Am I Responsible for my Spouse’s Student Loan Debt? Dividing College Expenses

When you are divorcing, there is a focus on a division of the assets.  Commonly asked questions include: Who is going to stay in the home? How are we going to divide the furniture?  Who gets the third auto or boat?

But a divorcing couple also needs to focus on the division of debt:  credit cards, mortgages, loans, including student loans and monies borrowed for one or both of the parties to attend college or obtain a professional degree.  North Carolina is an equitable distribution state with the underlying concept that marriage is an economic partnership and that assets obtained during the marriage belong to both parties, regardless of whose name appears on the title or account.  Debts need to be classified as well and need to be distributed.

Dividing Debt

Here is some basic information to consider. In North Carolina, to begin the division of assets and debts, it needs to be determined if each asset or debt is separate or martial. And the first question to ask is: was the debt incurred before marriage? If so, then that debt usually belongs to the person who incurred it. These are separate debts. If one spouse borrowed $20,000 to help them make it through undergraduate studies and they still owe $10,000, that is their separate responsibility. This is fairly clear and easy to understand.

Debts become much more complicated after a couple marries. Let’s say a few years into the marriage, one spouse decides they want to return to school and obtain a law degree.  They borrows $150,000 for tuition and living expenses while they are in law school for three years. They had to give up their job, making $50,000 a year in a bank. They use some of their law school loans to help with household expenses – power, food, phone, internet, etc. A careful review of how the monies were spent will be needed. If $100,00 was spent on tuition, that is likely that spouse’s debt alone in the divorce discussions, the legal rationale being those monies only benefitted them. They alone gained that knowledge, working toward a professional degree that only they will be able to use. However, if the remaining balance of $50,000 can be shown to have been used for household expenses while married, the other spouse might be responsible for his half of those expenses, $25,000. Even if the loan is in one spouse’s name alone, the other spouse can be held accountable for some of that debt during the divorce process, such as if the degree has been shown to provide both spouses with a higher quality of life.

If the parties cannot resolve their issues with student loan debts and they need the courts to decide, a family law judge will ask the following:

Was any of the student loan used to benefit the household? Did the party in school actually graduate? Has that degree benefitted the marriage? How long has the marriage lasted post-degree? Answers to these questions will assist the judge as he determines who must pay back those loans.

There have been mixed rulings by the higher courts in North Carolina. One appellate decision held that some of a student loan debt was martial since the evidence showed that part of the loan monies were used for groceries and living expenses. Yet, there was another case that held that there was no evidence that the student loan benefitted the other spouse. Other states have wrestled with this issue, in particular, Missouri, Louisiana and Colorado, ruling that the non-student may be liable for some of the student loan.

At the time of publishing for this article, political discussions are being held about the federal government forgiving some student loans. If and when that happens, even more care needs to be given to this topic as one party leaving the marriage might have student loan debt erased and that factor might alter other financial decisions for the couple.