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Are school loans marital debt?

Debt in Equitable DistributionFamily court judges are charged with the responsibility of categorizing assets and debts, determining their value, and distributing them in a fair, equitable manner.

That’s how Equitable Distribution works in North Carolina.

And while that may seem rather straightforward or even obvious, such matters can be deceptively complex.

Married couples going through a divorce regularly dispute the value of houses, retirement accounts, and other assets as of the date of separation.

The other side of the coin involves the apportionment of debt, which may include things bank loans, mortgages, and even student loans.

And like real estate and other things of value that may be subject to repayment of a debt, assuming such debt was encumbered during the period of marriage, the Court must consider the “joint benefit” of the degree to the parties.

What is an education worth? 

There are some general rules regarding Marital Debt in North Carolina and who bears the Burden of Proof to prove what is marital debt vs. separate (individual) debt.

The NC Divorce Laws, both under the Equitable Distribution statute and appellate court case law require:

  • The party alleging debt is “marital” bears the Burden of Proof
  • That includes proving the amount of the debt and debt value as of the date of legal separation
  • AND that any such debt was undertaken for the joint benefit of the respective parties

There is also a balancing process of sorts.

If the Family Court Judge is to classify debts associated with student loans, there must be evidence the marriage lasted long enough for the parties to the marriage to “substantially enjoy” the benefit of obtaining the degree, which normally would be associated with improved earning capacity.

That may seem a bit nebulous if not downright confusing.  Calculations regarding the value of an asset or debt may be relatively straightforward, based on hard numbers on bank statements and student loan records.

Figuring out how that could serve as a future benefit to either or both parties, while subject to the rules of production of evidence, is a bit more discretionary.  That’s not unusual.  In family court and legal issues involving Equitable Distribution, there are many, many issues left to the sound discretion of the court.

Are gifts Marital Property? 

As long as the Court (the District Court Judges) does not abuse her or his discretion in making legal rulings, they will not be overruled.  The Appellate Courts will not overturn ED rulings unless the Judge abuses their discretion or otherwise rules inconsistent with their Findings of Fact.

The Judge’s ruling on ED (Equitable Distribution) is followed, unless there is an obvious, clear abuse of discretion – Bill Powers, Charlotte Divorce Lawyer 

Reversing the Court’s ruling is an incredibly difficult thing to do.  The appellate court would have to find the entry of judgment (the legal ruling) is not supported by reason.  It would also have to be shown that the Judge’s decision was not the natural consequence of or the result of a “competent inquiry.”

Otherwise, it would have to be shown that the Judge did not comply with the NC Family Law statutes, thus resulting in an abuse of discretion.  

What is considered as part of Equitable Distribution? 

There is a three-step process mandated under the Family Law statutes.  The Judge is required to:

  • Classify
  • Value
  • Distribute

That applies to both assets and debts of the parties.  Classification involves determining who owns what.  That means answering the question, “What is a marital asset (or debt) and what is separate property (property owned by the individual people involved)?”

There actually is another type of property to consider, which is referred to as divisible property.  

Debt associated with the marriage, which is also known as “marital debt” involves debts that are incurred during the period of the marriage and prior to the date of separation.  Such taking on of debt must have been for the “joint benefit” of the spouses.

The moving party (the party trying to prove the debt is “marital”) has the legal duty to prove first the value of the debt at the date of separation and that the debt was incurred for the benefit of both parties, jointly.

Are school loans “Marital Debt?” 

Additional education and degrees are not technically property that can be divided.  At the same time, loans incurred for education during the period of marriage may be considered marital debt.  The court must also consider whether both parties to the marriage are expected to share in the rewards of a degree or education.

Student loans may be deemed marital, even if the funds are not specifically used for education alone.  As such, traditional education expenses regarding tuition, books, lab fees, etc., may be deemed marital debt.

Furthermore, student loans used to pay bills, buy groceries, and even pay for the costs of childcare may also be deemed a marital debt.  That’s true also for expenses associated with travel and maintenance of the household to the benefit of the marriage overall.

The moving party (the spouse seeking to have debts classified as “marital”) must present evidence regarding the marriage and whether it lasted long enough both parties to “enjoy the benefits of the degree or higher earnings.”

Does it matter whether money is kept is separate accounts? 

Maintaining separate bank or savings accounts while married is not necessarily determinative of the debt/asset classification.  It is relevant for the court to consider.

Whether the debt or asset is kept in the name of both or even just one of the spouses is not the sole, determinative factor.  The Court, in its Findings of Fact and Conclusions of Law, is required to consider in the totality of circumstances the evidence presented.

It frankly can be a complicated process.  Figuring out how long means “long enough” to “enjoy the benefits” of education is not necessarily formulaic or an exact science.

If you have questions about this or how the Equitable Distribution laws in North Carolina work, please call NOW:  704-342-4357

 

 

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