You’ve tried to work at it and tried to resolve your issues. There’s no two ways about it — you’re getting divorced. Getting divorced is one of the top five most stressful events in life and it’s no wonder. Splitting up your entire life and your assets isn’t easy. Mourning the life you will no longer have is par for the course. It can get messy.
If one or both of you have student debt, you might be wondering, who’s responsible for the debt especially if the student loan debt is over six figures. In this post, we’ll cover what happens with student loans and divorce.
What happens to student loans in a divorce?
Did you take out student loans before you were married? Then you are solely responsible for your debt in the event of a split. If you have no debt, but your soon-to-be-ex has six figures of debt, it’s not your responsibility (did I just hear a sigh of relief?).
Whoever signed the Master Promissory note is on the hook for the student loan debt balance after divorce.
Obviously, if you have student loans and your spouse helped out with payments, you could take a financial hit with that assistance. During a divorce, they would not be liable to help you out if the student loans were taken out before marriage.
If, on the other hand, you were like this guy who helped his wife pay off her student loans only to be divorced after two years of marriage — it’s likely you won’t be able to recoup those costs, unless you get a killer divorce lawyer who can find loopholes in the law.
Where it gets complicated
If one or both of you took out student loans during the marriage, there could be an issue. In many cases, even if you took out student loan debt while married, it’s still solely the responsibility of the person who signed the paperwork.
However, there are nine states that are considered “community property” states that can complicate things. In a community property state, assets and debt among spouses are split evenly in a divorce.
It’s likely you didn’t research whether you live in a community property state before your nuptials. If you live in one of these nine states, you want to know where you stand:
- New Mexico
In this case, each spouse is on the hook for the debt, including student loans, that were accrued during the marriage. It doesn’t matter if it’s in your name or your former spouse’s — it’s community property.
One interesting exception is the State of California. In California, though a community property state, educational loans are treated as separate property. However, a spouse could ask for reimbursement if part of the contributions went to paying off loans of the other party.
If there are private student loans in the mix, there’s something important to consider. Many private loans require co-signers. If you or your spouse co-signed a private student loan during the marriage, the co-signer is legally liable even in the case of divorce. In this case, researching options for co-signer release would be a wise idea.
What to know about student loans and divorce
If student loans were taken out during the marriage, whether the other person is liable for them can depend on a few things.
- How the student loan divorce debt was used. Most student loans are for educational purposes. But if the student loans paid for living expenses that you both benefited from, that can complicate the matter.
- Was a degree acquired? If a degree was earned, the student loans will most likely be considered separate debt. If a degree was not earned and the loans weren’t advantageous to the spouse, it’s likely the loans will be considered separate debt. It gets murkier if the degree was earned and the other spouse benefited from it. In that case, it could potentially be considered marital debt rather than separate debt.
- Did the other spouse benefit from the degree at all? If the student loans that paid for the degree — which ultimately supported the couple and each party benefited from it — dividing the debt can be tougher.
Here are some examples during a divorce where things get tricky, depending on who pays student loans:
A woman co-signs for her husband who’s currently unemployed so that he can refinance his law school loans. Later on, the couple divorces and the woman is on the hook for $150,000 of her ex’s student loan, because she is the co-signer.
Also, if you have spousal consolidation loans, there could be trouble. Spousal consolidation loans used to be offered so that both spouses could consolidate their loans. Unfortunately, there’s no easy way to split this up in case of divorce.
It gets tricky because these loans can’t be paid back with Public Service Loan Forgiveness. Want to pay the loan back using Income-Based Repayment? This option requires income documentation from each spouse for the entire repayment term. Not exactly easy to “move on.”
Student loans and divorce
Just like divorce isn’t easy, figuring out who pays student loans in divorce a isn’t always either. It depends on a variety of circumstances like when the loans were taken out, where you live, the type of loans, and any legal liability.
In many cases, student loan divorce debt is treated as separate debt but it’s important to know the nuances when going through a divorce.
Many things have to be sorted out during a divorce. Did you know what happens to your student loans after a divorce?