In a New Jersey divorce, shared debts, just like shared assets, are subject to equitable division. But determining who is responsible for student loan debts can be a tricky process, depending on when the loans were acquired and how much both parties had been contributing to their payoff prior to the marriage breakdown.
Student loan debt in the U.S. currently stands somewhere in the ballpark of $1.7 trillion. It’s the second-highest consumer debt category, next only to mortgage debt and higher than both credit card and auto loan debt. All this to say: Many couples who are divorcing still have sizable student loan debts.
Untangling commingled finances can be cumbersome, and there are often no simple answers when it comes to who is responsible for certain debts. Student loan debts may be a bit easier in this regard because they’re often taken out by a single person, before the marriage. But there’s plenty of room for gray areas. And unlike other kinds of debt, student loans can’t be discharged in a bankruptcy.
Former Spouses Responsible for Student Debts
NPR recently explored this issue, talking to numerous people stuck with the student loan bills for their former spouses. In many cases, a now-defunct loan consolidation program was the cause.
In one instance, an Arizona couple met during undergrad, married after graduation, and then both went to graduate school. They started a family and later consolidated their student loans through a Department of Education program for married couples. The repayment plan offered a single payment and lower interest rate than they’d get otherwise - an attractive prospect for spouses. Problems arose, however, when they divorced. The Husband had taken out almost double the debt, but they were both jointly on the hook for the whole amount - some $200,000. Fast-forward to several years after their split, the ex-Husband failed to pay, leaving his former Wife solely shouldering nearly $2,000 in monthly student loan payments that were mostly his to start. Though the federal consolidation program for married couples has since ended, those who enrolled have few options for disentangling themselves from their ex’s debt - even in the event of divorce or domestic violence.
“It’s particularly concerning for domestic violence victims because economic sabotage is a tactic of abusers,” explained Monmouth County divorce lawyer Elizabeth Rozin-Golinder. “It’s no small thing to get away physically, but extricating yourself from mutual debts can also prove a tough uphill battle.”
Even in situations where neither abuse nor defunct debt consolidation programs are factors, there are still circumstances under which one spouse might find themselves responsible for the other’s student loan debts.
Student Loans Acquired Before Marriage
Debt racked up before marriage doesn’t automatically become shared once you tie the knot. A prenuptial agreement can go a long way in ensuring it does not. But even barring that, assets and debt acquired prior to marriage are typically considered separate property in New Jersey. So if you took out $100,000 to go to get an advanced business degree before you wed, that debt is probably yours alone.
That said, there may be circumstances that change this. It’s important to discuss this with your attorney.
Student Loan Debts Acquired After Marriage
If you take out student loans after marriage, it’s possible both of you will be responsible, but it depends. If the lender did not take into account your spouse’s credit at the time the loan was issued, your spouse didn’t co-sign, and there was no spousal loan consolidation, it’s likely that payment responsibility will rest squarely on the shoulders of the person whose name is on the loan – as ultimately they will receive the benefit of the education.
However, in some states, a professional degree earned during a marriage can be considered marital property due to the fact that there’s lifetime earning potential that impacts both parties and their lifestyle.
Courts in equitable distribution states like New Jersey will often take into account the extent to which one spouse supported the other during their time in school. Judges may also weigh the extent to which the loan holder financially provided for the family after earning that degree. Even if the Court doesn’t require the other spouse to directly foot the student loan bill, there may be an equitable offset elsewhere in the divorce agreement.
Some factors Courts may analyze if delegating student loan responsibility:
- What was the money used for? Most of the time, student loans go to the payment of tuition, books, and other school fees that are directly related to that education. However, some money can go toward living expenses, which can benefit one’s spouse or family. That is going to be taken into account.
- What’s the earning power of both spouses? If one spouse has no significant income while the other has substantial income/earning power, it’s less likely the Court is going to require the lower earner to shoulder responsibility for that debt if it wasn’t theirs.
- Was there a prenuptial agreement in place that kept these debts separate? Prenuptial agreements can stipulate how student loan debts will be divided in the event of a divorce.
Note that if the loan-holder is on an IDR plan (income-driven repayment plan), the monthly payment might be reduced because you’re no longer filing joint taxes and it’s expected each may have a lower income due to the divorce.
Finally, keep in mind that your final Marital Settlement Agreement doesn’t necessarily change anything so far as the lender’s terms of who is responsible. This is especially true if one spouse co-signs on a student loan for another. In that case, the co-signer is still going to be legally responsible for that debt to the institution, even if the relationship that existed when they co-signed ended. The only way around this might be to refinance the loan solely in the name of the person who earned the degree, but that assumes they qualify.
If a Family Law Court makes a determination with regard to student loan repayments but one spouse doesn’t keep up their end of the bargain, it could leave the other on the hook with the lender for the entire amount. The recourse would be to return to Family Court for accountability under the terms of the Divorce.
If student loan debt is likely to be an issue in your divorce, it’s important to work with an experienced New Jersey family law attorney.