New York is known for being a mecca of educational institutions. However, due to the rising costs of education, it is extremely common for many New Yorkers who have taken advantage of those opportunities to have student loan debt. In fact, the average US college graduate has $30,000 in student loans, and many people with graduate degrees have far more than that. Coupled with the state’s high cost of living, many New Yorkers rely on their spouse to help pay their student loans, or shoulder a higher percentage of expenses so that they can make their monthly payments. Therefore, a common question is starting to arise in many New York divorces: who is responsible for the loans when the parties are no longer “in it” together?
Under New York law, there is an extremely important distinction in how the Courts will treat student loan debt when it is accumulated before versus during the marriage. Unless there is a pre or post nuptial agreement stating that the divorcing couple once signed off otherwise, New York treats all assets and debt accumulated prior to a marriage as separate property. Conversely, unless there is a pre or post nuptial agreement stating otherwise, any debt or assets accumulated during the marriage prior to the decision to separate and divorce. This is because New York follows the Equitable Distribution approach. The impact of this approach is laid out below.
When the student loan is from before the marriage, unless otherwise agreed by the parties in writing, such as through a prenuptial, postnuptial, or settlement agreement, the person who took out the loan for their education keeps the responsibility of paying for it after the divorce. They will typically have to assume all payments even if their spouse was helping them pay some or all of their payments prior to the divorce. While fair, this financial shift is quite the adjustment for many.
However, when the loans were taken out after the parties were married, deciding who has to pay them back can get far more complicated.
Under New York Law, when one or both parties to a marriage obtained educational degrees during the marriage, their spouse, depending on the level of support they provided, is entitled to some percentage of their enhanced or increased earning capacity. It is similar with student loan debt. This is because student loans can be used for many purposes: paying for tuition and books, sure, but also all kinds of living expenses such as food and rent.
Therefore, when examining how to divide up student debt that was accumulated during the marriage in a divorce under New York law, the Courts closely examine what exactly the money was used for. For example, if the money was used to pay for the student spouse’s tuition, books, and other educational expenses, they will most likely be entirely responsible for it. This is because aside from future increased earnings after the degree was completed, the non-student spouse didn’t particularly benefit from having these funds available at the time. Therefore, it is more than a bit unfair to expect them to help shoulder their ex’s payment burden for years after the divorce is over.
On the other hand, if the student loan funds were used for living expenses such as food, rent, clothing, vacations and other things that the non-student spouse was able to reap the benefit from at the time, they may very well be liable for a paying off a percentage of their ex’s loans. After all, when used this way, those funds were no different from the income that the student spouse would have brought in if they had not been in school, and there’s no question those funds would have been marital property. Therefore, under those circumstances, a New York court is far more likely to determine that the non-student spouse is required to pay for some percentage of their ex’s loans, even after the divorce is finalized.
In dividing up student loans taken out during the marriage, New York courts also consider other important factors such as a high difference between the parties’ ability to pay off the debt. For example, if the spouse who didn’t take out the loans but had been consistently helping earns far more than the other spouse (who may struggle to pay them off post-divorce) the court may order the monied spouse to assist. The reality is, in New York this type of situation is often dealt with on a case by case basis, so the parties and their lawyers or attorneys are frequently required to put forward as much information and evidence as possible to support their position on who should pay.
Overall, if you are getting divorced in New York and are worried about who will end up carrying your or your spouse’s student loan debt, be sure to speak with your lawyer or attorney about when the debt was accumulated (before or after the marriage) and how the loan funds were used. This will help your lawyer or attorney put together the arguments they need to work towards a resolution in your favor.