The article by Charlie Wells in the Wall Street Journal may be of interest to readers of this blog.
In Divorce, Who Gets Custody of the Debt?
For many young couples today, marriage means more than loving, honoring and cherishing each other—it also means taking on a spouse’s student loans. And not only does educational debt make life together tougher for some, it can lead to surprises for those who end up divorcing.
While no generation is immune to the complications surrounding debt and divorce, the current one may be especially vulnerable: College students who took out loans and earned bachelor’s degrees in 2012 graduated with an average $29,400 in educational debt, according to the Institute for College Access and Success, and those earning advanced degrees were typically on the hook for even more. Multiply that by two, and student loans could outlast many a marriage.
Legal experts say one of the most common misconceptions about dividing debt in a divorce is the belief that educational debt incurred before a marriage always becomes shared, marital debt once a couple gets hitched.
New York divorce attorney Cari Rincker says her mother once quipped that she couldn’t wait for Ms. Rincker to “get married because half of [her] student debt will be his.”
Ms. Rincker, who is single, had to correct her mother: Generally, educational debt incurred before a marriage is considered separate property and barring some predetermined contractual agreement, it stays that way after a divorce. “My law-school-loan debt is forever mine,” Ms. Rincker says. “No spouse will ever be liable” for it.
That can come as a rude awakening for those used to getting help with loan payments.
Such was the case when Devon Montgomery, a program manager for the Bryn Mawr College Alumnae Association in Pennsylvania, split from her husband of two years. The 29-year-old says she had racked up big student loans from various schools, and it was a challenge dealing with all of that debt by herself after her divorce.
Ms. Montgomery says she had to “reallocate all of the debt and change the repayment terms to make it more affordable.”
Couples who took out student loans while they were single but living together should expect a similar outcome.
“It’s generally like roommates,” says June Carbone, an expert in family law at the University of Minnesota Law School. “The roommate doesn’t pick up student debt.…It doesn’t matter if you’re sleeping together.”
Debt division can get a little trickier when the student loans are taken out during the marriage. The person responsible for paying the loans isn’t necessarily the person whose name is on them. Indeed, how educational debt is divided may depend on where you live and who benefited from the borrowed money.
In many states, divorce courts have the discretion to divide marital property in a holistic way. That means that if the educational debt is considered marital property, they have the option of taking into account contextual issues, such as each spouse’s ability to pay it off, Ms. Carbone says.
So while student loans generally will go to the person who incurred them, there may be exceptions, she says.
For example, if it seems like one spouse will have high income after a divorce and another will struggle to make debt payments, the higher earner may end up having to fork over some temporary spousal support to cover the ex’s debt payments.
But debt division is complicated and can vary, depending on whether the state applies equitable-distribution, community-property or marital-property rules, Ms. Carbone says. As such, student loans in some circumstances could be split down the middle, even if one spouse has a much different financial situation than the other after divorce.
In a related issue, in a few jurisdictions such as New York, a professional degree earned during the marriage can be considered marital property, says Rachel Rebouché, an associate professor who teaches family law at Temple University Beasley School of Law.
That can lead to situations where the degree earner has to compensate a spouse for supporting his or her educational pursuits. Support for a spouse could mean time spent cooking meals, driving the degree earner to campus or even the supporter delaying his or her own educational pursuits, Ms. Rebouché says. In some cases, courts have awarded more property to the supporter to offset the value of a partner’s degree, she says.
Those in the field say couples can take two basic steps to avoid surprises related to college debt.
First: Get a prenuptial agreement and make sure it clearly specifies how you and your partner want to allocate any student debt accrued during a marriage in a divorce, says Naomi Cahn, a professor who researches family law at George Washington University.
Second: Ask a partner about the extent of his or her debt and be honest about yours. When discussing finances, couples tend to “focus so much on the assets, but they forget that there’s often a lot of debt,” Ms. Cahn says.
Information provided by K.O. Herston: Knoxville, Tennessee Divorce, Matrimonial and Family Law Attorney.