Are my student loans considered a marital debt in my divorce?
If you are like the majority of American couples, you or your partner, or both, may have incurred student loan debt during or before your relationship. You may be wondering, how does Colorado characterize student loans, and will I be responsible (at least partially) for my spouse’s student loans incurred during the marriage in the event that we get a divorce?
In Colorado, debts that are incurred over the course of your marriage are considered “marital” (in other words, you may share in some responsibility for those debts), and C.R.S. 14-10-113 provides, upon dividing the marital estate, the trial court is required to allocate the marital estate equitably (not equally).
How will my student loans be divided in my divorce?
The answer to this question depends on the timing of when the student loans were incurred and for what purpose they were incurred. For example, student loans that were taken out for purposes of paying for tuition only, even during your marriage, may be handled differently by a court than student loans that also helped cover living expenses for you and your spouse. Student loans that were taken out prior to your marriage, however, are considered separate debt of the party who incurred the student loan debt and cannot be divided between spouses in a divorce.
Colorado law provides that marital debts must be allocated equitably, which does not necessarily mean equally. In practice, this means the division of debts must be fair to both parties after considering all relevant factors including, but not limited to, the age of the parties, the parties’ expected future earning potential, and other economic resources that may be available to either party.
Since a degree generally enhances a person’s earning capacity and benefits the marital estate, then the court may find that the whole family benefited from that loan and that any obligation for that loan should be shared between the parties. This is especially true where the loan that was incurred was used to offset the cost of living while a person pursued a degree during the marriage. The court has broad discretion when dividing property during a divorce, meaning that it is not a black-and-white determination. The court may also find that only a portion of a student loan should be shared between parties, for example, the portion used to pay for living expenses.
The seminal case on the characterization of student loans is In re the Marriage of Booker, 811 P.2d 405 (Colo. App. 1990). In Booker, the wife earned her law degree during the marriage, incurring $54,000.00 of student loans in the process. At trial, the husband argued, unsuccessfully, that because her degree was not marital property, any debt incurred to attain that non-marital asset should be hers alone.
The Colorado Court of Appeals found that a spouse’s pursuit of higher education is often the common goal of both spouses during marriage, and both spouses expected to share in the rewards of the degree. It is not unusual for student loan proceeds to provide general support for the family, beyond covering educational expenses. Accordingly, the court held that student loans incurred during the marriage are marital. Again, this does not mean that the court must divide them equally, but only that the court has the ability to do so.
In 2016, the Court of Appeals revisited the issue of student loans in a case concerning the characterization of loans incurred by a wife after separation, but before the decree of dissolution in In re the Marriage of Morton, 2016 COA 1. Ultimately, the Court of Appeals determined that all debt incurred prior to the actual decree of dissolution is marital debt, even loans which were incurred after the parties separated.
However, whether a marital debt is shared between the parties is a determination of equitability (or fairness). In Morton, the court stated:
“The determination that a student loan is marital debt, however, does not foreclose a trial court from allocating responsibility for payment of the loan entirely to the party who incurred it… A court does not abuse its discretion in finding that a student loan should be solely the incurring party’s responsibility because the party’s degree was earned later in the marriage and will primarily benefit that party.”
The division of marital debts can be complex and can impact many aspects of your financial future. The family law attorneys at GEM Family Law have ample experience assisting clients through the process of determining what outcomes you might expect and advocating for your interests. Contact the experienced attorneys at GEM Family Law today and schedule your free initial consultation at 720-443-4892.
Authored by: Tyler Lambert, Associate Attorney