There is no automatic presumption that debt accumulated during the marriage is marital debt, instead one party must show there was a ”joint benefit” to both parties to be classified as marital debt. North Carolina case law classifying student loans have ruled both ways as to when student loans created a “joint benefit” to the parties. Thus any examination of when student loan debt is marital debt in North Carolina is fact determinative and open to interpretation by the Judge. Let’s take a look at some of the recent case law regarding student loans in equitable distribution cases in both North Carolina and other jurisdictions.
North Carolina Caselaw:
The NC Court of Appeals affirmed the lower court ruling that $88,429.08 in student loans were in fact marital debt as they were incurred during the marriage for the benefit of the marriage. Supporting this conclusion the Warren Court noted that extra money from the student loans were used for groceries and general living expenses of the household and the marriage benefited for twenty (20) months from the increased earning capacity from the education.
The burden to win on appeal in North Carolina is very high as the lower Court must have abused its discretion to be overruled. This means winning at the first hearing is critical. A potentially compelling argument of by the appealing party in Warren was that since a degree is separate property then the associated debt should also be separate property. Since this argument was not raised at the initial hearing the Court of Appeals did not consider this line of attack. This argument alone could potentially change future rulings regarding classification of student loan debt. Another issue the appealing party failed to raise at the initial trial was for an unequal distribution of the debt based on the limited benefit to the marriage.
Baldwin v Baldwin, ---N.C.App.---, 757 S.E.2d 527 (2014) (unpublished)
In Baldwin the Court found there was “no evidence” that the student loans of one spouse benefited the other ruling that the debt was in fact separate debt. The wife who obtained the degree also testified her master's degree did not help her obtain employment or increase her earnings during the marriage. This led the Baldwin Court to conclude that since there was no evidence the husband benefited from his wife's loans, they could not be classified as marital debt. The Warren Court felt compelled to distinguish itself from the “lack of evidence” in Baldwin versus the numerous findings as to joint benefit found in Warren.
In re Marriage of Speirs, 956 P.2d 622, 624 (Colo. App. 1997)
Holding that while degrees do not constitute tangible property that can be divided, classifying student loans incurred during marriage as marital debt is proper when both marital partners may expect to share in the rewards of the education.
McConathy v. McConathy, 632 So.2d 1200, 1206-07 (La. App. 2 Cir. 1994)
Student loan incurred for husband’s education was properly classified as community debt because part of the loan contributed to the family’s living expenses and the spouses expected to benefit from the husband’s higher education.
Hicks v. Hicks, 969 S.W.2d 840, 846-47 (Mo. App. W.D. 1998)
Concluding that wife’s student loans were marital debt because the loan funds were not only used to pay wife’s tuition, but were also used to buy groceries and pay bills and childcare costs.