Dividing student loans during a divorce

On Behalf of | Jul 22, 2021 | Marital Property Division |

Student loans are a major concern for many people in Kentucky and across the country. Years after graduating from college, many Americans are still paying off these debts. When people decide to divorce, they may wonder about the effect the end of the marriage may have on their student loan. When people acquired their student debt before the marriage, they will each walk away from the divorce with their own loans. However, the answers can be more complex if the loans were taken out during the marriage.

Circumstances vary for loans during the marriage

Kentucky uses the principle of equitable distribution to divide property during a divorce. Unlike community property states, Kentucky does not consider student loans to automatically be the responsibility of both parties. However, the decision to go to college and acquire new debt is more likely to be a collective one if made during the marriage. Both spouses may come to an agreement about asset division, including the division of student loans, or a court may rule on the matter. Whether student loan debt is split or assigned to the student may rely on how the funds were used, how they were being paid off, whether a degree was earned and future income potential.

Co-signing a loan carries other responsibilities

The circumstances are also different if one spouse co-signed the loan. Here, the co-signer remains responsible for the debt even after the divorce is finalized. During the divorce negotiations, the co-signing spouse may request that the student spouse refinance these loans in their name alone moving forward. Some loans may offer a co-sponsor release after a shorter period as well. Much like refinancing a mortgage for one spouse remaining in the family home, refinancing co-signed student loans can be part of the divorce settlement.

Every situation is unique, although premarital student debt is, like other property, largely out of reach of the asset division process. A family law attorney may advise about the financial and personal issues involved in a divorce and work to reach a fair settlement on the key issues.