How College Loans Affect Your Divorce
Assigning Responsibility for Student Loans when a Couple is Divorcing
New Jersey law is clear that assets or debts that either party brought into a marriage are separate property. However, with every rule, there are exceptions. With assets, separate property can be commingled or gifted to the marriage. For example, a spouse who owns a house before marriage may keep the house separate in a divorce by retaining the title on the deed in their name. However, if both parties pay for the mortgage while married, the spouse whose name is not on the deed may still have an equitable interest in the house at the time of divorce. Likewise, a student loan that follows a spouse into marriage is the separate debt of the spouse who benefitted from the educational loan. However, if both spouses benefitted from the loan, the debt may be equitably split between the parties. So, if the couple used the loan to pay for household expenses while the parties lived together before marriage, the debt may be equitably split between the parties.
What happens to Student Loans when you Divorce in NJ?
Of course, if they incurred the student loan during the marriage, both parties are responsible for the debt at divorce. While most people believe that the student loan for one person’s education is their responsibility, that is not always the case. For example, a married couple knows that the one spouse who incurs a student loan plans to benefit the marriage down the road. After all, they both expect a return for the spouse’s education. However, complications arise when the parties make agreements about who pays for what and when.
For example, one spouse may agree that they will pay off their student loans, and the other agrees to support them while they attend school. Should they get divorced, the spouse with the student loan pays off the loan while the other spouse may be on the hook for spousal support to the other. So much depends on the marital facts and circumstances when dividing debt, including student loans. As such, the spouse who pays the student loan that educated them (incurred during marriage) and got them a high-paying job may owe spousal support to the spouse that supported them while they got their degree. In that case, the higher-paid spouse may owe spousal support to the lower-paid spouse who supported them while they studied. The student loan debt, however, may offset how much spousal support the supporting spouse owes.
What Factors are Considered when Handling Student Loan Debt in Divorce?
In divorce, the one who pays the student loan or spousal support hinges on each spouse’s income, the length of the marriage, and when they incurred the debt. In a short marriage, the one who benefitted from the student loan may pay more alimony because the funds helped the marriage only a short time, too little to warrant the other party sharing the student loan debt equally. And student loans for children are debts both spouses share equally, regardless of who co-signed for the loan. However, loans in a child’s name only are the responsibility of the child. In New Jersey, property and assets get divided equitably, in other words, fairly. And each marriage has different circumstances that determine fairness.
When a judge considers fairness in allocating debt, the borrower’s name on the student loan matters; if both are named borrowers, then both owe the debt; if only one is the borrower, that individual owes the debt. Regardless, the lender does not care about divorce and who gets what in a divorce. If the loan documents require two borrowers to pay off the loan, the lender can go after either or both. Thus, if one party must pay off the student loan debt, it is important to change the loan documents to reflect that so that the non-obligated party does not get sued for the debt.
Can a Professional Degree Become a Marital Asset?
Since fairness is the rule, if one party earns a degree paid for by the student loan during the marriage, the degree may be a marital asset with a value that increases over time. For instance, a Ph.D. may hold little value until the Ph.D. holder gets a job and tenure at a university. That fact is a consideration for splitting assets equitably. If both spouses benefit from the degree, they both must pay the debt, but it depends on the loan. Government loans require the borrower and degree earner to be the same. Thus, the borrower is responsible for the debt. And if both parties have student loans consolidated during the marriage, both must pay the debt in a divorce.
However, equitable splits, even with student loans, consider the marital situation, such as who paid the household finances, who brought in the lion’s share of income, and who took care of children and the household during the marriage. All factors configure into the equation of what is fair. Another consideration is the earning potential of each spouse. If the one who earned the degree is the one who is responsible primarily for caring for the couple’s young children, the court might order both to pay the student loan. Otherwise, the parent who cannot afford to pay it while performing most parenting responsibilities would struggle. On the other hand, if one spouse paid the loan payments while the other earned the degree, that too would factor into debt allocation.
How the Loan Money was Spent Plays a Critical Role in NJ
Again, who pays for the student loan debt depends on how the couple spent the money, for example, tuition only or living expenses that both spouses benefitted from; the loan use makes a difference in who pays for it. If a court decides both parties must pay the student loan debt, they must pay as the lender requires; otherwise, they suffer the consequences, including bad credit.
Is Refinancing a Student Loan an Option in NJ?
Refinancing the loan may be an option; consolidation or applying for reduced payments based on income, especially for federal loans, may be other options. For instance, forbearance agreements and deferments allow time for the loan repayment when the borrower is still attending school or suffers hardship, like a divorce. After that, the debtor must pay the debt but later.
Have Questions About your College Loan when Splitting Up in Union, NJ? Contact Attorney Edward Cooper for assistance.
The best way to find out if your student loan is a marital debt or your spouse’s student loan is your debt, too, is by receiving counsel from a family law attorney. They can analyze your marital circumstances, assess the facts as you unfold the story of acquiring the debt, the matrimonial events, and your current situation. A dedicated family law attorney like Mr.Edward S. Cooper knows how to read the facts to determine the answers to your questions about student loans and other debts that you may be curious about. If you enlist our help by contacting us, we can discuss these with you during your initial consultation. After that, you can plan for your divorce and your future with the assistance of the excellent legal counsel provided by members of our team.
We assist clients with college loans, assets, debts, and the entirety of the divorce and post-divorce process throughout Cranford, Clark, Scotch Plains, Elizabeth, Mountainside, Berkeley Heights, Summit, and surrounding communities. Contact our office in Linden at (908) 481-4625 for an initial consultation regarding your case today.