Divorce and Student Loan Debt in North Carolina

If you or your spouse have student loan debt and you’re contemplating divorce, you may be wonder how you’re supposed to divide it. Is it classified as marital property or separate property? If it’s marital, both of you will be responsible for a portion of it. But if it’s separate, only one spouse will be responsible. The difference could make a huge impact on your financial situation after the divorce.

Unfortunately, there is no hard and fast rule to find out the answer. But there are factors that make it more or less likely a judge will decide all or part of the debt is marital.

The process of equitable distribution

When spouses divorce, they must divide their property. The legal process of dividing property between spouses is known as equitable distribution. As part of the process, a judge will determine what property is marital and what property is separate. Separate property stays with the individual spouse but spouses must split marital property between them.

Marital property is often referred to as the marital estate and includes both assets and debts. In North Carolina, an equal (50/50) split of the marital assets and debts is presumed to be equitable (although there are factors that may make a judge decide an unequal split of the assets and debts is more equitable).

While any asset acquired after the date of marriage and before the date of separation is automatically considered part of the marital estate, debts are not. If you’d like to include certain debts in the marital estate, you have the burden to show they are, in fact, marital. It’s easy to see how debts like the mortgage on the marital residence should be included in the marital estate—both spouses enjoyed the use of the marital residence during the marriage. But student loans are a bit trickier. However, the below factors can help in determining if a judge will consider all or part of your student loans to be marital.

When did you take out the loan?

If you took out the loan before the date of marriage, a judge will likely classify it as separate property. But just because you took out the loan after the date of marriage doesn’t mean a judge will consider it marital debt. It depends on other factors.

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How did you use the loan?

If you used all or part of the loan to pay living expenses such as rent, groceries, utilities, etc. then there’s a greater chance a judge will consider the portion used to pay these expenses as marital.

Was a degree or license obtained?

A degree or professional license is separate property so it’s more likely that a loan used to obtain one will be considered separate property. Especially since the spouse who obtained the degree or license will likely always be able to enjoy a higher earning potential because of the degree, while the other spouse will lose the benefit after the marriage ends.

How long did the marriage last?

Did the marriage last long enough for both spouses to benefit from the degree or professional license? For example, if you took out loans totaling $100K to obtain your medical license but you and your spouse divorce a year after you complete your education, your spouse did not enjoy the benefits of your degree very long (if at all). In this case, it’s more likely a judge will classify the student loan debt as separate property. But if you and your spouse stay together another 15 years, your spouse would have spent more than a decade enjoying the benefits of your higher earnings. It’s more likely in this scenario that a judge will find the remaining amount of student loan debt to be marital property.

There are other factors that can come into play as well, including tax implications of paying student loans.

It’s safe to say student loans can be a complex issue during divorce. Our knowledgeable family law attorneys have experience handing the division of student loan debt during divorce. If you or your spouse have student loans and you’d like to learn more about your legal rights, please contact our office today to schedule a consultation.