Divorce and Student Loan Debt
Divorce is messy. Dividing assets and equitable distribution of property is often the most tedious and time-consuming part of divorce. While division of hard-earned assets can be painful, what happens to joint debt when couples go their separate ways? Joint credit card debt is one thing, but what about student loans? What if one spouse borrowed money for the other to attend college, only for that spouse to drop out of school? Is that spouse still on the hook for student loan payments?
Joint Marital Debt
New Jersey laws require parties seeking divorce to undergo equitable distribution of assets and liabilities. This process entails a complete inventory of all personal and real property, gifts, vehicles, investment accounts, intellectual property, bank accounts, retirement and 401k accounts, and debt accounts such as credit cards, personal, installment or car loans, and student loans. Each party is required to submit a financial statement to the court detailing their monthly income and expenses. The court uses the financial statement and additional evidence to make awards of spousal support and child support, if requested.
When it comes to debt, the courts will look at the source of the debt and when it was acquired to determine if it is joint marital debt or the sole debt of each party. If the debt is joint, the court will work with the parties and their attorneys to determine an equitable division of that joint debt. Contrary to popular opinion, equitable does not always mean a true 50/50 split. If a debt account was opened prior to the marriage, the court views that debt as the responsibility of the sole debtor/party. Conversely, a joint mortgage or a car loan co-signed by one spouse for the other spouse would qualify as joint debt. Sometimes the parties will submit evidence indicating that they or the other party was already making payments out of their own bank accounts or with their income. But even a prior financial arrangement is sometimes not enough to defeat the fact that the debt was taken out jointly with both parties’ informed consent.
Next Steps for Student Loan Debt
Student loan debt is complicated for several reasons. Firstly, often student loans were acquired prior to the marriage when both parties were still in college. Second, the U.S. Department of Education will combine joint student loan debt for married couples if the borrower chooses an income based repayment option, and make financial aid awards based on the joint income and fiscal need of married couples as well. So, if both parties have student loan debt, how is it divided? If the student loan is a private loan obtained through a bank using only one party’s income prior to the marriage, that student loan is not joint debt. If a federal student loan is obtained during the marriage, both spouses are listed as borrowers and rates/amount was determined using the parties’ joint income at the time, it is considered joint marital debt, and therefore must be equitably divided between the parties. Sometimes the courts will view a college degree as a marital asset if both spouses made a collective decision for one spouse to obtain the degree after marriage, and doing so increased the spouse’s earning potential and the standard of living for the couple.
Dividing student loan debt can be fact-intensive and is not cut and dry. If you questions about your joint debt, student loan debt or your spouse’s student loan debt, contact our attorneys at Eveland & Foster. Remember that after divorce, it is important you update your loan servicers and account management or financial advisors about your new marital status, or if one borrower needs to be removed from an account. It is also possible to request deferment of a federal student loan or recalculate an income-based repayment plan accounting for your sole income after divorce.
Call Eveland & Foster, LLC Today
If you or a loved one is facing a divorce and dealing with division of joint debt, including student loan debt, you need assistance. Our attorneys at Eveland & Foster, LLC specialize in family law including equitable division of joint assets and liabilities. If retained, we will assist you to arrive at a desirable outcome and protect your interests. Do not settle for less than what is rightfully yours, and do not take on debt that does not belong to you, just to expedite the divorce process. Call us today to schedule a consultation and review your options.