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Student loans and divorce

In divorce, the division of assets leads to many questions. While it's often easy to decide who gets the fine china and who keeps the sports memorabilia, there are challenges with shared property like houses, cars and pets. One often overlooked form of property--and one that impacts the budget significantly--is debt. As the cost of higher education rises, consumers have more student loan debt than ever before.

What happens to the student loans when you get divorced?

Division of property depends on the state you're in. Tennessee uses the equitable distribution model, which means that both sides with get fair, roughly equal distribution of assets. Other states follow a community property system where all marital property is evenly shared. The equitable distribution model allows flexibility for different types of assets, like student loans.

Individual and marital property

Just as there are two types of marital property, depending which state you live in, there are also two types of property ownership under state law. This is the same in each state. There are minor differences in definition depending where you live, but the principles are universal.

Marital property: property acquired during the duration of the marriage

Separate property: property acquired prior to the marriage. This also includes specific items such as inheritance, regardless of timing

Where is a student loan classified?

A student loan's owner depends on the timing. If the debt pre-dates the marriage, it is separate property. In the broadest sense, the student is also the owner of the loan in most situations--even if the loans accrued during marriage.

There are conditions where it doesn't apply, however. Issues to consider:

  • Did the loan go toward classes or also toward living expenses?
  • Has the degree benefited both parties, and for how long?
  • What is the earning power of each spouse?

In most cases, student loans belong to the individual student, but each divorce case has unique details where it may vary. If one spouse earns significantly more income than the other, the effect of debt payments on the post-divorce budget will influence the decision. Likewise, the court will carefully weigh how the degree itself helped the couple during the marriage. If both parties reaped significant benefits, the related student loan debt could be divided between both parties.

Settlement and negotiation

If there is dispute whether student loans are separate property or marital property, a potential solution is to trade assets--where a spouse agrees to own the entire debt in exchange for another concession among the marital estate. There are many options and many ways to divide property, some more complex than others. When ownership is unclear or contested, an attorney will be able to explain different options and help to find solutions and compromises to get through a difficult period.

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