During the course of a lifetime, it’s fairly common for couples to drift apart from each other and settle on a divorce. Whilst undergoing a divorce is a particularly stressful time in anyone’s life, the impact which it has on an individual can be mitigated by sourcing a stable and flexible source of finance. By using financial backing to help resolve divorce proceedings swiftly and smoothly it’s possible for divorcees to move forward with their separate lives with the minimum of disruption.
Because bridging finance can be used to secure and consolidate expenses, it is a valuable tool for anyone undergoing a divorce. It’s important, however, to fully grasp the costs and responsibilities which borrowers are liable for when using this form of finance; we’ll cover the most important uses and benefits of bridging finance in this article, but anyone considering bridging loans as a solution for divorce costs should consult a specialist financial advisor before committing.
Before considering what makes bridging finance so useful during a divorce we must first examine the general requirements of divorcees during a settlement. Although the specific circumstances of each divorce case will vary depending on individual situations, a central tenet of divorce proceedings is the equal division of assets between both parties. Although this might sound straightforward, there is also a significant portion of each spouse’s assets which may be legally counted as a shared asset, which may therefore require liquidation.
The line between who owns what in a marriage is sometimes difficult to draw. On the face of it, it might sound reasonably straightforward, but the necessity to provide fairly for each party often requires that assets are put up for sale. If the couple owns a house, for instance, it won’t be possible to physically divide it between the two of them, so instead, it’s necessary to provide a financial alternative. In many cases, the need to provide a lump sum to one party (instead of joint equity in the property) necessitates the sale of the house, and the need to resolve this process quickly to meet court orders requires a fast sale.
In situations where a large debt must be paid off quickly, a specialised form of finance known as “bridging” is often used. This type of loan is specifically designed to meet short-term needs for large funds, and is typically used to cover the initial debt incurred while long-term financial solutions are put in place. Because these types of loan “bridge the gap” between the need to pay a debt and the long-term means to pay it becoming available, they are known as bridging loans. Bridging finance is widely used within the property development sector, but is also becoming ever more popular in a variety of other fields; the flexibility of this form of finance makes it ideally suited to many purposes.
During the course of a divorce either party might find themselves suddenly needing to meet a large cost at short notice. This could be for a variety of reasons; though a common purpose is to help liquidate assets for division between them and their spouse, a bridging loan may also be used to defer the costs of doing so until a later date. For instance, one half of a married couple may decide they’d like to keep the house they’ve lived in for several years, especially if they have custody of the children. The need to divide the home’s value between both partners can make it very difficult to apportion capital equally without selling the home, and would usually require that the house be sold quickly. This is a less than ideal solution, though, because a quick property sale often results in a below-market final price, meaning that both parties suffer.
With the use of bridging finance, however, it is possible for a spouse to secure the capital they need quickly and surely against the value of their home. They can then use this money to resolve divorce proceedings without needing to sell the property at all, and can then repay the bridging loan with a long-term financial solution.
One of the leading reasons why unhappy couples stay together is the costs of splitting up. Although they may not take any joy in living together, they simply can’t afford to move out into another property without selling their own home, and with the expense and hassle of moving house (not to mention doing so in an unhappy marriage) few would-be divorcees are able to go through with it. With the option to bridge to a new home, though, individuals are able to buy a property of their own quickly, without waiting for months for a bank to reach a decision. This can help put people where they need to be to rebuild their happiness, rather than being trapped in a loveless marriage.
Resolving the costs of a bridging loan requires that the borrower has a sound exit strategy in place, which they will use to pay off their initial loan. Usually this would consist of a mortgage, or the sale of the property, and in a divorce settlement either of these strategies may be pursued; if the owner would like to retain possession of the property they may seek a mortgage (or even a second mortgage), while if they just want to liquidate their equity in the property they can do so without the need to conduct a fast sale.
If a divorcee’s property is already under finance (i.e. if they already have a mortgage), then bridging lenders will only be able to take out a “second charge” on the property. Because they will be the second lender to provide finance for the same asset, they will not be first in line to make their money back if the property is repossessed. This means it can be more expensive to secure a bridging loan for divorce settlements. However, in many situations, a bridging loan can help to resolve this stressful procedure quickly and smoothly, and it can play a highly valuable role in letting divorcees move on with their lives.
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