Why the Value of a Diploma and Debt Matters in Divorce

NEW YORK (MainStreet) — Some 71% of college graduates had student loan debt averaging $29,400 and debt at graduation has increased an average of 6% a year, according to the Project on Student Debt at The Institute for College Access & Success.

Fortunately, student loan debt incurred before the big wedding day is considered separate property however if student loans are secured during a marriage both spouses could be liable for the debt upon divorce.

"Student loans will generally be the responsibility of the person who incurred them however there may be exceptions," said Steven Eisman, a matrimonial lawyer with Abrams Fensterman in New York. "The judge could order the higher earning spouse to pay the lower earning spouse additional support to help pay off the loans in the event of a divorce." That additional support can be steep depending on the value of education and state of residence.

"Whether someone attends a state or Ivy League school does not play a role in the value of the degree," Eisman told MainStreet. "This is because it is not the degree itself that is valued. It is the enhanced earnings that the party with the degree is able to achieve due to obtaining the degree."

The average cost of tuition and fees for the 2013–2014 school year was $30,094 at private colleges and $8,893 for state residents at public colleges, according to the College Board. The cost is typically $22,203 for out-of-state residents attending public universities.

"Many states have mechanisms in place to compensate the non-degreed spouse for the economic and non-economic contributions they made which allowed the degreed spouse to attend school during the marriage," Eisman said.

Other than a pre-nuptial agreement, one way to lessen the impact of student loan debt on a divorce settlement is keeping liabilities separate with documentation.

"Student loan debt which is taken on during the marriage, co-mingled with other debts or refinanced, will be marital debt," said Michael Gilden, a board certified divorce attorney with Kopelowitz Ostrow in Fort Lauderdale. "The value of a diploma or license is a jurisdiction-by-jurisdiction question. In Florida, there is no distributable value but in other states there is."

Just as marriage and divorce laws vary by state so does debt load. State averages for borrowers' debt at graduation ranged from $18,000 to $33,650. High debt states remain concentrated in the Northeast and Midwest with the state of Delaware the highest. New Hampshire, Minnesota, Pennsylvania and Rhode Island had average debt of more than $30,000.

"Some states can simply award the non-titled spouse a sum approximating the monies they directly or indirectly contributed to the acquisition of the degree," said Eisman.

In order to determine the value of a diploma, a forensic expert calculates the lifetime value of the degree so that the court can determine what percentage of that amount the non-degreed spouse would be entitled to by considering financial and non-financial contributions that this spouse made to the other's education.

Contributions typically include taking care of the children while the other is in school and giving up one's own career to assist the other in advancing their education.

"The difference in your potential income without that degree and your potential income with that degree is subject to distribution in your divorce," said Eisman. "Another approach is to compensate the non-titled spouse solely by means of a larger support award due to their contributions to the other's education and career."

Written by Juliette Fairley for MainStreet

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