Today, the average college graduate typically has over $35,000 in student loan debt. This means that when you get married, there is a possibility that you may assume responsibility for your spouse’s debts, including some student loan debts.
There is a way for you to legally limit this financial responsibility though, by having a nuptial agreement.
Since nuptial agreements (i.e., prenuptial and postnuptial agreements) are used to differentiate separate and marital property, it is important to understand the basics between the two and how they affect property distribution, which may include your spouse’s student loan debt.
Essentially, every state has laws that address the division of marital property in the event of a divorce or legal separation. Most states primarily divide marital property in one of two ways: by using either a community property standard, or a method of equitable distribution:
- In a community property state, any asset or debt acquired during a marriage is considered marital property. This means that each spouse jointly owns an equal share of all marital property.
- In an equitable distribution state, a court will look at a number of factors and variables (e.g., the income of each spouse and their financial wellbeing) to determine how to divide the assets in a fair and comprehensive manner, but not equally.
Additionally, depending on where you live, your state may also have divorce laws that contain provisions regarding student loan debt and reimbursement of loan payments made by a spouse. This is why it is important for you to understand your particular state’s marital property system prior to getting married. If you have any questions, you should speak with a family law attorney.
A nuptial agreement, however, is an agreement that a couple may enter into in order to separate specific assets and debts from a couple’s marital property. A well-drafted nuptial agreement can exclude both assets and debts from marital property, including even your spouse’s student loan debt.
This means that anything properly excluded by the nuptial agreement, such as your spouse’s student loan debt, will not be calculated and divided as part of a property distribution.
As mentioned, there are two types of nuptial agreements:
- A prenuptial agreement, which is signed before you get married; and
- A postnuptial agreement, which is signed after your wedding (oftentimes, this occurs when there is a change in a spouse’s financial circumstances).
While most people associate nuptial agreements with celebrities and the very wealthy, they actually can benefit anyone. In fact, an increasing number of couples are using nuptial agreements because many view it as an important step of their financial strategy.
Technically, you are not financially responsible for your spouse’s premarital student loans. There are certain situations, however, where you may become responsible for a spouse’s loans, such as in the following scenarios:
- Some private loans do not have “death discharge” provisions, meaning that a widow or widower will be forced to pay for a deceased spouse’s debts; or
- In a community property state, a spouse’s income may be considered marital property. This will permit a lender to garnish a portion of their wages in order to pay off the debt.
Additionally, student loans that are created after a marriage may be considered marital property, making both spouses equally responsible for the payments. A nuptial agreement is one way that an individual can protect themselves or their spouse from these financial obligations.
Nuptial agreements not only protect income and assets, but they also can cover premarital and marital debts. If you or your spouse have significant student loan debt, a prenuptial or postnuptial agreement may be able to exclude this debt from your marital property.
Not all nuptial agreements are enforceable though. Typically, to be enforceable, a nuptial agreement must incorporate the following:
- It must have fair and reasonable terms;
- It must be in writing and signed by both spouses;
- It must be executed in front of witnesses;
- The nuptial agreement must completely disclose all assets and any debts;
- The agreement must provide specific details regarding which assets or debts are to be excluded as marital property; and
- The terms must be voluntarily agreed to by both parties (i.e., the agreement cannot be formed under the circumstances of duress or coercion).
Finally, it is crucial to list any student loans that will be excluded as marital property. If a reference made to a loan is too vague, it may not protect the other spouse from becoming financially liable. To ensure that the nuptial agreement is clear, enforceable, and will protect you from your spouse’s debts and student loan obligations, you should contact a family law attorney as soon as possible.
Every state has different rules regarding marital property, debt collection, and the enforcement of nuptial agreements. There are also general principles in contract law that may apply. It is important that the terms of a prenuptial or postnuptial agreement are clear. They should properly follow these relevant rules or laws, otherwise your nuptial agreement may be unenforceable.
Therefore, you should strongly consider hiring a family law lawyer to review your prenuptial or postnuptial agreement to ensure it follows the laws in your particular state’s jurisdiction, and clearly defines all of the details that you want to include as terms. In the event of a dispute, your lawyer can help you to negotiate a settlement or represent you in court, if necessary.
Lastly, each spouse must retain their own lawyers. This helps to guarantee that the agreement is fair, accurately represents both parties’ wishes, and that your best interests are well protected.