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I’m Getting Divorced, & I Have $80k Of Student Loan Debt. How Should We Split It?

Welcome to Taking Stock, a space where we can take a deep breath and try to figure out what the COVID-19 economy really means for our finances. Every month, personal finance expert Paco de Leon will answer your most difficult, emotionally charged questions about money. This last two years have forced many of us to reprioritize our finances, and there’s no clear road map for getting through the pandemic yet — but Taking Stock is here to help us figure it out together.
This month, we're talking about how to deal with dividing student loans during a divorce. Have you ever have to consider how to divide debt during a breakup? How did you deal with it? Did you split it evenly, or did one partner take on the bulk of it? Tell us your experience here
Dear Paco,
My husband and I have been together 30 years, married for 20. We have three kids. He refused to work since our first child was born 18 years ago, claiming to be a stay-at-home dad even though our kids were always in daycare, preschool, or regular school. We have been separated for the past two years, but not legally.
I have around $80K in student loans, all of which were incurred during the marriage so they're community property. I work for the government so these loans should be eligible for forgiveness — except that my HR department never took me out of default status. So apparently, for all this time, I haven't been paying my loans on an acceptable payment plan even though money has been coming out of my paycheck every month.
My husband doesn't want to be responsible for half of these loans, so he wants to wait for this to get cleared up before agreeing to divorce. I also have a government pension plan, to which I've contributed about $80K; he'll be entitled to half of the amount for the time we were married, so I'm thinking about divorcing him now to minimize that loss.
We own no property, and we each have a paid-off car of roughly the same value. The kids live with me and I support them fully, and I pay his rent of $1,200, and we've agreed to keep all of that the same. What would be an equitable way to split the student loans and pension plan? If we divorce now and the loans are forgiven later, would I owe him more money? Would it be better to wait until after we know if the loans will be forgiven before moving ahead with this divorce?
Dear separated, but not legally,
Without knowing you and your husband’s entire financial situation, it’s hard for me to weigh in on what is an equitable split. But here’s how you can think about it. 
A pension is generally considered a joint asset, making it subject to division in divorce. In terms of how much your husband would be entitled to, the general rule of thumb is to split pension benefits earned during the marriage 50/50 — even if his stay at stay-at-home dad status was in effect while the kids were in daycare, preschool, and school, as you mentioned. However, before you agree to go half on a pension, there are a few things to consider that might impact this division. 
First, the state you live in may have laws that determine how the pension is divided and the steps you and your spouse must take in order to divide it legally. Second, the pension plan itself may specify the terms governing how the pension is divided with your spouse. How you elected to receive your plan benefits, either as a lump-sum payment or a monthly annuity, and whether or not the plan offers survivor’s benefits can influence how you and your husband decide to split your pension equitably. 
I recommended speaking with your pension plan sponsor and the plan advisor to help you understand the details of the plan and how divorce impacts you, your husband, and your benefits. You might also consider consulting a professional, such as a Certified Divorce Financial Analyst, to help with the division of assets and debts. Even though you only have one asset, it might be worth getting professional help for that exact reason.
When it comes to your student loans, since you live in a community property state, and your student debt was acquired during your marriage, then your husband will most likely be held responsible for paying some of those loans. And if he co-signed on the loans, then he’d most certainly have a legal obligation. When you’re considering how much he should be responsible for and what’s equitable, it’s important to consider his earning potential and what he can afford to pay. 
However, I agree with him that you should look into your student loan forgiveness right away because on October 6, 2021 the U.S. Department of Education (ED) announced changes to Public Service Loan Forgiveness (PSLF) program rules for a limited time as a result of the COVID-19 national emergency. One notable change that may impact you is that “past periods of repayment will now count regardless of whether you made a payment, made that payment on time, for the full amount due, on a qualifying repayment plan.”  
Loan forgiveness may be closer than you think. The steps you take will depend on the loan you have along with whether or not you’ve submitted work certification or PSLF form. The next steps you need to take to get your loan forgiven are detailed on the studentaid.gov website here. Once you get a better understanding of what your student loans look like, you’ll be able to determine the best course of action and your timeline for divorce — which is hopefully sooner than later. 
Lastly, you asked, “If we divorce now and the loans are forgiven later, would I owe him more money?” This is a question for an attorney, but from what I, a layperson that is not a legal professional, understand, once the debt distribution is decided and the divorce is finalized, any debt either of you has is considered separate property. So if your debt ends up forgiven after the fact, that applies only to you. Again, check with a divorce or student loan attorney.
From what I can glean in the details you’ve shared, it sounds like your husband’s decision not to work was not one that you entirely agreed with and that had long-lasting financial consequences. I might be going out on a limb here, but it also sounds like this decision was more in line with his interests and not yours. Divorce is no doubt financially straining, but staying married to someone who is constantly putting their interest first is also taxing emotionally. When it comes to considering postponing your divorce, please ask yourself: What is the true cost of this decision — both financially and emotionally — and whether its worth the price?
Your favorite finance friend,
Paco (she/her)

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