Student Loans and Divorce: Yours, Mine, or Ours?
Which debts are considered marital?
According to the Divorce Code, all debt acquired from the date of marriage, through the date of separation, regardless of how it is titled, is considered “marital” debt.
How are marital debts treated?
In Pennsylvania, unless the parties agree to the division of the debt, it is up to the court to determine what allocation is fair under the circumstances of the case. What is fair does not necessarily mean an equal division and depends on various factors set forth under the Divorce Code.
What about student loans?
In Pennsylvania, the distribution of education loans in a divorce action is a little more complicated than the distribution of other types of marital debt. Clark v. Clark, 586 MDA 2021 (February 1, 2022), a recent unpublished case by the Superior Court, reiterated that student loans are to be treated differently from other debts taken out during the marriage. The court in Clark noted that while student loans that are accumulated during the marriage are by definition, considered “marital debts,” when it comes to the division of these liabilities, there is an additional layer of analysis that Pennsylvania courts must apply in an equitable distribution matter. This is because this particular type of debt is recognized as an investment that often solely benefits the borrowing party and substantially increases that party’s future earning potential.
This treatment of student loans was previously considered in Mundy v. Mundy, 151 A.3d 230 (Pa. Super. 2016) and Hicks v. Kubit, 758 A.2d 202 (Pa. Super. 2000), where the Superior Court found that, although all debt incurred during a marriage is normally marital debt, by definition, education loans that are invested towards enhancing the earning potential of the borrowing spouse should be appropriately assigned to that borrowing party. As the borrowing party is the one who primarily benefits from the increased income capacity due to the enhanced education, that individual is usually held responsible for the debt.
Therefore, in a divorce, the court is tasked with differentiating between the portion of the loan that was spent on a party’s education and surplus proceeds that were used for joint expenses. When making this determination, the court will often seek to discern whether the loans went directly to the school or were spent on books and supplies, or whether the funds were placed into joint accounts, used for household bills, or spent on childcare expenses. After this analysis, the court will then allocate the debt accordingly; assigning the responsibility for the debt that was expended solely on education to the borrowing party and equitably dividing the remainder that was spent on joint expenses by the parties.
It is important to note that if a party co-signs a loan taken out during the marriage, the co-signing party will remain responsible for the loan until it is released by the lender. This release would require additional steps to be taken by both parties to remove the non-borrowing spouse from the obligation. The removal of a co-signing spouse does not happen automatically just because the parties get divorced. As for student loans that were taken out prior to the marriage, the borrowing party will remain individually liable to the lender for the loans as long as they were not refinanced and put in the names of both spouses during the marriage.
Student loans are treated differently than other marital debts because Pennsylvania courts have set forth specific analysis for the division of education loans in a divorce action. Whether the debt is divided between the parties will depend on whether the funds were used solely for education or spent on joint expenses during the marriage.
If you are contemplating divorce and have questions related to student loans or other types of marital debts, please contact a member of our team to determine what steps you should take based upon your individual circumstances.
The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.