How Divorce Affects Your Student Loan Debt
Life may feel overwhelming when you are going through a divorce. But no matter what emotions are involved, make financial considerations a top priority. If you have a student loan, or you and your spouse both have student loans, you need to understand what will happen when you divorce.
That, in part, depends on where you live. Florida is an equitable distribution state, meaning that all debts are not simply divided in two and assigned to the parties. Community property states divide debt that way and make each party equally responsible for debt accrued during the marriage.
A student loan taken out during the marriage is considered a shared debt in Florida, not unlike a credit card or a mortgage. Either the divorcing couple will decide who will pay the loan in their divorce agreement, or if they cannot agree, a judge will determine who pays the student loan.
Generally, if you obtained the debt during your marriage, it is the responsibility of the person whose name appears on the loan documents. If you acquired the student loan before you got married, it would remain your responsibility when you divorce unless you both decide otherwise.
Types of Student Loans
The responsibility for loan repayment may depend on the type of loan you took out.
Co-Signer – In the situation where your spouse co-signed the loan, you both will still be liable for the loan. It will appear on your credit reports. The co-signer can try to get a release from the co-signed loan, but don’t expect the lender to be too anxious to release one party from liability. Lenders of course prefer to have their loans repaid, and being able to tap into two payment sources is always better than one.
Consolidated Loan – At one time, a husband and wife could consolidate their student loan debt. The government rescinded that option in 2005, and as it now stands, both are usually responsible for paying off the loan.
Paying Off Debt
A couple coming up with a separation/divorce agreement might want to consider making student debt a priority for paying off. For example, instead of alimony, your spouse can agree to pay the debt.
You might negotiate a divorce agreement in which one spouse agrees to pay off the other’s debt, but that can backfire. If they fail to pay, you are still responsible for the student loan payment. The lender does not care about your divorce settlement, only whose name is on the loan documents.
You will want to monitor your credit score and any promised payments. Several months of missed payments will put a dent in your credit and lead to a loan default. Student loans do not go away – even if you file for bankruptcy, so be sure you have a solid plan in place to get the loan paid off, and a backup plan if you are relying on your spouse to pay it for you.
Prenuptial agreements are crafted before a marriage and may or may not consider student loans. Both spouses were supposed to be represented by separate counsel in the crafting of the prenup, so challenging it after the fact may be difficult.
If the prenup says that an individual loan is your sole responsibility, you cannot make your spouse pay the loan. Only if s/he agrees in a settlement agreement can the conditions of the prenup be modified.
Also, if you co-signed a loan and the prenup says you are each responsible for your debt, the fact that it wasn’t your student loan will not matter to the court or the lender. You signed a contract that says you will be responsible for the loan payment.
Your New Budget
If you have a federal student loan and your income changes after a divorce, your monthly payment may change. A married person’s income is likely to be more substantial than that of a single person. If a loan payment was based on joint income, the payment plan might have to be recalculated based on a single individual’s income.
Your Florida Family Law Attorney
Crystal Collins Spencer has decades of experience in family law, and she has in-depth knowledge of the frequent issues divorcing couples run into, such as student loan debts. She will advocate for you aggressively during this time to make your future finances a priority. Start the conversation with Attorney Spencer today by calling our Pensacola office at 850-795-4910 or sending us an online message.