Legal Considerations for Student Loan Debt in Divorce in New Jersey
Our Seasoned Lawyers Provide Answers About the Proper Way to Handle Student Debt in a Divorce.
The burden of student loan debt can impact many decisions we make in life, causing some to forgo homeownership, stay at a job they don’t like, or even agonize over how their student loan debt (or that of their spouse) will be handled in their divorce. Does only the individual who incurred the student loan debt bear its liability after a divorce? What if the couple paid off the student loan debt of one spouse together but not the student debt of the other?
These are very common questions that individuals with student loan debt have when facing a divorce. While major issues like alimony, child custody, child support, and division of assets often get more attention, side decisions like if and how to divide student loan debt between the couple can have a long term financial impact on both parties, particularly when large sums of debt are involved.
As divorce introduces a range of fresh financial obstacles, such as securing a new residence and experiencing a reduction in accustomed income, it becomes increasingly crucial to monitor your credit. Clearly defined guidelines on managing student loan debt in the event of a divorce can alleviate some of the complexities associated with the divorce proceedings.
To learn more, schedule a free consultation at Bronzino Law Firm today, where you can speak with experienced attorneys about your student loan debt questions before making financial decisions on your own. With offices in Brick and Sea Girt, we serve clients navigating the divorce process in Neptune, Freehold, Jackson, Asbury Park, Wall, Toms River, and other Monmouth and Ocean County communities. Call (732) 812-3102 to speak with a lawyer today, or contact us online for a confidential consultation.
Student Loan Considerations in NJ Divorce Cases
As you work to determine how your student loan debt or that of your spouse will be allocated in your divorce, you want to consider a few key points. The first important thing to note is that New Jersey is an equitable division state, which means that assets and debts that are considered marital property will be divided equitably (but not necessarily equally) between the spouses. So, when it comes to the division of debts and assets, you need to first determine if the debt or asset is marital property and, if so, how it can be divided equitably. The determination of marital property is generally straightforward, with assets acquired and debts incurred before the marriage being classified as separate property and all assets and debts incurred during the property being considered marital property. When student loans are incurred before the marriage, they are separate property not subject to equitable distribution. If the student loans are incurred after the marriage, then the debts could be subject to equitable distribution. However, as with many areas of the law, these generalizations are subject to some nuances outlined below.
Reimbursement Alimony and a Landmark Case as Reference
In a precedent setting case, Mahoney v. Mahoney, the New Jersey court determined that a degree itself is not a marital asset subject to equitable distribution. This is fairly straightforward as one can hardly imagine how a professional degree could be divided. However, when it comes to the debts incurred to obtain that professional degree, there are additional questions that must be answered. Did both spouses work toward paying off that debt? If so, New Jersey law recognizes a legal concept called reimbursement alimony. The spouse who contributed to paying for the degree or paying substantial payments on student loan debt, but who never got to enjoy the financial benefits to the marriage from that professional degree due to the short length of the marriage or short time between the acquisition of the degree and the divorce, may be entitled to reimbursement alimony.
Implications of Marriage Duration When Distributing Student Loan Debt
Assuming that a spouse’s student loan debt is determined to be marital property, the next question is how to equitably divide the debt. The court may find that it is equitable to assign all of the student loan debt to the spouse who incurred it. This is more likely to be the case when the marriage was short in length and/or the debt was more recently incurred and the other spouse has not had time to reap the financial benefits of the degree within the marriage.
But how about those large sum student loans that stick around for years and years? There are many individuals, especially high-earning professionals like medical doctors, lawyers, dentists, and engineers whose degrees contribute substantial income to the benefit of their spouse and marriage for many years, yet they still have unpaid student loan debt at the time of their divorce. In cases like these, the court may find it more equitable to assign at least some portion of the debt to the other spouse who benefitted from the income produced by that degree for years.
Co-Signing Student Loans Implies a Legal Obligation
Now, it is very important to note that when one spouse co-signs on the student loans of the other spouse, whether this happens before or during the marriage, the court’s decision about how to equitably distribute the debt is separate from the co-signing spouse being released from their financial obligations by the lender or entity that holds the debt. So, even if a court decides that the student loan debt will not be subject to equitable distribution due to the debt being incurred before the marriage or the marriage itself being very short in time, if the other spouse co-signed for the loan and their ex defaults on repayment, it will still be their legal obligation to the lender, as co-signer, to make payment, unless they are released as a co-signer or their spouse refinances the loan and this removes them from being a co-signer.
Navigating Student Loan Debt in Light of a Prenuptial Agreement
Often, though not always, a large amount of student loans is (hopefully) a sign of high income-earning potential. As such, when an engaged couple approaches the topic of a prenuptial agreement and one of them possesses a degree that creates a high-earning potential, they are frequently more focused on protecting their future selves from paying alimony than their spouse may be concerned about protecting themselves from having the obligation to repay large amounts of student loan debt distributed to them in the event of a divorce.
There are countless other scenarios, including a spouse with a large amount of student loan debt who never did earn their degree and will likely struggle to repay the debt, which may inspire a spouse-to-be to seek protection in the form of a prenuptial agreement from a future financial obligation for this debt if the couple divorces.
In a prenuptial agreement, the parties can enter into a legally binding contract that designates which spouse will be responsible for what portion of the couple’s student loan debt. It can even stipulate increased distribution of the debt between the spouses if the couple remained married for a certain length of time.
Protecting Yourself From Your Spouse’s Student Loan Debt
Some of the most effective ways to protect yourself from a future obligation to pay your spouse’s student loan debt in the event of a divorce is to not co-sign for a loan and execute a prenuptial agreement under which your spouse-to-be agrees to be responsible for their own student loan debt in the event of a divorce.
However, many individuals find themselves wrestling with the unknowns of student loan distribution only after they are involved in a divorce proceeding. At that point, your best protection is the counsel of a strategic divorce lawyer who can effectively argue that assigning any of your spouse’s student loan debt to you when assets and debts are distributed would not be equitable in your case. To argue this, your lawyer will consider many different factors, including your marital estate as a whole, your spouse’s future income earning potential, your income earning potential, and more.
Consult an Experienced Divorce Lawyer about How to Handle Your Student Loan in New Jersey
The complexities of student loan debts, much like various facets of divorce, have the potential to become intricate. It is advisable, regardless of your stance on the matter, to seek the team of divorce attorneys at Bronzino Law Firm, LLC, who is ready to address any inquiries regarding your legal and financial choices in Point Pleasant, Lavallette, Rumson, Red Bank, Colts Neck, Long Branch, and anywhere else in Monmouth and Ocean County, NJ. For more information on this issue and to obtain guidance on your unique case, contact us at (732) 812-3102 today for a no-cost, confidential consultation with our team of experienced New Jersey divorce lawyers.