The staggering amount of student loan debt among individuals in this country and the potential forgiveness of this debt has been a frequently debated topic and a focus of the current administration. Similarly, we are seeing the issue of student loan debt being legally addressed by couples in advance of their marriage in prenuptial agreements.
A prenuptial agreement is a written contract between two people who are engaged to be married and has many purposes, including protecting parties from each other’s debts, such as student loan debt.
Engaged couples with a range of financial circumstances are utilizing prenuptial agreements to allocate debt and address their finances even if neither party has significant property or valuable assets to protect at the time they enter into the agreement. This recent trend diverges from the purpose of protecting existing assets of high-net-worth individuals, which many people historically have associated with prenuptial agreements.
Prenuptial agreements can provide for a myriad of issues, including anticipated future circumstances, that may not even exist at the time that you marry. Accordingly, a prenuptial agreement can address debts incurred before marriage as well as address how debts acquired during the marriage will be handled should you later divorce.
Whether student loan debt is a marital or separate obligation depends on the particular circumstances of a case. Although many times, parties have student loan debt prior to the marriage, this issue is also significant when parties attend school and take out student loans during the marriage.
Frequently, prenuptial agreements state that the person who accrued debts will be responsible for the repayment of them. However, you and your partner can decide in advance how these debts will be managed according to your joint wishes and memorialize these terms in a prenuptial agreement.
A prenuptial agreement offers couples certainty by defining the financial terms of their relationship rather than having it decided by the court where they have little control over those terms.
If you do not enter into a prenuptial agreement, your state’s divorce laws will act as your agreement and control not only what is considered joint or separate property, but also how your marital property will be divided if you divorce.
Illinois is what is known as an equitable division state. This means that a court will “equitably” divide your assets if you divorce. It is hard to predict what a judge will do since what is considered “equitable” can differ depending on the particular judge assigned to your case, who is given discretion to determine your property division.
Absent a prenuptial agreement, even if you are not responsible for the underlying debt, it can come into play when a court or attorneys determine the property division of your marital assets. Similarly, the court may consider pre-marital debt that is paid off during the marriage when deciding the equitable division of property. To avoid this uncertainty, parties should enter a prenuptial agreement.
Although a prenuptial agreement is often compared to an insurance policy giving both parties peace of mind and security concerning their finances if the marriage does not work out, entering into these agreements is a personal decision.
I am happy to help couples determine whether a prenuptial agreement is the right choice for them and then guide them in the next steps should they wish to move forward since a prenuptial agreement must meet certain requirements to be enforceable.
Lesley A. Dable, Partner
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