When married couples in New York and around the country divorce, their debts are divided along with their assets. A few states have community property laws that require assets and debts to be divided equally, but New York is what is known as an equitable distribution state. This means that if property division matters are left up to family law judges to decide, they take various factors into consideration to find an outcome that they feel is fair to both of the spouses involved. When one of the spouses has student loan debt, these issues can become contentious.
Student loan debt
Debts like student loans are only divided in a divorce if they were taken on during the marriage. Obligations incurred before spouses walk down the aisle is considered separate property. If a divorcing couple in New York took out student loans while they were married, the debt will be divided based on factors including:
- The length of the marriage
- The incomes of both spouses
- The obligations of both spouses
- Which souse benefitted from the loans
Consolidated federal loans
Prior to 2006, couples with student loans were able to combine and consolidate their debt to lower their interest rates and reduce their payments. When Congress eliminated the program, lawmakers failed to provide a way for divorcing couples to sever their consolidated student loans. That issue was addressed in October 2022 when President Joe Biden signed the Joint Consolidation Loan Separation Act into law. Consolidated federal student loans can now be divided in a divorce, but the process is complicated. Both spouses must consent to the separation, and approval from the Department of Education is required.
Divorce settlements and prenuptial agreements
In New York, debts like student loans are divided equitably but not necessarily equally in a divorce. Couples who would prefer to decide these matters for themselves instead of leaving them up to a judge can reach an agreement at the negotiating table. They could also act proactively by drafting either prenuptial or postnuptial agreements that contain provisions dealing with marital assets and debts. If cosigned loans are divided, they should be refinanced as quickly as possible because lenders are not bound by the terms of divorce settlements.
