Tag: non-marital debt

Student Loans and Divorce

Student Loans and Divorce

It has been all over the news about the mountain of student loan debt taken out by college students to fund their education.  As college education costs continue to rise, students are taking out more and more loans.  Some believe that this is setting up a potential “student loan bubble” that could burst and wreak havoc on the economy in much the same way the housing bubble did a few years ago directly leading to the “great recession” of 2008.  With the fact that so many professionals have incurred student loan debt, it is inevitable that student loan debt is an issue that will have to be dealt with in many divorces.

Certainly if the loans were incurred prior to the marriage, the debt is non-marital.  Additionally, ss a general rule, Kentucky has held that student loans are non-marital debt even if taken
out during the marriage.  This goes hand in hand with Kentucky’s position that a non-student spouse does not have a marital interest in the educated spouse’s degree.  This was an argument that used to be made in cases involving doctors, lawyers, etc. whose spouse supported them through graduate school.

As with most things in divorce litigation, there are exceptions to most rules.  Many times, students who are married take out loans that are in excess of the amount needed to actually finance their education.  The excess funds are used to cover rent and other living expenses during the semester.  If the student spouse can establish that a portion of the debt was used for living expenses and did not all go directly to education, he/she may be successful at getting part of the debt declared marital and forcing the other spouse to share the burden.  This will require some planning and most likely researching costs of education at the time of the loan compared to the amounts borrowed and other possible documentation.  If this is an issue, it is imperative that you discuss it with your attorney as soon as possible to ensure that there is sufficient time to secure all of the necessary documents through the discovery process.

Although the general rule says that student loans will go to the spouse who incurred them, it may not be the situation in your case.

Photo courtesy of Simon Cunningham

What is the Difference Between Marital and Non-Marital Debt?

What is the Difference Between Marital and Non-Marital Debt?

We have previously discussed the difference between marital and non-marital property.  There is also a difference between marital and non-marital debt.  With property, the court will start off with a presumption that property acquired during the marriage is marital property.  That is not entirely true with debt.

The true inquiry that must be made is did the debt serve a marital purpose.  This is a fairly broad concept that looks to a number of factors:

  1. Did both spouses participate in incurring the debt?
  2. Did both spouses receive a benefit from the debt or whatever was purchased with the debt?
  3. Was the debt incurred to purchase marital assets?
  4. Was the debt necessary to support the family?
  5. Was the debt incurred for a non-marital purpose or one that did not benefit the entire family?
  6. The respective economic circumstances of each party to handle the indebtedness.

As a general rule, most debts incurred during the marriage will be marital debts.  This would include mortgage debts, car payments, etc.  However, many times a spouse will be in the midst of a divorce and through the discovery process  learn that there are credit card debts or other obligations of which he/she was not aware.  Then the inquiry must be made as to why this debt was incurred.  One example might be where a husband is shocked to learn that his wife has an electronics store credit card with a debt of two thousand dollars.  Nevertheless, he is well-aware of the fifty inch television sitting in his living room that appeared after one of the wife’s shopping excursions.  The family has benefited from the television and absent some other odd circumstance, that debt will be considered marital.

A converse example, would be a situation where the wife learns of a credit card her husband has.  This credit card is used by the husband primarily to pay for time at the local no-tell motel with his mistress.  Obviously, this debt did not benefit the family in any way, therefore, it would be a non-marital debt.

I routinely advise clients at the beginning of a divorce to get a copy of his/her credit report to determine if their name is listed on any debts of which they may not be aware.  Many are surprised by what they find.  Where there is concern about the debts owed by the parties, it becomes very important to secure information on why the various debts were incurred to make sure that you are not burdened with more than your share of the debt.

Photo courtesy of Chris Potter