What happens to my student loans during a divorce in Arizona?

Student loan debts in a divorce must be divided and assigned to one spouse. Typically, student loan debts are already owed prior to the marriage, meaning the spouse who took out the loans keeps the loans after divorce. When a spouse takes out student loans during the marriage, the situation becomes more complicated. Unfortunately, Arizona law leaves what happens to student loans up to the judges, and the judges are inconsistent in how they divide student loans. Here are some general principles that guide the Court’s analysis:

  1. A debt acquired during marriage is presumed to be community property, and it is to be divided equitably. Equitable, when used in connection with community property, generally means the court will divide it evenly unless fairness requires a different result.
  2. Where the debt was intended to benefit the community, an equal division of the debt is presumed to be equitable. These presumptions in #1 and #2 must be rebutted by clear and convincing evidence.
  3. Any agreements between spouses during marriage regarding what should happen to the student loan will be considered.
  4. If the student loan went to paying the couple’s living expenses while the one spouse was in school, it will most likely be considered a community obligation.
  5. Student loans are not dischargeable in bankruptcy.

Student loans arguably present a unique circumstance because the benefit of the education goes only with one spouse. So what do Courts do with student loans? Courts don’t treat student loans consistently one way. In some cases, they’ve required the party who received the education to take the loan. In other cases, they’ve split it; sometimes equally, but sometimes, a split that was not equal and required the spouse who took out the loans to bear more of the burden.

There are many reasons why that happens. In some cases, the court split the loan because the marital community benefited from the spouse’s increased income post-graduation. In another case, the court assigned all of the debts to the spouse who will benefit from it post-divorce. The common thread in all of these is that courts are trying to do what is fair under the circumstances. In other words, despite the different outcomes, what each case has in common is the court divided the money equitably. Each judge may differ on what they think is fair when it comes to dividing student loans and that is why the results are inconsistent, but the process is consistent: each judge is trying to divide student loans as fairly as possible.

So what does all this mean for how your or your spouse’s student loans might be divided? It means there’s big risk on both sides. It may be awarded 100% to the spouse who received the education. Or it may be divided 50-50 between the parties if the community benefited in some way from the education. Because there’s risk on both sides, both parties should be incentivized to come to an agreement on who will assume responsibility for the loan in order to minimize their respective risks.

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