Figuring Out Student Loan Debts During a Divorce
The more you have entering or leaving a marriage, the more complicated you can expect your divorce to be. This is the case for both debts and assets, which is why so many people address these issues in prenuptial or postnuptial agreements. If you or your ex-partner have student debt acquired before or during the marriage, it may make your divorce considerably more complex. Student loan payments can significantly affect your budget, so it’s important to know what to expect before you start planning for post-divorce life.
Worried about how your debts might affect your divorce? We’re here to help. Call Coumanis & York at 251-990-3083 to schedule a consultation now.
The Loans’ Origination Dates
One of the most important factors in your student loan debt is when you signed for it. If you signed for it before getting married, it is largely considered a separate debt. The court is likely to treat it as exclusively yours and require you to continue making payments after you divorce. There may be room for you to argue otherwise, particularly if your spouse consistently made your payments or expected you to quit your job—and therefore lose your ability to repay the debt—in order to raise a family.
If you signed for the loans after getting married, this question is a little bit harder to answer. Debts accrued during the marriage are often treated as marital debts and are therefore subject to division during a divorce. This isn’t a hard-and-fast rule, however.
Remember that Alabama follows the concept of equitable division, so the court will do what is fair. What’s fair is not necessarily a 50/50 split. Consider, for example, this situation. You decide to earn an MBA and take out over $100,000 of student loans to make it happen. This in turn allows you to get a job paying $250,000 per year. Your spouse is a homemaker and has not been in the workforce for over five years.
The court might look at the student loans as marital debt, but it will also see that you are the only person with any capacity to pay those loans. Your ex-partner, who has a much lower earning potential and no current income to speak of, cannot pay those loans. The court would not, in good faith, expect them to take on those debts.
What About Cosigning?
If one party has student loans and the other party cosigns for them, it’s a fairly straightforward situation. Even if the marriage ends, both parties are on the hook for those payments. The court will likely expect the primary signer to take full responsibility for the debt and keep making payments, but that is a contract between the two ex-spouses. It is not a contract that includes the lender. If the primary signer stops making payments, the lender will go after the cosigner, regardless of what the divorce decree says.
Consider the Tax Implications
While deciding how to divide up debt payments in a divorce, remember to think about the tax implications of whatever choice you make. If you have federal loans and you fall below a certain income line, you may be able to defer loans or drastically reduce your payments until your earning ability increases. This can give you some temporary financial relief as you recover from divorce. Additionally, interest paid on student loans is tax-deductible.
Negotiating the Division of Debt
As is the case with almost everything else in a divorce, student loan debt is negotiable. Whether you are determined to have your ex-spouse pay for your student loan debt or you are completely unwilling to pay part of theirs, you can work with your attorney to decide how to compromise. You can typically get the outcome you want if you are willing to compromise in other aspects of the division of the assets and debts.
Choose Coumanis & York for Your Divorce Case
A fair division of debts and assets is one of the hardest parts of a divorce settlement, and it makes a difference when you have the right legal team on your side. That’s where we come in. Set up a meeting with our team now by calling us at 251-990-3083 or filling out our online contact form.
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