Are Student Loans Marital Debt in North Carolina?

Student loans can be treated as separate or marital debt in North Carolina Divorces under the law of Equitable Distribution.

Great answer right?

Well don't blame the messenger. In my 14 years as a Raleigh Divorce Lawyer I have had to argue the issue both ways depending on the facts of the case and who I represented. With a little work we can figure out how a student loan is likely to be treated in a North Carolina Divorce.

How is Student Loan Debt Treated in North Carolina Divorce Cases?

First understand that if a student loan is treated as marital, then the debt is included in the marital estate for purposes of Equitable Distribution.

In effect, including the debt as marital makes both parties responsible for the debt. Classifying the debt as separate will make it the sole responsibility of the party who incurred it. So if the loan is yours, you would probably prefer it be treated as marital, and if it's not, you would prefer it be treated as separate.

The fact is that there is no clear rule or test to determine how student loans will be treated in a North Carolina Divorce. So if you or your spouse have significant student loans, how do you divide them in a divorce? Lets look at the factors we commonly consider to answer that question.

1.  When the loan was acquired?  If the loan was taken out after the date of marriage and prior to separation, the loan will technically be a "marital debt," meaning it would be included in the marital estate and obligation shared. But we cannot stop here, as student loans taken out for purposes of getting a degree for one party are treated differently than other debt. But if we answered yes to this question, lets move on to factor 2.

2.  How was the loan used?  Many people take out student loans and wind up not using the money for education. Others use portions of the loan for living expenses and other costs as opposed to books and tuition. The portion of the loan used for living expenses is very likely to be considered marital debt as it benefited both parties.

3.  Was a degree or license obtained?  A professional license or degree is defined by law as separate property, meaning it will not be  divided in a an equitable distribution action. A loan incurred to obtain separate property is much more likely to be treated as separate, as the party who got the degree which will be their separate property should be held solely liable for the debt incurred to get that degree.

But its not that simple, so if the loan was incurred to get a professional license or degree, lets move to factor 4.

4.  How long the marriage lasted after the loan and degree were obtained.  The next issue to consider is how long the parties were married after the degree or license was obtained. The longer the marriage, the longer each party would, in theory, enjoy the financial benefits of the degree earned by the party incurring the debt.

For example, Jill gets married and immediately heads into dental school. She borrows $150,000 over the length of dental school in student loans. Her husband Jim supports her as well as she gets her degree. After she graduates she begins earning a nice six figure income. If she were to leave Jim a year after she graduates, the student loan is very likely to be considered 100 percent her separate debt. If the marriage last 12 years after graduation, and they both enjoy Jill's nice income for that time, whatever debt remains is more likely to be treated as marital.

The analysis can get complicated, but the concept is simple and makes sense.

5.  Other factors.  Finally there are other factors to consider which can affect how a student loan will be treated in a divorce. There are tax benefits and consequences of student loans that both parties may benefit from, and this would have to be evaluated and considered. Also, other financial factors will play into the analysis such as the earning capacity of the other party and whether or not the other party truly supported the party incurring the student loan while it was being incurred.

There are too many issues and factors that can affect the outcome to discuss in one article, so you really need to have a thorough review to know with confidence how a student loan is likely to be treated.

If you are facing a North Carolina Separation or Divorce, and one of you has significant student loans, consult with a local divorce lawyer to help you determine how to best handle these loans and your equitable distribution claim.

Do You Need Assistance with Your Raleigh Divorce?

Facing a divorce that requires you to pay for your spouses debts can make many people fearful of requesting a divorce. But, don't despair. There are opportunities to prevent you from having to pay down this debt. Contact an experienced Raleigh divorce lawyer to discuss your case. We may be able to guide you to a resolution that does not force you to take on your divorcing spouses student loan debt.

Call us or email by completing the form below to schedule an appointment to discuss your case.