Who Pays Student Loan Debt in Divorce?
Getting a divorce is hard enough. Trying to figure out whether you’re on the hook for your ex-spouse’s student loan debt can be nerve-wracking. Let’s explore this situation further.
Do I have to pay my ex’s student loan debt?
It's a fair question to ask. With the rising rate of student debt in America, it's not uncommon for divorcing couples to struggle with how to divide student loan debt in their settlement agreement. After all, both spouses may have contributed financially to the loan over the course of their marriage. So, do you have to pay your ex's student loan debt?
The answer depends on a few key factors. First, it’s important to understand that student loans are normally handled as separate property in a divorce proceeding if your spouse took out the loans before you got married. This means they don't get divided up pursuant to equitable distribution like other assets and liabilities.
If your spouse took out the loan during the marriage and solely paid for it during the marriage, they'd probably be responsible for paying off the loan post-divorce. However, if you benefited from your spouse taking out the student loans, a court may hold you at least partially responsible for paying them back since they were taken out during your marriage.
When did your spouse take out the loan?
In general, any student loan debt incurred before marriage belongs solely to the debtor and is not considered shared marital property or subject to division in divorce proceedings. This means that if one spouse took out student loans prior to getting married, they are still 100% responsible for the repayment of those loans after the marriage has been dissolved.
On the other hand, if a spouse takes out student loans during a marriage, both parties would likely be considered liable for paying off those debts. In some states, post-marital student loan debt may even be treated as part of a couple's shared marital property, meaning it could be divided between them in a divorce. (It’s important to note that this is not always the case and depends on where you live and the state laws that apply.)
Do you live in a community property state or an equitable distribution state?
In a community property state, any marital asset or debt acquired during the marriage is considered jointly owned by both parties. This means that even if only one spouse took out the student loan, the other spouse would still be responsible for paying it off in the event of a divorce.
Currently, there are nine community property states in the U.S.: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
In an equitable distribution state, marital assets and debts are divided “fairly” in divorce. This does not necessarily mean they will be divided 50/50.
Whether you live in a community property state or an equitable distribution state, it helps to understand, prior to starting divorce negotiations, how your state treats marital debts.
Did you cosign for your spouse’s debt?
If you cosigned on a loan for your spouse, you are still responsible for it in the event of a divorce. This means that even though you’re no longer married, if the borrower (your ex-spouse) fails to make payments on the loan, it could have serious consequences for you.
When someone cosigns a loan, they become legally obligated to repay the lender no matter what happens in the future. So, even if there is a divorce or other change in circumstances down the line, a cosigner is liable for the full amount.
What about student loan forgiveness?
In conjunction with the U.S. Department of Education, President Biden proposed a student loan forgiveness program that could grant student loan forgiveness up to $20,000. However, at the time of this writing, Biden’s plan had been blocked by court order. Click here to read the latest.
What about an income-driven repayment plan?
If your post-divorce budget dictates that student loan payments would create hardship, it’s possible to apply for an income-driven repayment plan. If your enrollment is approved in this plan, it’s good for one year. After that, you can reapply. Click here for information on how to lower your monthly payments.
How can I get a fair outcome?
When approaching divorce negotiations, it is important to understand your financial situation and the implications of any decisions made. One way to do this is through divorce financial planning, which can help you to identify sources of income, assets, and liabilities prior to proceedings. A financial planner can also educate you on ways to handle student debt such as refinancing and the aforementioned income-driven repayment plan.
Good communication with your spouse or partner early on in the divorce process can help ensure a smoother transition into post-divorce life. Consider how student loan debt may be handled during these discussions. Each couple's situation differs depending on their individual circumstances.
Mediation can be a helpful tool when deciding who pays student loan debt in divorce. This process involves both parties working with a neutral third party to come up with solutions tailored to their unique needs. Mediation offers an opportunity for open dialogue and allows couples to negotiate terms that are mutually beneficial and acceptable.
In addition, it’s helpful for both parties to create a post-divorce budget that outlines their expenses and income streams after the dissolution of their marriage. This will help you determine what sort of monthly payment you can realistically afford. Take this information with you to the negotiating table as you work out your divorce agreement.
Free download: What to Include in Your Marital Settlement Agreement
Do you have all the facts about who should pay your student loan debt in the event of your divorce? If you’re facing divorce, consider taking advantage of the resources we offer, including mediation, financial planning services, and divorce coaching. Our services are priced at a flat rate to make your budgeting process easier and designed to help make the divorce process simpler and less stressful for everyone involved.