Student Loan Debt and Divorce

Student Loan Debt and Divorce
Can I get the money we paid for his student loans back when we divorce?

Are her student loans my responsibility after we divorce?

According to Experian’s State of Student Loan Debt report from August 2017, the average student loan debt in 2017 was $34,144 per borrower. The Federal Reserve Bank of New York reported that there are more than 44 million Americans – at least 13% of all U.S. consumers – with an outstanding student loan obligation. It is not just the Gen X or Millennials with these student loans – Baby Boomers from age 50 to 70 carry an average student loan debt of $36,000.

In a typical household, student loan debt is folded into the responsibilities of everyday life, like a making a car payment or a mortgage. It could be that both spouses are working and paying off their respective debt; or it could be that one spouse returns to school during the marriage to better career opportunities, and earnings continue to down that loan.
At the time of the divorce things change . . . you look back and say: so how am I going to be reimbursed on the $25,000 we paid on his student loan?

Distilling this to very simple terms, the Illinois Marriage and Dissolution of Marriage Act (“IMDMA”) directs the judge and divorce attorneys to allocate marital assets in “equitable” portions, looking at a variety of factors including age, employability, health and the total value of the marital estate. Marital debt, then, is apportioned as to what each spouse can afford, considering the assets awarded to that spouse, including the spouse’s own income and any support (maintenance and child support) received.

The IMDMA also addresses non-marital assets. A non-marital asset is something that can be clearly attributed as owned by, or gifted to the spouse during a marriage. A non-marital asset can be a host of things, including homes, bank accounts, or a business started by a spouse before the marriage.

By way of example, let’s say that the wife purchased a lake home for herself before the marriage, with the mortgage only in her name. After the marriage, the husband and wife buy a home together, but she keeps her lake house. The husband and wife stay at the lake house for weekend getaways, using their combined household income to pay down the mortgage and taxes. They make some kitchen and bath renovations with their joint savings, working together to hang cabinets and lay tile. At the time of the divorce, the husband makes a claim that while the lake house remains in the wife’s name and is her non-marital asset, he is entitled to reimbursement for what he has contributed financially, as well as by his “sweat equity” of maintaining her property. The court has to determine what, if anything. can be reimbursed to the husband for his financial and physical efforts during the marriage.

On the other hand, use the example of the wife incurring a significant amount of student loan debt to attend college. Husband and wife marry, and she incurs more debt to attend medical school. During the marriage, the couple pools their earnings to pay for the mortgage on their home, the cars that they drive, and to pay her sizeable monthly student loan notes. The wife does earn more than the husband as she advances her career. The husband picks up more of his share of household chores, as the wife has long hours at the hospital. At the time of the divorce, the husband makes a claim for reimbursement for what he has contributed financially, as well as his “sweat equity” in maintaining the home and children while the wife advanced her career.
In the first example, the money spent on a mortgage and renovations for the wife’s lake house can be traced through bank statements. The lake house can be valued to determine the equity. The physical contribution is more anecdotal, but there can still be a determination of what the husband can receive for his reimbursement from the equity now in the wife’s lake house.

Payments toward a student loan can be traced in the same manner. The counterpoint to that, however, is that there is no equity in paying student loan debt; there is only a reduction of debt. The judge then looks to the benefit the wife’s earnings provided to the husband, and to the marital estate, because of her degree. Many times, a judge will say that no reimbursement should be made, because by using joint funds to pay her student loan debt, the wife was able to earn an income higher than the husband. The couple used that wife’s higher income to buy their home and invest in retirement savings, all which the husband will receive as his share of the marital estate. The wife will pay the husband maintenance (alimony) because of her high-paying job. And finally, she will have to take those loans with her – even the medical school debt incurred during the marriage – because it was incurred to earn her degree.

Couples who are planning to marry should understand that even if they are both working and seemingly paying their own student loan note, the income they are earning after marriage is considered “marital,” not “his” or “hers.” Even if one spouse receives a bonus, or an inheritance, and that amount is used to retire student loan debt, the claim to reimbursement at the time of divorce will be difficult. The only way to receive reimbursement from paying one or both student loans is to have a prenuptial agreement specifically addressing this issue. A $35,000 student loan will not guarantee a $100,000 a year job. As student loan debt cannot be discharged in bankruptcy, it is critical for engaged couples to discuss how they will address paying student loan debt. Divorcing couples especially need to fully explore their rights to reimbursement after years of marriage, and joint contribution.