Mostly, the stress and anxiety around divorce proceedings leave people unprepared for the financial consequences of a divorce. The emotional complications arising out of divorce litigation often take precedence over financial matters. However, if you are in the middle of divorce proceedings, you also need to realize the importance of money matters and address them appropriately.
If either you or your spouse has a student loan debt, your divorce can have a fallout that you will need to understand and tackle. Any student loan debt you had before your marriage will remain your liability even after you and your spouse get a divorce. However, if either you or your spouse take on a new student loan after marriage, the debt is considered marital debt, having legal consequences during your divorce.
Alabama is an Equitable Distribution State
Alabama being a common-law state, both the spouses are liable for a share of marital debt equitably, just as they have a claim to the marital assets. The court decides on the division of the student loan debt in case there is no mutual agreement. In doing so, the court relies on considerations like the manner in which the couple used the funds, potential income if either of the two earned a degree, and who among the two was paying off the debt.
A Student Loan Contract is Unaffected by Divorce
Your spouse can repay your debts in a divorce, notwithstanding the fact that the loan is in your name alone, to reimburse alimony payments or to recompense for any payments you made to pay off any of their loans. In either case, a divorce agreement has no impact on the student loan contract in any way.
Regardless of any declaration of your ex-spouse’s obligation to settle your student’s loan debt, the lender will pursue you for the payment in absence of your ex-spouse clearing the debt. You will be held liable for loan repayments by the lender if the name on the loan documents is yours.
In a situation like this, you may appeal to the court so that it compels your ex-spouse to carry on making payments or even start litigation to have the loan payments docked from their salary. But while you pursue the court to make your ex-spouse pay, any delinquency in the debt payments will reflect poorly on your credit score. To avoid taking a credit score hit, you must resume payments.
Even when your spouse agrees to repay your student loan debt in the divorce agreement, you must monitor the account to ensure they are complying with the agreement and discharging their liability. Additionally, it would be prudent for you to put aside money for settling your student loan debt in the event of your ex-spouse’s failure to honor the agreement. Any loan delinquency has the potential to harm your credit score and put your loans in default in the course of time.
What Do You Need to Do If You or Your Ex-Spouse Co-Signed a Student Loan Debt?
If you or your spouse are co-signatories on student loan debt, you as a co-signer will continue to be liable for the student debt repayment even after your divorce, and it will carry on reflecting on your credit report.
You can request a co-signer release from your lender if your lender has such an option. Once your lender grants a release, you must be able to show your capability to make the payments by yourself.
Often, lenders need you to make twelve consecutive timely payments before they agree to remove the co-signer. They may not allow a co-signer release in case you have a low credit score or meager income. For the lenders, a cosigned loan is relatively more secure as it allows them to hold more than one person liable for the loan payments.
In case your lender does not offer a co-signer release, you can choose to refinance the loan and become the sole borrower. The conditions for refinancing student debt are a stable income, a credit score that is 660 or above, and a fairly modest debt-to-income ratio.
What Do You Need to Do in Case of a Joint Consolidation Loan?
In the 1990s, a provision brought in by the Department of Education allowed couples with independent student loans to combine them. Even though the provision was repealed more than a decade later in 2005, some borrowers are still repaying loans consolidated previously. You need to pay off a consolidation loan as there is no provision to separate it until it is paid off.
What Should Be Your Course of Action if One of You is in an Income-Driven Plan?
If you are registered in an income-driven plan for your loan repayments, you need to inform your lender as soon as you are divorced and offer a fresh income certification. Because an income-driven repayment plan combines the incomes of both spouses to compute a monthly payment, a new repayment amount that considers only one person’s income needs to be calculated post-divorce.
Divorce Lawyers You Can Trust in Auburn, AL
Asset and debt redistribution in a divorce can prove to be extremely complicated and unnerving. At Alsobrook Law Group, you can count on our accomplished and sympathetic divorce attorneys to offer help and legal guidance at every step of the stressful process. Our attorneys work hard to create a positive result for you while striving to protect your legal rights and interests. Call us today at 334-737-3718 or contact us online for an initial free consultation.