4 Crucial Questions to Determine Who Takes On Student Debt in Divorce

4 Crucial Questions to Determine Who Takes On Student Debt in Divorce

One of the most common misconceptions in divorce is the belief that all debts the couple owes are to be divided straight down the middle—as assets are. For most types of marital debt, this notion rings true, but when it comes to student loans, it is not so cut and dry.

Do not trick yourself into thinking, “Once the I Dos are said, my student-loan balance becomes my spouse’s.” Here are 4 questions that can lend you some insight about who will likely be responsible for your student debt after the divorce:

Is the loan considered Separate or Marital Debt?

Determining whether your student loan is considered separate or marital debt strongly indicates what the most likely outcome will be in the divorce proceedings. Just as some assets obtained before the marriage can be considered separate property, personal debt can also. Start by understanding which category your debt falls into by examining your state’s laws.

Though differing in details, each state’s laws defining separate property are fairly consistent. Generally, the following is considered separate property:

  • Inheritances received or gifts given to either spouse from a third party.
  • Property outlined as separate in a prenuptial agreement.
  • Property owned by either spouse before getting married.

Though you should check your state’s specific definition, if your student loan predates your wedding day, then it will almost always be considered separate debt. However, if you receive your educational funding after you tied the knot, there may be a chance that your spouse will be responsible for a portion of the loan.

Are you living in a community-property state or an equitable- distribution state?

Should your loan be considered marital property? The way it is divided depends on whether the state you live in is considered a community-property state or an equitable-distribution state.

In community-property states, each individual in the marriage is considered an equal owner of shared, marital property. In other words, all assets are divided evenly; each spouse receives exactly half. Debt is most commonly split similarly to the assets, which will generally indicate the court’s decision about your student loans.

If you are living in an equitable-distribution state, then the subject becomes even more complicated. For divorces in these states, the division of assets and debts is supposed to be “fair and equitable” for both parties; this does not mean that they are halved. Rather, it is up to the court to decide what equals a fair divide.

What was the money used for?

Consider what your student funding paid for. Did you use it solely for tuition, books, and school-related fees? If so, then it is likely that you will hold the majority of responsibility for paying it back.

However, quite often, educational loans are also used to help fund living expenses while the student is enrolled in school. Was a portion of the money used to cover rent, groceries, or other expenses while you and your spouse were living together? If the money was spent in a way that arguably benefitted both spouses, then it will likely be split more evenly.

Who benefitted from the degree earned?

Lastly, when determining how your student debt may be split during divorce, consider who benefitted from the loan. Did the degree you earned translate to a lifestyle that both your and your spouse have been enjoying for years? If it can be argued that your soon-to-be ex also gained from your education, then you might have a good case for minimizing your portion of the amount owed.

Perhaps you believe that your spouse is fairly entitled to half of your student-loan debt, and dividing it as such is a priority to you. If so, be sure to speak with an attorney who has experience handling similar cases.

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Shawn Leamon, MBA, CDFA is author of Divorce and Your Money: The No-Nonsense Guide and host of the Divorce and Your Money Show on iTunes. Learn more at  www.divorceandyourmoney.com.

Shawn Leamon, MBA, CDFA

Dallas, Texas

Shawn C. H. Leamon is Managing Partner of LaGrande Global, a firm that helps successful families manage large financial transitions like divorce, inheritance and selling a business.

He earned his Bachelor of Arts from Dartmouth College, double majoring in Economics and Philosophy, and his Masters in Business Administration at Spain’s IE Business School.

Before founding LaGrande Global, Shawn helped manage $1.1 billion in client assets at Bernstein Global Wealth Management. He also worked as a credit research analyst at J.P. Morgan. He is a Certified Divorce Financial Analyst, and he has been an advisor to numerous high-stakes divorce cases.

Shawn is the author of two well-received finance books: Managing Private Wealth: Principles, and Divorce and Your Money: The No-Nonsense Guide, both published in 2016.

In his spare time, Shawn is an ultra-endurance athlete and has competed in events as long as 24 hours. He is an Eagle Scout and a member of the Alumni Board of Greenhill School.