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In this guide I'll teach you everything you need to know about specialist divorce loans; such as:
- What is a specialist divorce loan?
- How do they work?
- What are the pros and cons?
Read on to learn more...
What Is A Divorce Loan?
A divorce loan (aka divorce funding) is a specialist type of loan specifically designed to help people fund their divorce.
There are a number of different ways in which a divorce loan can be used, but the most common way is to use it to pay for legal fees.
How Do Divorce Loans Work?
Divorce litigation loans work by giving you the money you need upfront to pay for divorce proceedings and legal fees. This means that you can get help with divorce fees, without having to worry about coming up with the money yourself.
The unique thing about a specialist divorce loan is that the money can be used for <bloglink>divorce-related costs<bloglink>; such as paying for legal fees, mediation, or court costs (most high street loans cannot be used for such purposes).
Another unique feature of divorce loans is that they are generally repaid only at the end of your divorce case; meaning that you don’t have to make any repayments until your divorce is finalised.
This can be extremely helpful if you are struggling to keep up with monthly repayments on top of all the other costs associated with divorce.
The loan is then repaid directly from the <bloglink>financial settlement<bloglink> that's awarded at the conclusion of your divorce.
Note: These specialist loans can equally be used for the process of <bloglink>civil partnership dissolution.<bloglink>
What Can A Divorce Loan Be Used For?
A divorce loan can be used for a number of different things; such as:
- Paying for the whole of your legal fees
- Court costs and fees
- Expert reports such as a forensic account or a surveyor
- Barrister's fees
- Paying for mediation or arbitration
Some lenders can also help fund your reasonable living expenses until the end of your case.
This can be extremely helpful if you are struggling to keep up with monthly bills and costs whilst your divorce is ongoing.
What Types Of Case Can Be Funded?
The majority of divorce cases in the UK can be funded by a divorce loan; including divorce proceedings, civil partnership dissolution, <bloglink>property and trusts of land disputes<bloglink>, enforcement proceedings, and <bloglink>contested divorces<bloglink>.
You can also get funding for <bloglink>mediation<bloglink>, divorce arbitration or other types of <bloglink>Alternative Dispute Resolution.<bloglink>
In general you cannot get funding where the only disputed issue is a child's living arrangements, but some funders will provide a facility for these cases if there is a concurrent matrimonial finance claim.
How Much Does A Divorce Loan Cost?
The cost of a divorce loan will vary depending on the specific lender and the amount you borrow. However, as a general rule, divorce loans tend to have higher interest rates than standard personal loans, but are cheaper than other types of unsecured debt such as credit cards.
This is because divorce loans are seen as being riskier by lenders; given that they are used to pay for litigation costs.
While you may be able to get a personal loan or re-mortgage at a lower rate, the vast majority of high street lenders simply will not lend money for the purposes of legal fees, meaning that a divorce loan may often be your most affordable option.
Most specialist divorce lenders charge between 1% to 1.5% per month.
So, if you borrow £10,000 for legal fees over a year, you would pay £100 to £150 per month in interest.
Remember, most lenders allow you to defer the interest payments, so you only pay at the end of your case, when the loan is deducted from your settlement award.
Most lenders also pre-approve a large enough loan to cover the whole of your legal fees, but only charge interest on the amount that you actually use.
For example, if you are pre-approved for a divorce loan of £20,000 but only end up using £15,000, you would only pay interest on the £15,000 that you borrowed.
This can be extremely helpful if your divorce case ends up taking longer than expected or if you need to use more money than you originally thought.
Some additional costs may apply, depending on the lender, such as:
- Some lenders charge an application or joining fee (but most don't)
- Some charge early repayment fees
- Some lenders require you to get independent legal advice before they will lend you the money. This usually costs about £200 to £300, but can sometimes be rolled into the loan.
Are Divorce Loans A Good Deal?
Of course, this question largely depends on your individual circumstances. If you are going through a divorce and struggling with the costs, then a divorce loan can be a great option.
Additionally, a divorce loan can often allow a financially weaker party to pay for high-quality legal representation, thereby levelling the playing field.
However, it is important to remember that divorce loans are still a form of debt, and if you are able to fund your divorce without borrowing money, then this is usually the best option.
However, the high costs of divorce means this is often not a realistic option for many people.
You should also bear in mind that divorce loans are not the only type of borrowing. Some people may be able to use other types of funding such as <bloglink>re-mortgaging their home<bloglink> or taking out a personal loan. We'll look at some of these other options in more detail at the end of this guide.
So, before taking out a divorce loan you should always speak to a specialist divorce solicitor to get expert advice on your individual circumstances.
But as a general rule of thumb...
If a divorce loan helps you to pay for a good lawyer, and therefore win an increase in your settlement that's bigger than the costs of the loan itself, then it was a good investment.
Am I Eligible For A Divorce Loan?
Criteria vary from lender to lender, but generally you will need to be over 18 and have been married or in a civil partnership for at least 12 months.
The lender must be satisfied you have good prospects of achieving a favourable divorce settlement, and that the <bloglink>value of the settlement<bloglink> will be enough to cover the cost of the loan (lenders typically look for the potential value of the settlement to be at least three times the cost of the loan).
Some lenders require you to undertake a credit check (whether a hard, or a <bloglink>'soft' credit check<bloglink>, while some lenders do not as they decide whether or not to lend based on the strength of your case, not your credit score.
Usually you will need to be a UK resident to apply, although some lenders will accept foreign applicants provided they have assets in the UK that the loan can be secured against.
Loans are approved on a case by case basis, but If you meet all of the above criteria then you it's likely you'll be eligible for a divorce loan.
How Do I Apply?
Unlike a high street loan, with divorce finance you don't apply directly to the lender yourself, but instead your solicitor applies on your behalf.
This means you need to have instructed a solicitor to handle your divorce before you can apply for the loan.
Otherwise, applying is fairly straightforward process similar to applying for most other types of loan (ie. filling out an application form and providing some basic personal and financial information).
You will also need to provide information regarding the stage and progress of your <bloglink>divorce proceedings<bloglink> and the potential value of your divorce settlement. Your solicitors will guide you through this whole process.
A key thing to note here is that not all solicitors' firms have established relationships with specialist funders.
So, if access to a divorce loan is important to you, you should ensure you choose a solicitor who has a relationship with a respectable lender.
Here at FundingMyClaim.com we can take the leg work out of this process by putting you in touch with a range of pre-approved independent divorce solicitors, all of whom can help you secure the specialist funding you need.
To learn more about our free introduction service, visit our divorce funding page:
What Are The Pros And Cons Of Divorce Loans?
There are both pros and cons to taking out a divorce loan. Let’s take a look at some of the key points.
There are a few potential downsides to getting a divorce loan that you should be aware of before you apply.
Are Divorce Loans Safe?
In the UK divorce lenders are regulated by the <bloglink>Financial Conduct Authority<bloglink>, meaning they have to adhere to high standards of practice.
This provides a strong level of protection for borrowers.
In addition, you can only apply for a loan via your solicitor, who is regulated by the <bloglink>Solicitors Regulation Authority<bloglink>, meaning they have to act in your best interest and only arrange a loan on your behalf if it is right for your individual circumstances.
Never the less, when choosing a solicitor or divorce lender it's important that you go with a reputable provider who has experience in this area. Standards across the divorce finance industry are generally very high, for both lenders and solicitors.
If you'd like to be put in touch with a range of specialist divorce solicitors, all of whom have established relationships with reputable and transparent funders, visit out <bloglink>divorce funding page to learn more.<bloglink>
What Are The Alternatives To Divorce Loans?
As we mentioned earlier, divorce loans are not the only way to get help with your divorce fees.
Other possible options include:
- Personal loans from high street banks
- Re-mortgaging your house or using equity release
- Credit cards
- Loans from family or friends
- Legal expenses insurance
- Ask your solicitor if they can provide a <bloglink>'Sears Tooth' agreement<bloglink>
- Apply to the court for <bloglink>maintenance pending suit<bloglink>
Each of these options comes with its own set of pros and cons that you'll need to consider before making a decision.
For example, personal loans from high street banks are often difficult to be approved for, especially if you have a poor credit score, and often cannot be used for legal fees. And while re-mortgaging might be a cheaper option overall, it's important to consider the fact that you'll be putting your home at risk if you do not win your case.
A loan from family or friends can be a cheap option. But be aware that there is a risk of harming your relationship if the loan is not repaid, and the court will consider it a <bloglink>'soft loan'<bloglink> (ie. they don't take it into account as a debt when awarding the divorce settlement).
The best way to decide which option is right for you is to speak to a divorce solicitor who can assess your individual circumstances and make a recommendation.
If you're interested in divorce loans and would like to learn more, we recommend visiting our <bloglink>divorce funding<bloglink> page where you can find more information.
How Much Can I Borrow?
Your solicitors will give a prediction of the entire <bloglink>cost of your legal fees<bloglink> until the conclusion of your case, and most lenders set this sum as your pre-approved credit limit, although extensions can often be arranged to cover unforeseen circumstances.
Do I Need A Solicitor To Apply For A Divorce Loan?
Yes, you will need to instruct a solicitor in order to apply for a divorce loan.
Who Is The Loan Paid To?
You will not receive the funds yourself. Instead, they will be paid to your solicitor's client account, who will then be able to pay your legal fees from the account as needed. You only pay interest on the sums as they are actually used, and not the pre-approved maximum loan amount.
How Long Does It Take To Get A Divorce Loan?
The application usually takes a few days and once you're approved for a divorce loan the money will usually be available to your solicitor within 24 hours.
Can I Use The Divorce Loan For Anything Else?
No, the main loan is for legal fees, and must only be used for your divorce costs. This portion of the loan is accessible only by your solicitor. Some lenders can also offer an extra facility for your reasonable living expenses, and this will be paid directly to you.
When Do I Have To Repay The Loan?
Repayment terms will vary depending on the lender but most divorce loans are repaid once your divorce settlement has been finalised.
Can I Get A Divorce Loan If I Have Bad Credit?
It very much depends on the lender. Some will require a credit check, while others will provide the loan based on the strength of your legal case, not your credit history.
What Is The Interest Rate On A Divorce Loan?
The interest rate on a divorce loan will depend on the lender but is usually between 1% and 1.5% per month.
How Long Does A Divorce Financial Settlement Take?
The length of time it takes to reach a divorce financial settlement will depend on the individual circumstances of your divorce. However, it's not uncommon for the process to take several months. Typically, you should plan on needing the loan from between 12 to 18 months.
Can I Get Legal Aid For Divorce?
You may be eligible for legal aid if you can't afford to pay for a divorce solicitor, but the eligibility criteria are very strict. Legal aid can help you pay for a lawyer and with court fees for divorce. You can find out if you are eligible <bloglink>here.<bloglink>
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