9 financing options for a divorce

By Michelle Petrowski, CFP

Divorce is emotionally difficult enough without having to deal with a spouse who has interrupted you financially or a situation in which you simply do not have the resources to fund a fair separation due to gambling or gambling. of a delay. Funding could save you a lot in the long run if the assets are hidden or the other party does not provide information and funds are needed to hire a good lawyer, CDFA® (Certified Divorce Financial Analyst), a Professional financial forensics or financial support is needed by the family during the process.

Michelle petrowski

Here are nine financing options you might consider (in no particular order):

  1. Home equity line of credit A Home Equity Line of Credit (HELOC) allows you to borrow against the equity in your home, usually at a variable interest rate over a set period of time. With house prices high right now, many are finding equity in this asset class.

    A judge could even order the parties to withdraw equity from a home in order to pay interim support and legal fees until the divorce is final. However, HELOC approval could take months to approve, and lenders might not approve applicants during a divorce, which could lead to various barriers to divorce.

  2. 401 (k) Loan These loans generally have lower interest rates than a personal loan and are not reported to the credit bureaus. However, you will need the spouse’s approval to take out a 401 (k) loan. Your spouse can agree to grant the loan as long as it reduces your net share of the asset division and does not reduce the total marital share of the asset to be shared. For example: 401 (k) value at $ 100,000 with a 401 (k) loan of $ 20,000 payable by the employee’s wife. Each party receives $ 50,000 in the settlement, but the wife’s share is actually $ 30,000 ($ 50,000 marital interest in 401 (k) – loan balance of $ 20,000).

    Keep in mind that the IRS requires you to repay the loan balance within 60 days of leaving an employer, otherwise the loan will be considered a distribution, potentially resulting in taxes and penalties if you don’t. do not reimburse it within this period.

  3. Personal loan – Approval will depend on your credit rating, your existing debts (debt to income ratio) and your repayment capacity. Plus, interest rates will generally be higher than a 401 (k) loan, but generally lower than a credit card, for most people.
  4. Secure line of credit – A line of credit allows you to take out a loan and borrow against the value of your investment portfolio, usually at a variable interest rate. This is typically used for short term funding, as a bridge between two transitions – maybe even filing and settling a divorce. It is a method that avoids having to sell securities and pay capital gains taxes to raise funds.

    However, be careful, borrower, a secured line of credit from a bank is subject to a higher degree of risk, as the bank may require immediate repayment of the outstanding balance or require that additional cash or securities be pledged if the market goes down and the underlying securities that back up the line of credit are now worth less.

  5. Whole life insurance loan – You can take out a tax-free loan and borrow from the available cash value of a whole life policy. These usually have lower interest rates than a personal loan, are not reported to the credit bureaus, and you can make smaller loan payments. One downside would be that the death benefit left to your beneficiaries would be reduced by any outstanding loan balances still owed.
  6. Lawyer Provisions – Perhaps you can make an arrangement with your lawyer that will allow their fees to be paid from assets after settlement (perhaps from retirement assets) or to make monthly payments, including including interest, until the balance is repaid. Again, no credit bureau report, but this can be more difficult to organize as lawyers are not generally in the business of lending money.
  7. Credit card Doing your best to strategically spread the cost of the fees across multiple cards, and not exceed the 30% credit usage limit on a single card whenever possible, is a good idea. Do you think divorce can in your future? Maybe now is the time, while you are still spoiled, to consider opening a new card or two and / or increasing your limits. Both options will be difficult for those with a low credit score, so start improving your credit score now!
  8. Divorce Financing Companies Believe it or not, there are companies that specialize in divorce financing. Unlike a bank or finance company, finance companies assess funding eligibility based on the expected settlement of a client’s divorce proceeds, not current assets, income, or credit rating.

    As a general rule, no money is due until settlement is final and no mortgage is incurred on the customer’s property. However, I don’t know how this affects your credit history reports or your credit score. See These 3 people will finance your divorce. Keep in mind that terms can vary from taking part of the settlement to charging an interest rate or taking over a monthly fee and the balance at the time of settlement.

  9. Court-ordered fees – The spouse could be ordered by the court to pay both sides for legal fees and expert fees, but even with filing petitions, it can be a long and costly process.

If you are considering a divorce, it may be a good idea to consider one or more of these ways and apply in advance. If you’ve ever filed for divorce, it’s possible the debt (whether it’s a 401 (k) loan, loan value, etc.) # 2 above).

Of course, a financial decision should never be made without considering your unique situation, taking into account the pros and cons, long term and short term impacts of decisions including credit, future retirement resources, ability to pay off debt, etc. Consider getting advice from appropriate professionals. This is not financial, tax or legal advice, but options that you can consider.

About the author: Michelle Petrowski, CFP®, CDFA®

Michelle Petrowski, CFP®, CDFA® (formerly Michelle Buonincontri), is a financial planner, wealth manager, divorce financial strategist and personal finance coach. She is the founder of Being in Abundance and Being Mindful in Divorce. Michelle has featured in CNBC, Forbes, MarketWatch, Investment News, Yahoo Finance and other media. You can email her at [email protected]

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