Are Student Loans Considered Marital Debt In a Divorce?
With tens of millions of Americans in college debt, complicated financial problems can arise when couples divorce.
Over 42 million Americans have student loan debt, and the numbers are steadily rising. While many are getting married later in life, some couples tie the knot early on. Some couples get married after one person has already accepted student loans, while others tackle the risk together. Therefore, when Alabama couples divorce, student loan debt can pose complicated financial problems.
Divorce in Alabama: How are Debts and Assets Divided?
Alabama, like many other states, follows the equitable distribution doctrine. Unlike community property states where everything is split 50/50, Alabama's courts now divide assets and debts fairly—and the division isn't always equal. If either spouse has a high earning potential, they'll likely get fewer marital assets and less debt.
Which Party is Responsible for Student Loan Debt?
Allocating assets and debts is challenging, especially when divorces involve student loans. According to a report from Education Data Initiative, US student loan debt totals nearly $1.75 trillion, with the average borrower owing about $40,000. A spouse's responsibility for college debt depends on the answers to a few basic questions:
- When was the debt acquired? If it was amassed before marriage, it's not considered marital debt.
- Did either spouse cosign the other person's student loan? If so, they're responsible for a portion of the debt. Here, contract law supersedes state law.
Untangling finances after a divorce is never easy, but the process may become even more complex when spouses have student loan debt. A divorce attorney in Cullman can use their knowledge of state law to help you achieve a fair outcome. Call today to schedule a consultation.
Do Prenuptial Agreements Play a Role?
Also known as prenups, these agreements are contracts signed by couples prior to marriage; they outline how debt and assets are divided in the event of a legal separation or divorce. For instance, a prenup may specify that student loans are each spouse's responsibility, regardless of when they're taken on.
Prenuptial agreements override state law, even in equitable distribution states like Alabama. This provides couples with a degree of clarity when things get confusing during a divorce. Verbal agreements, such as those where one spouse works to put the other through school, should be finalized in a prenuptial agreement to ensure that they're legally binding and considered during the settlement phase.
Crucial Questions About Divorce and Student Loan Debt
Dealing with divorce and student loans is difficult, to say the least. As spouses untangle their personal lives and finances, they should ask and answer these student loan questions.
- How was the money spent? In most instances, student loan funds are applied to tuition, books, fees, and other materials needed to pursue a college degree. Some people, however, spend some of that money for the other spouse's benefit.
- What's each person's earning potential? When determining the fair and equitable distribution of debt, the courts will consider each person's earning potential. If a spouse can support themselves and any dependents, they're more likely to receive a larger share of student loan debt.
- Was a degree earned? If a borrower earned a degree after accruing student loan debt during a marriage, the state's courts will likely not consider it marital property. The graduate, though, will likely have an increased earning potential that may increase their share of marital debt.
- Was there a cosigner? If you've cosigned on an ex-spouse's student loans, you'll be held partially responsible. This issue must be addressed during divorce proceedings to prevent credit damage.
No matter the extent of your ex-spouse's student loan debt, you shouldn't be held entirely responsible. Contact us via our online form or call today to request a consultation.
Paying Off Student Loan Debt: Simple Strategies for an Easier Divorce
Student loan debt shouldn't make Alabama divorces unaffordable. Follow these straightforward tips to pay the debt down quickly and efficiently.
- Focus on the high-interest debt first. Before initiating divorce proceedings, pay off the student loan with the highest interest—no matter whose it is. Starting with higher-interest debt will make it easier to save in the long term.
- Seek lower interest refinancing. Depending on each spouse's credit history and income, refinancing for better repayment terms and rates may make sense. Several lenders offer couples with good credit extremely low-interest rates, but it pays to be careful when consolidating this type of debt—when the divorce goes through, you'll be responsible for all of it instead of just a portion.
- Pay consistently, even if it is a small amount. Making frequent payments, even if it's the minimum monthly amount, will keep the account current, build a stronger credit history, and raise your score. With consistent payments, you'll be more likely to qualify for good rates on auto loans, credit cards, and a mortgage after the divorce is finalized.
- Keep in touch with the loan service provider. The United States Department of Education has several repayment plans depending on family size and income. That means anyone, even an ex-spouse who is unemployed, should be able to find an affordable payment. Unlike the government, private student loan providers don't offer this level of leniency. If you've fallen on difficult times during or after a divorce, consider asking the service provider for a forbearance, deferment, or alternate repayment option. Any of these will keep the loan out of default and prevent serious damage to your credit score.
No matter how bad your personal financial situation has become during an Alabama divorce, it's important to remember that you aren't the first person to have such difficulties. Call our office today to learn how a divorce attorney can help minimize the financial hardship imposed by a spouse's student loan debt.
We Are Here to Help
We know that divorces are logistically, emotionally, and physically debilitating, and we're here to lessen the burden. Hiring an experienced divorce attorney will make the process fairer and more affordable. Because our firm focuses on Alabama family law, we understand the dynamics of divorce and can walk you through the process. Call or click to schedule a no-obligation consultation with a Cullman divorce lawyer.
