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Student Loans and Divorce

Clarkston Legal Sept. 14, 2013

There are two ways we have seen student loan debt affect divorce proceedings. One scenario is where the divorcing spouse, usually a newly-minted professional, has accrued a significant debt balance well into the six-figures; as much as $200,000 in the case of a medical degree.

The other is where the student children of a divorcing couple have accrued the debt and one or both of the parents has co-signed on the loan. These days, there are no job guarantees whatsoever for the graduates, regardless of their GPA or skill set.

When an engaged couple with student loan debt begins to plan for marriage, those plans often include addressing one or both partners’ student loan debt. If either spouse has significant debt, a prenuptial agreement should be considered.

A prenuptial agreement is a contract entered into by both partners, each with independent legal counsel and review, following a full-disclosure of all assets and liabilities. This agreement is triggered by the death of either party or a divorce.

One of the primary considerations in a situation featuring significant student loan balances, is whether marital funds will be expended to pay back a student loan. Another important factor for consideration is whether one spouse supports the other while a professional degree is earned during the marriage but also where that degree is financed through student loans.

A prenuptial agreement can address these issues. Both existing and inchoate debts can be covered within the scope of the agreement.

In the other scenario arising with some frequency these days, a spouse co-signs a student loan for one of the couple’s children. If the student is unable to begin making payments after the grace period expires, the co-signing spouse becomes liable and it is a marital debt issue in the divorce.

Generally, the student loan debts of a couple’s emancipated children are not marital debts within a divorce proceeding. Only when a parent co-signs does this become problematic, especially when the co-signing parent is not the primary bread-winner. Who pays back that debt if the student cannot?

Before a parent co-signs on a student loan, some thought should be given to the overall health of the marriage and whether it is wise to complicate the marital estate with such contingent liabilities.

If you are struggling with such issues, our law firm offers a free consultation that can provide you with some guidance with these tough decisions.

Side Note: Here is a link to a post from the Law Blogger from last summer on a related student loan issue.