What Happens to My Student Loan if I Get Divorced in Florida? What about Student Loan Forgiveness?
Getting divorced is never easy. Along with the emotional toll it takes on the spouses, divorce is also a time of huge financial uncertainty. If you’ve been married for years, you may look to the future with a sense of dread. How will you support yourself once you no longer have the combined income of two people to sustain you? How will you pay your bills, and what will happen to your credit card and student loan debt?
Equitable Distribution Refresher
You may already know that Florida is an equitable distribution state. In Florida Statutes § 61.075, the legislature spells out how the equitable distribution of assets and debts happens during a divorce. Essentially, the courts in Florida seek to split all assets and debts of a marriage in a fair and equitable manner. But this is not necessarily a 50/50 split, and such an equitable distribution might sound easier than it can be in reality.
The judicial system always encourages parties to any lawsuit to attempt to work out their differences in an agreement before seeking a judge to intervene. The same is true of divorce. It is better that the parties come together either on their own or through mediation to reach an agreement on how assets and debts should be split in a divorce. The parties know themselves and their circumstances better than any judge ever could. So if they work together to reach a compromise, the chances are that the result will make everyone happier than if a judge determines your fate. But if you cannot reach an agreement and if no prenup is in place to dictate the division of assets, a judge will proceed as below.
Marital vs. Non-Marital Property
The first thing a judge must do is decide which property is marital and which is non-marital. Any asset or debt acquired during the marriage is considered part of the marital estate. But if one spouse acquired an asset before the marriage, that is generally considered a non-marital asset.
But making this call can also be more complex than it initially appears. For instance, suppose Joe bought a home worth $400,000 before he married Jane. Normally, that home is considered a non-marital asset because it was acquired before the marriage. Therefore, Joe might assume that, upon divorce, that house is still his.
However, after the wedding, suppose that Joe decided to retitle the house and put it in both his and Jane’s name. Or suppose that after the marriage, Jane’s income helped pay off the house’s mortgage for 10 years. Putting Jane on the title or commingling the money used to pay the mortgage could make the house marital property and subject to equitable distribution upon divorce.
Likewise, suppose that Jane brought a large bank account into the marriage and never put Joe’s name on the account. However, that money was used to purchase a home titled in both of their names. This home that was purchased after the marriage with non-marital assets has now become marital property.
As you can see, the court must assess each situation individually. All factors must be considered when deciding what is marital property and what is not. The same is true of marital and non-marital debt—which brings us to the discussion of student loan debt.
Student Loans & Divorce
So how does all of this apply to student loans? Well, again, a couple can agree on how to split any student debt in a divorce. If they can’t reach an agreement, the judge will use essentially the same process to determine if the debt is marital or non-marital.
Therefore, if Joe obtained a student loan before he married Jane, the court will likely consider his student loan to be a non-marital debt. That would mean that Joe retains the obligation to repay the full amount with no help from Jane. Likewise, if Joe takes out a student loan during the marriage, courts consider this to be a marital debt that is subject to equitable distribution upon divorce.
This takes many people by surprise. Jane might be shocked to discover that she is responsible for any part of Joe’s loan. After all, Joe got the education and increased his employability—so why should Jane have to pay back any part of that loan?
In short, the courts realize that when one spouse takes out an educational loan, not all of that loan is used for tuition. Many couples use that loan money to pay bills and rent if one spouse’s income is lower because they are back in school. Also, for years after Joe gets his education, Jane may very well enjoy the increased income that Joe produces. Therefore, student loan debt acquired during a marriage is marital property and generally subject to equitable distribution.
How Does Loan Forgiveness Factor Into the Equation?
President Biden recently announced his plan to cancel up to $10,000 in debt for low to middle-income federal student loan borrowers. He further announced that his plan could cancel up to $20,000 in debt for borrowers who received a Pell Grant during their college years. To receive this loan forgiveness, a single person must make less than $125,000 per year, and a couple must make less than $250,000 per year.
Essentially, this is good news for everyone who benefits from this debt cancellation—even for divorcing couples. For example, suppose that Joe borrowed $50,000 to further his education while married to Jane. As previously stated, when they divorce, Jane might have to pay back up to half of that loan. However, if the new plan cancels $20,000 of Joe’s debt, then Jane will owe $10,000 less.
Let Us Help
If you have questions about equitable distribution in your divorce, the experienced family law attorneys at The Jarbath Peña Law Group can help. Our compassionate lawyers are here to help the residents of Coral Gables and the surrounding Miami area throughout all stages of divorce. You can reach us at 305-615-1005 or through our online contact form.