Divorce and Debt: How Splitting Up Affects Your Student Loans

student loans and divorce

When I was 25, I went through a divorce. That meant we had to split up all our assets and debts. Needless to say, going through a divorce can be a long and grueling process of untangling your commingled finances, especially when you have debt.

Dealing with student loans and divorce, in particular, is a bit more complicated and requires some additional knowledge beforehand. If you’re married with student loan debt and are considering divorce, here’s how the process will affect you and how to prepare.

Dealing with student loans and divorce

Going through a divorce is difficult and there are no simple answers when it comes to splitting up your student loans. There are many different factors that must be considered, so let’s start with the basics. Who is responsible for the student loans after the divorce?

Know your state’s laws

When going through a divorce, you must divide all of your assets and debts in accordance to the laws of the state you live in.

Anything you jointly own is considered marital property and will be divided according to whether you live in a “community property” or “equitable distribution” state.

In a community property state, both spouses have equal ownership of all marital property and everything is split 50-50.

In an equitable distribution state, the division of marital property is more complicated since each spouse has a legal claim to a fair and equitable portion of any assets – which may or may not mean a 50-50 split. Most states are equitable distribution states and the courts will have the final decision regarding what constitutes fair and equitable distribution of the property.

At times, assets are divided amongst spouses differently than the debts are. Usually, however, they are divided using the same formula. Funny, though, no one ever seems to fight over who gets to keep the debt!

Student loan debt before marriage

If you and your spouse have an equal amount of student loan debt, the divorce arrangement is a little easier to work out. You each simply take responsibility for your own student loans and make the payments.

However, if one spouse has more student loan debt than the other, the couple and their legal council will have to come to an agreement for dividing up the debts and assets in order to balance things out.

One of the most common misconceptions about dividing student loan debt is that all debt obtained before getting married becomes shared debt once you’re married. This is not always the case.

Legally, any student loan debt you incurred before getting married is considered separate property and remains so after the divorce (with the exception of a prenup stating otherwise). So if you borrowed $70,000 to attend law school before marrying your spouse, congratulations, that debt is forever yours.

Student loan debt after marriage

The division of student loan debt becomes a bit trickier if the loans were obtained during the marriage. In some cases, the spouse who has the student loan debt isn’t necessarily the one who’s the breadwinner or makes the loan payments. How this debt is divided, again, goes back to what state you live in as well as which spouse benefited from borrowing the student loan funds.

In some cases, the courts have awarded in favor of the supporting spouse who offered aid to the spouse who borrowed the student loans. This can include driving the student to campus, taking over the household chores, and even delaying their own education.

In this case, the supporting spouse offset the value of the debt by helping their partner with the degree in non-monetary ways and may not be responsible for making the actual payments.

3 important questions to ask

As you’re going through a divorce and must divide your student loan debt, here are three important questions to ask that will help determine a fair outcome.

1. What was the money used for?

In most cases, the funds from a student loan go towards paying tuition, school fees, books, and other education materials in the pursuit of a degree.

However, some of the money borrowed can inevitably go towards living expenses and other costs which benefit the entire family. This should be taken into consideration for purposes of repaying the debt and how each spouse benefited from the money.

2. What is the earning power of each spouse?

When calculating equitable distribution of assets and debt, take into account each spouse’s ability to support themselves and any dependents.

If one spouse has no significant income or earning potential on their own, the courts will be less likely to deem it fair for that spouse to incur part of the student loan debt responsibility.

3. Did the borrower earn a degree during the marriage?

If the student loan borrower did earn a degree as a result of the debt, it needs to be determined whether that degree is considered separate or marital property, and this is determined by where you live.

In some states, such as New York, a professional degree earned during the marriage can be considered marital property due to the lifetime earning potential. Any debt incurred while obtaining what’s considered marital property is most always categorized as marital debt. This means that both spouses are responsible for a portion of the student loan debt repayment.

Division of assets and student loan debt

In most cases, student loan debt is still the responsibility of the person who incurred it. But there are exceptions depending on your personal situation and what the courts decide is fair and equitable division for both spouses.

Be sure to consider all the possibilities and consult with a lawyer prior to divorcing so you know what to expect. Divorce is never an easy process, but you can make it a little less painful by being financially prepared.

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