"The higher level of the degree could be the tipping point, making the advanced degree a marital asset."
The sentiment “What’s mine is yours and what’s yours is mine” is often shared early on in married life, but what happens when what’s yours is mine no longer?
For spouses seeking a divorce who have student loans from their time in college, the question of who pays what becomes more difficult and more complicated.
As of the second quarter of 2016, $1.26 trillion of the $12.29 trillion of total household indebtedness was student loans, according to the household debt and credit report of the Federal Reserve Bank of New York. That works out to 44.2 million Americans with student loan debt, and in the age of 2,140,272 marriages (as of 2014), there’s bound to be complications.
Much of the complications begin with age demographics. As of 2015, 68 percent of all women and 56 percent of all men are married by the age of 30. The average monthly student loan payment for borrowers between the ages of 20 to 30 is $351, and the median monthly student loan payment for the same demographic is $203.
Over the course of a year, that average monthly student loan payment becomes $4,212 a year. Given that the average income for women ages 16 to 34 working full-time, year-round is $30,000 and the average income for men ages 16 to 34 working full-time, year-round is $35,000, according to the Institute for Women’s Policy Research, that’s 14.04 percent of a woman’s annual income and 12.03 percent of a man’s annual income dedicated entirely to student loan payment.
One thing to keep in mind with these statistics is that the average annual earnings vary depending on the state.
The proportion of student debt might seem small in comparison to the rest of the annual income, but considering car payments, housing loans, bills, legal fees, costs of living, and other expenses, it can add up quickly. This is why during divorce proceedings, questions arise regarding student debt.
“Who is on the hook for what? Are we responsible for each other’s student debt? Are we not? Is one responsible, but not the other?”
Community property vs. equitable division
As previous articles have stated, it is entirely dependent on if your state is a community property state or an equitable division state. A community property state is a state in which, property acquired during the course of the marriage, aside from gifts or inheritance, is jointly owned and divided during the course of a divorce. Essentially, both spouses are considered equal owners of property.
An equitable division state is a state in which marital property is divided equitably, based on an array of variables. Despite an ex-spouse’s name on an asset or assets, the other ex-spouse has legal standing to claim an equitable portion of that asset or assets.
The states that are community property states are Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The rest of the United States falls under equitable division states.
Value of an education
After the state’s established rules are determined, the next step is contacting a men’s divorce attorney to develop a legal strategy. This becomes more important with the amount of assets and debt in question.
One of the major points of discussion is the value of the education of one ex-spouse and its impact on the life of the opposite ex-spouse. The higher level of the degree could be the tipping point, making the advanced degree a marital asset. Be aware that the counterpoint of when the marriage began and when the student loan was applied for will be relevant information that will impact this part of the discussion.
If that strategy is not employed, it can separate the student debts, obligating all of the individual debts to the individuals they originally belonged to, before the marriage began. Individual student debt payments after a divorce can force someone to reallocate the debt and change the repayment terms, if they are unable to handle them alone.
Student loans taken out during the marriage make the divorce a little trickier. The state’s status of equitable division or community property plays a bigger factor, and further, financial burdens are looked at more holistically. If one ex-spouse is forced to pay the student debt with a lower income than the other ex-spouse, temporary spousal support can be ordered, in order to relieve the struggling ex-spouse.
Money back guarantee?
In regards to reimbursement, it is possible to be compensated for an ex-spouse’s student debt. Before the divorce, a stipulation needs to be put in place in the separation agreement and divorce decree that details the owed amount and payment plan, which includes time limits and the means in which they’ll repay you.
The reimbursement clause in the final divorce decree is enforceable by the court, so if an ex-spouse violates it in any way, they can be held in contempt of court, giving the opposite ex-spouse the ability to file a motion to enforce payment.
Lending institutions are a separate legal entity to deal with in divorce cases. If one ex-spouse signs for a loan, they still are responsible for repayment from that lending organization.
During divorce proceedings, an open line of communication could be the difference between being obligated for all of the student debt or for just your own. Before marrying someone, ask about the amount of student debt that they have. So much of marriage and divorce focuses solely on finances and assets, but debt can make or break someone’s financial future.
Dan Pearce is an Online Editor for Lexicon, focusing on subjects related to the legal services of customers, Cordell & Cordell and Cordell Planning Partners. He has written countless pieces on MensDivorce.com, detailing the plight of men and fathers going through the divorce experience, as well as the issues seniors and their families experience throughout the estate planning journey on ElderCareLaw.com. Mr. Pearce has managed websites and helped create content, such as the Men’s Divorce Newsletter and the YouTube series, “Men’s Divorce Countdown.” He also has been a contributor on both the Men’s Divorce Podcast and ElderTalk with TuckerAllen.
Mr. Pearce assisted in fostering a Cordell Planning Partners practice area specific for Veterans, as they deal with the intricacies of their benefits while planning for the future. He also helped create the Cordell Planning Partners Resource Guide and the Cordell Planning Partners Guide to Alternative Residence Options, specific for seniors with questions regarding their needs and living arrangements.