When you are considering a divorce or separation from your spouse there are so many things to think about it can be overwhelming. There are custody and parenting time issues to determine, calculation of child support, potential spousal support, property division and debt division. This blog is written to address the limited topic of how the courts in Michigan will handle student loans in the event of a divorce. If you have questions about your specific situation, you should contact us to schedule a consultation either online or by calling our office at (248) 608-4123.
How is Debt Handled in a Michigan Divorce?
Debt is treated basically like a negative asset and marital debt is typically divided equally between the spouses. Marital debt is basically any debt that arises during the marriage regardless of whose name it is in, who incurred the debt and in most cases regardless of what the money was spent on. This means that despite the fact that one party may run up more credit card debt or other loans than the other party, most of those debts are going to be considered within the "normal" range of marital expenses and divided equally in the event of a divorce. The court may order that one party is simply responsible for that debt going forward or offset that debt against other property.
This includes travel by one party, spending on clothes, sports or entertainment and many other expenses. The court may consider some specific types of debt that one party incurs to be the separate debt of one party. If the court considers a debt to be the separate debt of one spouse, than that spouse will be 100% responsible for payment of that debt without contribution from the other spouse. Some examples of those debts are excessive gambling debts hidden from the other party, money spent pursuing an extramarital affair and in some cases debts caused by drug use that were hidden from the other party. Most other debts that one accrues while married are going to be considered marital and each party will be responsible for paying approximately half of that debt in some form or other.
How is Student Loan Debt Handled in a Michigan Divorce?
In most cases student loan is treated as a distinct type of debt whether it is incurred or accrued before or during the marriage. The court treats it as the separate debt of the person for whom it was used to provide the education, the other spouse does not have any duty to repay any portion of that debt and there is no offset against other property. Typically the court will simply order that the loan is that spouse's obligation and that spouse will continue to make the payments. There is no offset against other property.
This makes sense in a way because the person that incurred the debt receives basically all of the benefit in the form of the degree and hopefully, increased earning potential. There are some exceptions to this general rule however. One example is where some amount of the student loan was not directly applied to the education costs in the form of paying for tuition, books and other direct expenses. For example some students may take a loan that is more than what they actually need to pay for their direct education expenses and use some of that loan to pay for household expenses or improvements to the home. In those cases, there is an argument that the portion of the student loan that was not spent on the direct expenses of the education should be shared equally between the parties. Every case is different and the analysis is very fact specific, if you have questions, please do not hesitate to schedule a consultation through our website or by calling (2148) 608-4123.