Millennials are putting off marriage, have you heard? And while some
talking heads would have you believe smart phones and video games are
largely to blame, I’d posit it’s more likely a consequence of the
combination of crushing student loan debt and low-paying jobs that has
defined life for many people in Generation Y. Who wants to shell out for
a wedding when you can barely afford your monthly student loan
payments?
But if you do get married, you definitely need to consider how your and/or your spouse’s loans will affect the other. Take this question, from Kathryn:
For the other three income-driven repayment plans, you can avoid this if you file your taxes separately. But you’ll miss out on the other tax benefits of filing jointly. You’ll want to ask your tax preparer which is better for your individual situation, but it’s likely filing jointly and accepting the higher monthly payment.
That’s having an impact on when and if people get married, according to Travis Hornsby, founder of Student Loan Planner. “There’s a lot of people who are getting spiritually but not legally married because of this,” he says. “People are having ceremonies but not turning in their certificates for tax purposes.”
Additionally, you may lose the student loan interest deduction, which allows student loan borrowers to deduct up to $2,500 of the interest paid on their loans from their taxable income. You don’t qualify for it if you and your spouse earn more than $160,000 combined (you do not qualify for the deduction if you file separately).
But there are a lot of other things to take into consideration, finance-wise, when you have loans and get married.
“Everyone getting married these days needs to have a money conversation about loans, and it needs to happen before your engagement,” says Hornsby. “Be honest, say how much debt you have and your plans to pay it off.”
One example: credit. While your spouse’s loans do not affect your credit unless you’re a co-signer, according to NerdWallet, “if your spouse takes out a student loan during your marriage and then defaults, creditors in some states can go after both of your wages and assets—or, if you file jointly, your tax refund.”
And if you’re in the market for a new house, the biggest factors to take into account are your debt-to-income ratio, down payment, salary, credit history, assets, etc., the biggest being your DTI, says Mike Brown, managing director of Comet, a company that offers student loan refinancing advice. If your only debt is student loans and you make a decent income, you’ll probably be ok. If one of you has a ton of debt, though, the spouse with the lesser amount should apply for the mortgage, says Brown.
One rule that makes paying your mortgage more manageable: “Your house should be no more than two times your joint income if you have debt,” says Hornsby. “You don’t want tons and tons of debt.”
If you get divorced, things get, well, complicated. You may have to split the debt with your spouse, regardless of whose it is, depending on when it was acquired, says Kathleen Campbell, a Registered Investment Advisor based in Fort Meyers, Florida.
If you incurred the debt before the marriage, that’s your responsibility to pay off (and the same goes for your spouse). “So even if a couple was together for years before marriage, with the expectation that future spouse A’s income would cover spouse B’s loan payments, if spouse B incurred the loans prior to marriage, then they are spouse B’s responsibility forever,” says Campbell.
But if the debt was acquired post-marriage, things “get murkier.” “That becomes more of a legal question, depending on state laws, how the money was used, earning power of both parties, how long the degree was used during the marriage, and other factors,” she says. “So it’s a case-by-case situation when it was incurred after marriage and is still in just one spouse’s name.”
If you’re a co-signer, you’re likely on the hook, unless your spouse refinances. “The co-signed obligation is a contract between the signer and the lender, not between spouses, so that’s a firm contract,” says Campbell. “It definitely could be possible to refinance the loan in only one spouse’s name, assuming that spouse has the income and credit history to entice the lender to refinance. That could all be part of divorce settlement discussions.”
If you’re really worried, create a prenup that stipulates what happens to the debt. Then you’ll have one less thing to worry about.
© 2018 Gizmodo Media Group. All rights reserved.
But if you do get married, you definitely need to consider how your and/or your spouse’s loans will affect the other. Take this question, from Kathryn:
If you’re on an income driven plan as part of loan forgiveness, does your partner’s income become considered your own income if you get married?Here’s what you need to know.
Taxes
Essentially, the answer to your question, Kathryn, is yes. If you or your spouse have student loans and you’re enrolled in the Revised Pay As You Earn plan, your monthly loan payment will increase, because the plan bases your payment off of your combined adjusted gross income.For the other three income-driven repayment plans, you can avoid this if you file your taxes separately. But you’ll miss out on the other tax benefits of filing jointly. You’ll want to ask your tax preparer which is better for your individual situation, but it’s likely filing jointly and accepting the higher monthly payment.
That’s having an impact on when and if people get married, according to Travis Hornsby, founder of Student Loan Planner. “There’s a lot of people who are getting spiritually but not legally married because of this,” he says. “People are having ceremonies but not turning in their certificates for tax purposes.”
Additionally, you may lose the student loan interest deduction, which allows student loan borrowers to deduct up to $2,500 of the interest paid on their loans from their taxable income. You don’t qualify for it if you and your spouse earn more than $160,000 combined (you do not qualify for the deduction if you file separately).
Other Factors
But there are a lot of other things to take into consideration, finance-wise, when you have loans and get married.
“Everyone getting married these days needs to have a money conversation about loans, and it needs to happen before your engagement,” says Hornsby. “Be honest, say how much debt you have and your plans to pay it off.”
One example: credit. While your spouse’s loans do not affect your credit unless you’re a co-signer, according to NerdWallet, “if your spouse takes out a student loan during your marriage and then defaults, creditors in some states can go after both of your wages and assets—or, if you file jointly, your tax refund.”
And if you’re in the market for a new house, the biggest factors to take into account are your debt-to-income ratio, down payment, salary, credit history, assets, etc., the biggest being your DTI, says Mike Brown, managing director of Comet, a company that offers student loan refinancing advice. If your only debt is student loans and you make a decent income, you’ll probably be ok. If one of you has a ton of debt, though, the spouse with the lesser amount should apply for the mortgage, says Brown.
One rule that makes paying your mortgage more manageable: “Your house should be no more than two times your joint income if you have debt,” says Hornsby. “You don’t want tons and tons of debt.”
Divorce
If you get divorced, things get, well, complicated. You may have to split the debt with your spouse, regardless of whose it is, depending on when it was acquired, says Kathleen Campbell, a Registered Investment Advisor based in Fort Meyers, Florida.
If you incurred the debt before the marriage, that’s your responsibility to pay off (and the same goes for your spouse). “So even if a couple was together for years before marriage, with the expectation that future spouse A’s income would cover spouse B’s loan payments, if spouse B incurred the loans prior to marriage, then they are spouse B’s responsibility forever,” says Campbell.
But if the debt was acquired post-marriage, things “get murkier.” “That becomes more of a legal question, depending on state laws, how the money was used, earning power of both parties, how long the degree was used during the marriage, and other factors,” she says. “So it’s a case-by-case situation when it was incurred after marriage and is still in just one spouse’s name.”
If you’re a co-signer, you’re likely on the hook, unless your spouse refinances. “The co-signed obligation is a contract between the signer and the lender, not between spouses, so that’s a firm contract,” says Campbell. “It definitely could be possible to refinance the loan in only one spouse’s name, assuming that spouse has the income and credit history to entice the lender to refinance. That could all be part of divorce settlement discussions.”
If you’re really worried, create a prenup that stipulates what happens to the debt. Then you’ll have one less thing to worry about.
© 2018 Gizmodo Media Group. All rights reserved.
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