I recently came across an article, Getting Financially Naked with Your Partner, by Erin Lowry, that got me thinking about a question that is bound to arise more and more in this practice. Millennials, as a generation, are beset by student loan debt at the highest levels in history. As they start marrying and, as a corollary, divorcing, a common question they will ask is: what responsibility do I have when it comes to my husband’s / wife’s student loan debt?
As with many issues, the answer will be fact specific. It is well-settled law in New Jersey that any pre-marital assets or debts, and any passive growth of either the asset or the debt, are the separate property of the spouse who acquired the asset or the debt. For example, Doug Debtor may have acquired $50,000 in student loan debt when he was in college, years before he met his wife. In principle, if that debt still exists when Doug and his wife get divorced, he is going to be responsible for the entirety of it, including any interest on the debt that accrued while Doug and his wife were married. Of course, the facts of any individual case may very well blur that bright line rule. For example, maybe the parties lived together (though were not yet married) when the debt was incurred, and it was used to pay for living expenses. In that case, an argument could be made that the non-debtor party should share in the debt – after all, s(he) benefited from the loan.
However, both parties will share in responsibility for debt incurred during the marriage – including student loan debt incurred by one of the parties for his or her education. The idea here is that the parties as a united front made the decision to take on that debt and, hopefully, reap whatever benefits come with the spouse’s education; therefore, they are both responsible for the debt.
The set of facts raised in Lowry’s article present some interesting questions. While the debt is pre-marital and was incurred apparently before the couple ever knew each other, the “deal” they make is that when they’re married, they will live off of Lowry’s income, and use her boyfriend’s income to pay off his student loan debt. That is a fairly explicit declaration that, although he will be responsible for paying off the debt, she will be responsible for supporting him. In New Jersey, such an arrangement in combination with other facts could be used to show that she was the supporting spouse during the marriage and that he is entitled to alimony in the event of their divorce – and what’s more, entitled to alimony in an amount that would allow him to continue devoting his entire income to paying off his student loan debt.
Certainly, it’s important to “get financially naked” with your husband or wife – after all, you need to be transparent with one another so you can financially plan for your future. But in the event of a divorce, it’s also important to realize that the way you dealt with pre-marital student loan (or other) debt during your marriage may have an impact on the outcome of financial issues attendant to a divorce.