You’re Getting Married: Can Your Spouse Sign Away Student Loan Debt Responsibility in a Nuptial Agreement?
The short answer, yes—you can. Many first-timers don’t even consider nuptial agreements because they don’t have many assets to bring into the equation but, with the rising rate of student loan debt, couples should definitely think about marriage and student loans.
The average student loan debt reaches close to $30,000 and that only includes debt obtained for a bachelor degree.Students obtaining even higher education reach far greater amounts of debt. Regardless of whether you stay together or end up in a divorce, limiting liability for another spouse’s student loan debt can be a smart financial decision.
Just as the names suggest, pre-nuptial agreements are made prior to the marriage and post-nuptial agreements are made after the wedding. Almost all 50 states recognize and allow either form. Both are considered private contracts and, thus, contract law will control rather than divorce law. That being said, can student loans be included within an agreement?
With a few exceptions, you can include pretty much anything within a pre or post-nuptial agreement. You can never have provisions including anything illegal, you can’t make decisions regarding child support or child custody, you can’t waive alimony rights, and you can’t include personal rules that must be done within a marriage. Everything else is fair game, which means provisions regarding student loan debt are a green light.
Are There Benefits to Signing a Pre- or Post-Nuptial Agreement?
Of course. State laws vary on how they handle debts when parties get divorced. Debt borrowed during the course of the marriage is easily identifiable as marital debt, but generally all states will treat pre-marital debt as debt of the original owner and not the spouse. Even so, it can get blurry through the course of a marriage when refinancing happens, debt consolidation happens, or joint funds are used to pay off the debt.
Whether or not a nuptial agreement is for you will depend entirely on the state you’re in, but probably the biggest benefit to signing an agreement in terms of student loan debt is to limit property creditors can get their hands on. Creditors can often go after marital property even if only one spouse is the debtor.
For example, in a community property state, any debt acquired before the marriage remains the debt of the borrower, but any debt acquired during the marriage remains marital debt, even if only borrowed by one spouse. Same rules apply for assets. Just because the pre-marital debt remains the debt of the borrower doesn’t mean creditors can’t come after marital assets to collect on it.
Paying your student loans out of a joint bank account? Creditors can use this an implied acceptance of responsibility on behalf of the non-borrowing spouse for the debt. Think of it this way—if you own property 50/50, a creditor doesn’t care that your spouse has an equal claim to the property—they only care that the original debtor owns the property and that they can legally get their money back. A creditor won’t be able to touch marital property to collect on student loan debt if an agreement was signed limiting the other spouse’s responsibility for the debt.
Are They Enforceable?
A pre- or post-nuptial agreement will generally determine how student loan debt is going to be divided, if at all, and they’re typically enforceable if both parties are fully informed about the underlying facts of the agreement and what they mean. But, what if the agreement is later contested?
For debt acquired during the marriage, courts can consider whether the student loan proceeds were used to benefit the marriage, i.e. paying rent, buying groceries, etc. If they were used for the benefit of the marriage, then both parties should be responsible. For debt acquired prior to the marriage, joint funds could have been used to pay off those pre-marital debts. How do you determine who exactly paid for what? Should the non-borrowing spouse be reimbursed for those joint funds when a pre-nuptial agreement says the original borrower is solely responsible for their student loan debt? That can be a contentious point of argument for many couples facing a divorce.
Validity of post-nuptial agreements can sometimes come into question because, depending on when they were entered and when the separation happened, creditors can make an argument that there was a fraudulent transfer that kept them from collecting.
Disparity of income can also play a major factor when creating an agreement and, sometimes, can even play a role years after-the-fact. Maybe you signed an agreement that all student loan debt will be the responsibility of the borrowing spouse expecting to be a high-income earner, but what if circumstances change? Although agreements are generally enforceable, there’s an argument that can be made if one spouse foregoes their career to stay home with the kids they should be compensated via alimony or spousal support to offset this.
While none of the arguments are iron clad reasons that will invalidate the terms of a nuptial agreement, just as with any other contract, sometimes circumstances not originally considered within the contract will arise and leave room for exceptions.