I. Michigan is an equitable distribution state. States are either classified as “community property” or “equitable distribution” when factoring in how to divide marital property and marital debt. In a “community property” state, both spouses have equal ownership of all marital property and everything is divided 50/50. In an “equitable distribution” state, the division of marital property is a bit more complicated because each spouse has a legal claim to a fair and equitable portion of any marital asset, which may or may not mean a 50-50 split. Debts are often divided using the same formula as the assets. Marital property is anything acquired during the marriage regardless of who made the actually purchase or in whose name the property is titled, unless it is considered separate by law, which may include: property owned by either spouse prior to marriage; inheritances received by either spouse and kept separate and not commingled with marital property; gifts, or inherently personal belongings; payments for pain and suffering in personal injury suits; or property designated as separate in a prenuptial or postnuptial agreement. Debt follows the same principals, if it was taken out during the marriage, it can be considered marital and subject to equitable division between the divorcing couple. Pre-marital debt may be considered separate debt.
II. Student loans taken out by one spouse before marriage is usually not considered marital. If one spouse incurred student loan debt before marriage for their education and brought it into the marriage, it is generally considered separate debt and not subject to division between the divorcing couple. This is especially true when each party carries their own pre-marital student loan debt.
III. Student loans taken out after marriage. If one spouse incurred student loan debt after marriage, in deciding if the debt is marital or separate, the key question is not who incurred the debt, but who benefitted from it. What was the money used for? If the loan was strictly used in pursuit of a degree earned by one spouse, then it is simple to make the case that it should remain the separate debt of that spouse. But if the loan benefitted both spouses because, for example, it was used for living expenses or other costs incurred as a couple, then it could be considered marital debt and subject to equitable division between the divorcing couple.
IV. What about student loans taken out during the marriage to pay for the children’s education? The cost of college tuition is at an all time high. Many parents assume debt for the sake of paying for their children’s college education. When both parents agreed to incur the debt, there are likely to not be any issues when divorcing and assuming a fair share of the debt that was for the benefit of their children. But what if the lower income earning spouse didn’t approve of the debt that the other spouse incurred it on his or her own for the education expenses of their children? Is that debt still considered marital and not separate? A very good argument can be made that since the debt was incurred during the marriage and for the benefit of the couple’s children, that it should be considered marital debt. There is no case law in Michigan on point deciding the issue, but there is case law in Ohio, which is also an “equitable distribution” state. The Ohio Court of Appeals held that it doesn’t matter which spouse signs for the student loan, it should be considered a marital debt if the loan is executed during the marriage. The Ohio Court of Appeals further opined that arguably both parties benefit by helping their child afford to go to college. (See Vergitz v. Vergitz, 2007-Ohio-1395) Of course, it is always in the discretion of the trial court whether to treat loans made to or on behalf of emancipated children, including loans to pay for college, as martial debt. The outcome may be very different, however, if the student loan debt was incurred during the marriage for a child who was the child of only one of the divorcing couple.
Although the factors that influence the way that property and debt division is decided by Michigan courts are consistently applied, each case is still considered unique and a decision made in any case is always fact specific. Therefore, it is of the utmost importance that someone considering divorce consult with an experienced Michigan divorce attorney who can guide them through the process.