The divorce process is an emotional one for everyone involved. It can also have serious financial consequences for which many spouses are unprepared. Not surprisingly, the two are related. A 2019 study published in the Journal of Psychiatric Research found those who were separated or divorced had the highest level of financial stress of any demographic group. The study further observed the significant degree to which financial stress was associated with "psychological distress, mental and general health."
Whether amicable or contested, the legal fees and expenses of divorce can be significant, particularly when a shared family income must now support two distinct households with additional living expenses and higher tax obligations typically assumed by each spouse after a separation.
At a time when financial support is most needed, banks will instinctively restrict or deny credit to divorcing clients. As a result, many newly separated spouses are forced to pay legal bills and other expenses on already stretched credit cards, by cashing out RRSPs, or relying on family for financial support pending the distribution of marital assets.
A new alternative
Recognizing a serious need in the market, Canadian legal finance specialists BridgePoint Financial recently launched a dedicated financing service to assist individuals facing the financial challenges of a divorce.
BridgePoint recognizes the unique, temporary predicament of its borrowers and has designed its application process and loans to suit it. BridgePoint's Family Law Financing essentially acts as an advance against a spouse's anticipated financial entitlement from the marital assets.
Unlike banks and traditional private lenders, BridgePoint doesn't require registered liens against real estate such as the matrimonial home (an expensive legal process in itself) or proof of independent income to qualify for a loan. Most importantly, its borrowers have the option, not obligation, to make any payments to BridgePoint while waiting for their divorce to resolve. Funds borrowed are repaid from the eventual receipt of an equalization payment and/or the distribution of sale proceeds from the matrimonial home, however long that takes.
Funds advanced by BridgePoint are typically used to pay for legal fees and expenses of the divorce, but are also available in certain cases to cover personal expenses such as housing.
While the cost of borrowing from BridgePoint is higher than a bank, BridgePoint's Family Law Financing is less expensive than the credit cards many use now, and without the monthly servicing obligation. BridgePoint's financing is also less expensive than most private mortgages once legal fees, registrations, admin charges and early repayment penalties are factored in. Regardless, the inability to obtain spousal consent limits the ability to borrow against the marital home or real estate.
"We aren't competing with traditional borrowing sources because those aren't options for the individuals we are assisting. Those doors close as soon as lenders hear the word "divorce". Yet that's when ours open. We understand their situation, and we aim to offer not only financial assistance but the peace of mind to know they can get through a rough emotional time with less of the financial stress normally involved."
Structure the loan to suit the situation
Whether an individual requires a large sum of cash up front, staged monthly payments or a line of credit, BridgePoint's funding can be tailored to each individual's situation. Staged loans can help cover recurring monthly costs with the security of a fixed monthly income advance, with interest only accruing as funds are received.
Loan amounts are generally determined based on a review of the individual's anticipated equalization entitlement.
The option to apply for additional funds
If additional funds are required after the initial advance, there is the option to re-apply for additional financing. This option provides a sense of security should the original amount not cover expenses required to see the client through to the completion of their divorce proceedings.
Divorce cases can be emotionally draining, involved and expensive. Leveraging family law financing provides individuals with financial peace of mind and allows lawyers to negotiate the proceedings from a stronger position.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.