One aspect of considering divorce is cost—hiring the services of a quality attorney will run anywhere from a few thousand dollars for an uncontested divorce with few assets and no custody issues, to tens of thousands of dollars for complex litigation over custody and property. Typically, the average cost of a divorce is reportedly $15,000. How should one seeking a divorce approach pay for the divorce?
In general, a party seeking divorce has three options: pay with existing assets; take out some form of a credit-based loan, or ask the court to order the other spouse to pay the legal fees.
Let’s address the last option first. A court generally assumes each party can pay his or her own attorney’s fees. However, if a party seeking divorce has been married for a long time and lacks access to independent funds and is not employed outside the house, and the other spouse has been the primary wage earner and can afford to pay legal fees, the court will consider having that spouse pay most but probably not all of the cost of the lesser earning spouse’s legal fees.
Why not try and pay by leveraging an existing marital asset? While it may seem appealing and an easy option, it is not really available. If a spouse uses marital assets to pay for legal fees, the spouse is depleting the marital estate to meet that goal. But a spouse is not supposed to deplete any marital assets during the divorce or take marital assets without the consent of the other spouse before or during a divorce. So, if a spouse takes out $25,000 to pay for an attorney before filing for divorce, that spouse will have to pay back half that sum to the other spouse in any settlement of the divorce, and the half spent by the spouse will count against that spouse’s share of the marital estate. As you can see, that is not a good strategy as you will end up with less net equity.
Which leaves us with the issue of a loan. One way to borrow would be to max out a credit card. The problem? Credit cards have high-interest rates. A better option? A personal loan. A variety of companies and banks provide low-interest personal loans for precisely these types of situations. You can borrow large sums without collateral, and have a fixed and reasonable repayment schedule you can set at the time of the loan. You can choose a different period to repay the loan, subject possibly to different interest rates.
Personal loans, while perhaps the best option, still has the negatives of interest and having to qualify for the loan (a problem if you have a troublesome credit score), and you get one shot at borrowing the right amount, so if you guess low you may have to get a second loan, and if you guess high, you are paying interest on money you didn’t use.
If you cannot borrow from family or use separate property, the personal loan may be your only option that makes financial sense.
If you have questions about paying for divorce, contact us – we can help.