Student loan debt is a unique type of debt and, as such, necessitates special treatment in divorce. This is particularly true in situations in which the borrowers obtained the loans during the marriage.
Many individuals wrongly assume that the person whose name is on the loan is the person who becomes responsible for repayment post-divorce. This is not always the case, and who becomes responsible for the debt depends largely on various situational factors. Below are four questions a judge may ask when allocating student loan debt in divorce.
1. Is there a prenup in place?
According to Student Loan Hero, the easiest way to determine the ownership of student debt in divorce is with a prenuptial agreement. If a couple had the forethought to draft a prenup that accounted for student loans, a judge may merely look to it to come up with his or her decision.
2. How did the borrower use the funds?
If a couple does not have a prenuptial agreement, or if the prenup does not specify what is to become of student loan debt, the judge may then consider how the borrower used the funds. Did he or she use them strictly for school-related fees, such as tuition, books and other educational expenses? Or did he or she use them to contribute to the household finances, such as rent, utilities and car payments? If the latter is the case, a judge may determine that student loan debt is the responsibility of both parties.
3. What is the earning power of each spouse?
When allocating debt, the judge may consider the earning potential of each spouse, and whether one or both parties were making payments toward the debt during the union. If the borrower does not have significant income or earning power, or if the non-borrower helped make monthly payments, the judge may not deem it fair for the lesser earning spouse to assume sole responsibility for the loan.
4. Did the non-borrowing spouse co-sign the loan?
According to U.S. News, another simple way to determine who becomes responsible for student loan debt after divorce is by checking the names on the loan itself. If the non-borrowing spouse agreed to co-sign the loan, he or she is legally responsible for the debt until it is paid off. This is the case even after divorce.
The existence of student loans can quickly complicate any divorce. An experienced lawyer can inform parties of what to reasonably expect during the process and help them work to the most favorable outcome.