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Divorce is never easy, and one of the most complex aspects of it is dividing up assets and debts (including student loans). One question that often arises is how student loans are handled in a divorce settlement. Are they considered separate property or marital property? Who is responsible for paying them off? In this blog post, we’ll dive into the world of student loans and divorce settlements to help you better understand how they are handled in court.

Where Debt Plays into Marital vs. Separate Property

When it comes to divorce settlements, the first thing to understand is the difference between marital and separate property. Marital property is any property that is acquired during the marriage, while separate property is property that was acquired before the marriage or through inheritance or gift.

So, how do student loans and debt fit into the divorce equation? In most cases, student loans are considered separate property of the spouse who took them out. However, there are some situations where they may be considered marital property. For example, if the spouse who took out the loans finished school and worked in a profession during the marriage, the loans may be considered marital debt that was used to make marital income.

It’s important to note that while student loans may be considered separate property, any money used to pay them off during the marriage may be considered marital property. This means that if both spouses contributed to paying off the loans during the marriage, the debt may be divided in a divorce settlement.

Debts of the Other Spouse in a Divorce

What about debts that were incurred by one spouse but not related to student loans? In general, if the money was used for marital expenses, both spouses may be responsible for paying off the debt in a divorce settlement. For example, if one spouse racked up credit card debt to pay for groceries or household expenses, both spouses may be required to pay off that debt.

However, if the debt was incurred for the benefit of only one spouse, it may be considered that spouse’s separate debt and not divisible in a divorce settlement. It’s important to note that in bankruptcy, only debts in your own name can be discharged, no matter how the money was spent.

Debts and Emptying Bank Accounts

It may be tempting to empty bank accounts before a divorce settlement to avoid having to split the money with your spouse. However, this is not a good idea. Even if you do manage to hide the money, you will still be on the hook to pay half of it to your spouse. The court will impute the money back to you, meaning that it will be considered as if you still have the money and will be divided accordingly.

Who Pays for the Divorce?

Divorce can be expensive, with legal fees and court costs adding up quickly. In New York, when there is a significant difference in incomes between the spouses, the higher-earning spouse may be responsible for paying both spouses’ divorce bills. This is known as the “monied spouse” rule. However, if the incomes are more evenly matched, each spouse may be responsible for paying their own divorce bills.

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