The obvious costs of divorce, like legal and court fees, are those most couples expect when choosing to end their marriage. What about the other divorce expenses that may not be on your radar? It’s easy to forget about your financial situation when you are emotionally raw from a pending divorce. Some people seek comfort in food, shopping, and time spent with family. When you finally come around to examining your finances to finalize your divorce, you may be shocked how the money matters are settled in most divorce cases. Even if you are saddened by your pending divorce, it’s wise to start tackling some of the thornier and more complicated financial matters early in the process. One of the topics that you should address and finalize early are issues like shared loans or personal expenses paid for with joint assets. A perfect example of this type of debt would be student loan debt. Educational loans are personal debt often paid for with joint funds. Once a divorce is imminent, it’s imperative to plan how you will proceed with repaying the debt.
What You Need to Know About Divorce and Student Loans
Student loan debt is constantly a hot topic in the news, so if you don’t know much about student loans, you probably know that some of it doesn’t behave like normal debt. How the debt is treated depends on whether it’s private debt or federally backed product. It can also be impacted by whether you live in a community property state. In community property states, couples are on the hook for any debt assumed during the marriage, even if it’s personal debt. Pennsylvania is not a community property state, and this issue of student loan debt has been addressed in case law. In the Pennsylvania case Hicks v. Kubit, the court held that student loan marital debt didn’t have to be treated like other debts.
In the case, the court decided that the student loan was a personal debt and assigned the responsibility of the debt accordingly. In some cases, the judge can review your finances to determine if the whole of the student loan was used to pay for educational expenses or if some were used to offset living expenses and other shared responsibilities.
How to Proceed If Your Spouse Co-Signed Your Student Loan
The legal responsibility for a student loan is more straightforward in instances where a spouse served as co-buyer on a loan. A divorce is not likely to change this legal responsibility because a co-signer is considered a joint owner of the debt in the eyes of creditors. So, while the primary signatory on the loan is responsible, if they cannot pay, their ex-spouse would be on the hook for the debt. As mentioned above, some creditors offer a co-signer release in these types of cases, but it’s not a guarantee. If your ex isn’t a safe credit risk alone or doesn’t meet income requirements, it’s likely the requests will not be approved.
How Prenups Affect Student Loans During Divorce
If you and your spouse are worried about student loan debt, you can address these issues in a prenuptial agreement. Your prenuptial agreement can state that any personal debt remains that spouse’s responsibility in a divorce. Your spouse could fight the prenuptial agreement in court if they felt pressured to agree to such a clause, but the prenuptial agreement would not undo a co-signatory situation, so you should be sure before connecting yourself to your partner’s personal debt.
When a couple divorces, each side hopes for a fair divorce settlement with their share of the marital assets, but no one wants the debts. You may want to speak to an experienced attorney for guidance about your debt and property division process before seeking a divorce in Pennsylvania. At Cairns Law Offices, we specialize in no-fault divorces for only $299. If the idea of a low-cost, amicable divorce appeals to you, contact us today to get started!