Divorce is complicated, no matter how ready both parties might be to end the relationship. The emotional distress that comes from ending a once loving union can be devastating, and the financial consequences of the “division of assets” can have life-long implications.
The numbers aren’t pretty. While there is no reliable national data, (some states don’t even count the number of divorces annually), the reported number of divorces is about 40% of marriages. Just a bit fewer than half of marriages in the United States end in divorce.
When people think about divorce and finances, they are usually thinking about the division of property, child support, and alimony. But there is another money issue to consider—how to pay for the actual divorce. The harsh reality is that financially complex divorces can be ugly, and incredibly expensive. Lawyers alone can cost hundreds of dollars an hour, and often require a significant retainer fee. Other costs can include forensic accountants, valuation experts, financial advisors, and a host of other professionals you may need to get a reasonably fair settlement.
One option for financing your divorce is to consider selling your portable luxury assets to Diamond Estate Jewelry Buyers—for example, you (and your spouse) may not want to keep that diamond engagement ring and your wedding bands. Or perhaps you could consider a collateral loan. Diamond Estate Jewelry Buyers has lent money to thousands of clients who use their vintage jewelry or fine timepieces to secure loans for all kinds of purposes, including financing a divorce.
There are many other ways to finance a divorce these days, including some non-traditional options. In the following article, we’ll detail a few of the possibilities, including some less traditional sources of funding.
Using Cash to Fund a Divorce
The simplest solution to the problem of financing a divorce is to use cash; that is, if you happen to have enough available to cover the joint costs. This may be a reasonable option if your divorce is a simple, uncontested case that will not go to court, but if your divorce is a complex one, mounting fees can easily deplete even a large checking account. And remember that if your spouse has filed a temporary restraining order to keep either of you from depleting accounts during the divorce process, the only account you may have access to is your joint checking account.
Using Credit Cards to Finance a Divorce
Even though many attorneys accept credit cards, using them to finance your divorce is not usually the best option. Not only are interest rates on credit cards generally high, but most financial advisors will tell you that you should pay down your credit card debt prior to filing for divorce. Remember that any debt you run up before the divorce is yours and your spouses. If your ex-spouse ends up having to pay the debt and can’t or doesn’t make timely payments, your credit rating can suffer.
Using Retirement Accounts to Finance a Divorce
Leaving your 401k or traditional IRA alone and letting it grow until you retire is always sound advice, but for many divorcing couples, this isn’t an option. In addition to losing the potential earnings on your retirement money, taking cash out of your retirement account before age 59 incurs a penalty of ten percent, and you will be taxed at a regular rate on the income. Some divorce agreements stipulate that retirement funds can be owed to the spouse, and there are ways to structure settlements that allow for a transfer of monies into a new retirement account.
Make sure you understand all the ramifications of using your retirement money to finance your divorce before you make any decisions. Consulting an attorney for advice about how to handle your retirement savings through the divorce process is a good idea, but also just another way the legal fees mount in a financially complex divorce.
Loans from Family and Friends to Finance a Divorce
Another source of financing for a divorce can be family and friends, but you’ll need to consider carefully who to ask—divorce is already emotionally complicated, and family or friend loans can easily add to the stress. Even though borrowing money from family or friends generally carries less risk to them than having them cosign a traditional loan, you’ll still want to put the terms of your agreement on paper, including a schedule to pay back the funds, with interest. Remember also that the Internal Revenue Service is likely to consider any family or friend loan over $12,000 a gift, and as such it will be taxed at the higher ‘gift tax’ rate.
Divorce Finance Companies
Recently, companies have been founded that are dedicated to financing high-cost, contested divorces. These companies offer loans, typically to wives of high income husbands, as a way to “level the playing field.” Often, a wealthy husband can simply draw out a divorce and pay legal fees until the soon to be ex-wife runs out of money and is forced into an unfair settlement.
These companies offer funding for litigation, expert fees, and even some personal living expenses. Some divorce financing companies base the repayment of the loan on a percentage of the eventual settlement, payable only when a settlement is reached, while other companies set up a structured repayment plan not contingent on the amount awarded in the settlement.
Regardless of what kind of loan repayment is required, expect a hefty price tag. This kind of financing considers your divorce an investment opportunity, and the lenders expect their investment to show a good return. And not only are these loans expensive, they are fairly difficult to get as well. The minimum amounts lent tend to be high, and the number of loans issued by any one company is small.
As high stakes, contested divorces can take years to settle, the loan process is understandably complicated. One company claims to consider carefully only two of every ten applications, and underwrites only one in ten. The divorcing couple’s estate values need to be something in the range of $4,000,000 and higher, making this financing option impossible for many.
If you would like to leverage the wealth stored in your bridal jewelry and/or other fine jewelry to finance your divorce, please contact Diamond Estate Jewelry Buyers today for a free consultation. You can also learn more at the following link: How to Sell a Diamond Ring.