costs such as transcription fees. In some states, mediation is required, so you'll need to pay for the services of a mediator as well. That’s when loans for divorce legal fees may come in handy.

3. Getting a Loan to Cover a Divorce Settlement

If you decide that it makes sense for you to take out a loan for divorce settlement, you may feel that the money is coming to the rescue at an opportune time as you consider how to finance a divorce. 

Reasons to Get a Loan For Divorce Settlement

Uncontested divorces may be less expensive, generally speaking. But if the divorce is contested, you’ll need to come up with some money fairly quickly. People generally spend around $11,000 on lawyer fees alone. Loans for divorce legal fees could be helpful.Also, a personal loan can help you consolidate and pay off some of your debts, including credit card debt during divorce. This might help build your credit rating at a time when your name may be coming off of various joint accounts. Making timely payments will advance your cause too. With a stronger credit rating, you’ll be in a better position to buy a car or house post-divorce.Recommended: What Are Settlement Loans?

What Fees Do Divorce Loans Cover? 

Because a “divorce loan” is a personal loan, you can use it to pay for whatever expenses are connected to your divorce. No banker will be standing by with a checklist to make sure the expenses are appropriate for loans for divorce legal fees. There are all sorts of reasons to apply for a personal loan, and you can explore different personal loan offers to find the best option for you. When we’re talking about a divorce settlement loan, the fees it covers might include:
  • Court fees
  • Lawyer
  • Tax adviser
  • Forensic accountant
  • Real estate appraiser
  • Living expenses during length of divorce
  • Mental health counseling

Considerations Before Getting a Divorce Loan

Going through a divorce is tough — it’s a volatile time emotionally and, for many, financially. Some experts caution that while you might feel you need to secure that money right now, it’s tricky to seek out a loan for divorce. Consider it carefully.

Your Future Is Uncertain

When you’re trying to get a personal loan, lenders are evaluating your ability to repay. But until the divorce goes through, you may not be able to present a clear picture of your assets and income. So it might be hard to get favorable terms from a lender for a divorce loan before everything is finalized.

The Downside of Debt

You’re setting off to build a new life. That might mean moving or pursuing a new job — this is a period of fluctuation. You need to ask yourself if tying yourself down by getting a loan during divorce and making monthly loan payments fits well into this scenario.

If Payments Run Late

Should the divorce put you through the ringer and you have a hard time making on-time payments on your personal loan, it will damage your credit rating. There’s a definite personal loan impact on credit. You don’t want to look like a poor risk while you’re starting over. 

Divorce Settlement Funding Options

Bottom line: As you’re considering how to finance a divorce, you may realize that you’ll need an infusion of money to pay for divorce expenses, particularly if it’s a contested divorce. Some people tap their home equity or borrow from a 401(k) to fund their marital split. There are certainly less drastic paths to explore to get that financial help. 

Personal Loans

If you present yourself as a solid candidate with a strong credit rating and receive good terms, a divorce settlement loan could be a smart way to get cash when you really need it. In this case, the personal loan rewards might outweigh the risks. Warning: Be careful when evaluating lenders of personal loans, because some of them are predatory.

Credit Cards

While credit cards often carry higher interest than personal loans for divorce, they serve as a source of quick funding without having to go to the bank to borrow. And you wouldn’t see the change to your credit rating caused by a hard check, which lenders usually do when they’re considering someone for a loan.

Payment Plan

Some attorneys are open to payment plans over months and even years. Others will make an arrangement that will allow their fees to be paid from assets after the settlement.

Borrow From Loved Ones

It’s hard to ask others for help in getting a divorce. But your extended family and close friends might be more than willing to help you by giving you a family loan. Just be sure to pay the money back on time to avoid resentment.

Can You Get a Divorce Loan with Bad Credit?

If you have a bad credit score, it’s sometimes possible to get a personal loan. However, you are likely to be stuck with a high interest rate. Consider carefully if you can make the large loan payments, especially since you will be slammed with even lower credit scores if you fall behind.

3 Tips on Managing Divorce Costs

In addition to finding the right funding options, there are strategies that could help reduce the cost of your divorce. They include:

Choosing Your Legal Help Carefully

Using a lawyer who’s an associate in a law firm, rather than a partner, could reduce your legal costs significantly. Even if you're working with a top divorce attorney, ask if they have an associate who can handle much of your case. You can also request to have paralegals do some of the work, which can help you save. 

Using a Mediator

If you can keep your case from going to trial, you could save a lot of money. A mediator is a neutral third party that works with you and your soon-to-be ex to help you reach an agreement without getting a lawyer involved. Divorce mediation typically costs anywhere from $5,000 to $15,000.

Doing Some of the Upfront Work Yourself

If both parties are speaking terms, you can work together to do such things as dividing up the furniture and other items in your home so that you don’t have to spend money to get lawyers involved in the process.Also, organize your financial records so your attorney doesn’t have to do it. Pull together tax returns, pay stubs, bank and credit card statements, mortgage paperwork, retirement fund information, the titles to your cars, and so on. The more documentation you can gather yourself, the more you could potentially save.

Compare Personal Loans With Lantern 

With the spike in financial costs connected to a divorce, especially a contested divorce, people ending their marriages may look to a personal loan to cover the unavoidable fees and expenses. Being approved for a loan and repaying it on time could build your credit rating, which is helpful when you’re starting a new life. Because this is a volatile time, however, be careful to consider whether this is the best time to take on monthly low payments when the time comes to repay your divorce settlement loan.Lantern by SoFi can help you explore personal loan rates. After you provide basic information about yourself and the loan you need, Lantern can guide you in the process to apply for a personal loan with the lender of your choice.

Frequently Asked Questions

How do you plan a divorce financially?
Can I pay for a divorce with a personal loan?
How much does a divorce typically cost?
Can you take out a loan during divorce?
What to do if you want to divorce but can't afford it?
Photo credit: iStock/Hispanolistic

About the Author

Nancy Bilyeau

Nancy Bilyeau

Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.
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