In the Minimum Equipment List, we have charts to aid in making the decision before departure. It is just common sense, taking into account; flight length, number of passengers, time of day, route (yes route! some ethnicities pee more than others I guess) and the location of the inop lav.
During flight, it is more or less left up to crew discretion with the aid of SOC, (System Operations Control).
Considerations are maintenance facilities ... not just at a diversion point, but at the destination. If you were flying to a remote place, where maintenance facilities were not available, then it might be better to turn back!
I have only ever made a "lav diversion" once ... flying from YVR
, and all of the lavs become inop, and nothing we could do brought them back ... we landed in YYC
Once flying a YYZ
flight, we found the lavs inop due to a frozen water system. The aircraft originated that day in YQT
and overnighted on a cold winter day. We let the passengers vote .. and they voted to continue as we were only about 1:20 from landing. Of course we made the obligatory "you can do Number 1, but not Number 2 PA!"
Just because I stopped arguing, doesn't mean I think you are right. It just means I gave up!