For the most part, people are unprepared for the financial ramifications of a divorce. Although the emotional fallout from a divorce tends to overshadow the financial issues, it’s paramount to address money matters too. If you are going through divorce proceedings, you must understand the repercussions it will have on any student loan debt either of you has.
A student debt you had prior to your marriage will be yours even after your divorce. However, student loans you brought in while married, have legal implications during your divorce proceedings. After getting married, a new student loan taken on by either spouse is treated as marital debt.
Virginia is an Equitable Distribution State
Virginia is a common law state which means both the spouses have an equitable claim to, or liability for, a share of marital assets or debt. In the absence of a mutual agreement, the decision to split the student loan debt will be prescribed by a court if the debt was accumulated during the marriage. The court will base its decision on factors like potential income, the manner in which the couple used the funds, who among the two was paying off the debt, and if either of the two earned a degree.
A Divorce Has No Effect on the Loan Contract
In a divorce, your spouse can settle your debts even if the loan is solely in your name, to compensate for alimony payments or in reciprocation if you paid off any of their loans. However, a divorce agreement does not alter the loan contract.
Even if the divorce agreement specifically declares your ex-spouse’s responsibility for the payment of your student loan debt, the lender will collect from you if your ex-spouse fails to pay. As long as the loan documents bear your name, the lender will hold you liable for loan payments.
In such a situation, you may approach the court to make your ex-spouse resume payments or even sue to have the loan payments deducted from their wages. But in the meanwhile, if there is delinquency in the loan payments, your credit score might suffer. You should keep up payments until the matter is resolved to avoid a hit on your credit score.
Once your spouse agrees to pay for your student loan debt, you must keep a track of the account to make sure they are fulfilling their responsibility. You also need to set aside money to cover the contingency of your ex-spouse failing to honor the divorce agreement. Loan delinquency can spoil your credit score, and eventually put your loans in default.
How to Proceed If One of You Co-Signed a Student Loan
In case of you or your spouse being co-signatories on student debt, the co-signer will remain liable for the loan payment even after divorce, and it will continue to reflect on their credit report.
You can apply to your lender for a co-signer release, but only if your lender offers such an option. If your lender allows a release, you will need to prove your ability to make the loan payments by yourself.
Many lenders will remove the co-signer only after you make at least 12 successive on-time payments. They may not approve a co-signer release if your income or credit score is low. Lenders prefer a cosigned loan as they can hold more than one person legally liable for the loan.
In the event of your lender not offering a co-signer release, you have the option of becoming the sole borrower by refinancing the loan. A credit score of 660 or above, a steady income, and a reasonably moderate debt-to-income ratio are the prerequisites for refinancing a student loan.
How to Proceed in Case of a Joint Consolidation Loan
The Department of Education brought in a provision to allow couples with separate student loans to consolidate them in the 1990s. Although the option was repealed in 2005, there might be some borrowers who are still repaying a consolidation loan. There is no provision for separating a consolidation loan until it is paid off.
How to Proceed if One of You is in an Income-Driven Plan
If you are enlisted in an income-driven plan for repayments, you must notify your lender soon after divorce and proffer a new income certification. An income-driven repayment plan merges the incomes of both spouses to calculate a monthly payment. Post-divorce, there could be a new repayment figure as there is only one person’s income for consideration.
The Effect of a Prenup on Student Loan Debt During Divorce
A prenuptial agreement overrides other considerations as long as it is determined by the court to be fair. On the other hand, a prenup may not hold in court if a spouse alleges coercion or a lack of adequate representation while signing it. A prenup also cannot annul a co-signed loan.
Divorce Lawyers You Can Trust in Virginia
At Olmstead and Olmstead, we know that the division of assets as well as debts can be extremely complex and stressful. You can count on our competent and compassionate divorce attorneys to provide the legal support you will need at every step of the process. Our attorneys will work hard to protect your legal interests and for a positive result in your divorce case. Call us today at 703-361-1555 or contact us online for an initial free consultation.