While South Carolina has not specifically ruled on the question of whether student loans incurred by a spouse during the marriage are marital or non-marital, our general provisions regarding the allocation of debt during equitable distribution can and should apply. As restated by our Court of Appeals in Barrow v. Barrow, 394 S.C. 603, 716 S.E. 2d 302 (2011):
“Marital property” is defined as “all real and personal property which has been acquired by the parties during the marriage and which is owned as of the date of filing or commencement of marital litigation….” S.C. Code Ann. § 20–3–630 (Supp.2010). “For purposes of equitable distribution, ‘marital debt’ is debt incurred for the joint benefit of the parties regardless of whether the parties are legally jointly liable for the debt or whether one party is legally individually liable.” Hardy v. Hardy, 311 S.C. 433, 436–37, 429 S.E.2d 811, 813 (Ct.App.1993). Marital debt, like marital property, must be specifically identified and apportioned in equitable distribution. Smith v. Smith, 327 S.C. 448, 457, 486 S.E.2d 516, 520 (Ct.App.1997). In equitably dividing the marital estate, the family court must consider “liens and any other encumbrances upon the marital property, which themselves must be equitably divided, or upon the separate property of either of the parties, and any other existing debts incurred by the parties or either of them during the course of the marriage.” § 20–3–620(B)(13).
Id. at 610, 716 S.E.2d at 306 (emphasis added).
There is a rebuttable presumption that a debt of either spouse incurred prior to marital litigation is a marital debt and must be factored in the totality of equitable apportionment. Wynn v. Wynn, 360 S.C. 117, 600 S.E.2d 71 (Ct. App. 2004).
How Other States Treat Student Loan Debt
Courts in many states have ruled on the question of how to treat student loan debt in marital litigation, and their conclusions vary significantly.
Some states reason that because the resulting degree is almost always viewed as either an intangible asset belonging to only one party1 or non-marital property held by the degree-obtaining spouse, that the loan to obtain that degree should also be considered non-marital debt. See Van Bussum v. Van Bussum, 728 S.W.2d 538, 539 (Ky. Ct. App. 1987) (debt attendant to the acquisition of a non-marital asset such as a degree must be borne by the party who will reap the benefit from it). But see Roberts v. Roberts, 670 N.E.2d 72 (Ind. Ct. App . 1996) (even though husband’s degree was not marital property, student loan was still a marital obligation).
The majority viewpoint, however, takes a nuanced approach where the courts focus on the extent to which the enhanced degree benefitted both parties. See Tasker v. Tasker, 395 N.W.2d 100, 105 (Minn. Ct. App. 1986) (approving allocation of the entire debt to the student spouse where neither had yet realized any benefit from his enhanced earning capacity); Simmons v. Simmons, 244 Conn. 158, 708 A.2d 949 (1998) (proper to award all loans to husband where divorce occurred three years into husband’s residency); Roberts v. Roberts, 670 N.E.2d 72 (Ind. Ct. App. 1996) (proper to award husband all of his student loans where parties separated two months before husband’s graduation from law school); In re Reininghaus, 817 P.2d 1159 (Mont. 1991) (wife properly was awarded student loans where she was apparently still in school at the time of divorce). See also Schneider v. Schneider, 761 S.W.2d 760 (Mo. Ct. App. 1988), (where wife acquired a chiropractic degree during the marriage, and then practiced jointly with chiropractor-husband for several years and the court held that the wife’s student loans were a marital debt, reasoning that the husband had benefitted from the wife’s enhanced earnings.); Bourdon v. Bourdon, 119 N.H. 518, 403 A.2d 433 (1979) (where wife incurred loans to pay for college and to maintain the marital home during her time in school and, after she graduated, she used her degree to earn income for the family while the husband attended law school. The court approved a decision charging the husband with one-third of the loan balance.)
Most states look at how the loan proceeds were actually spent – that is, whether the proceeds were spent on living expenses or only for the tuition and fees associated with obtaining the degree. Those courts generally reason that to the extent that the student loans were used to pay family living expenses, they fall under the standard rule that debt incurred to pay living expenses during the marriage are always marital obligations. See In re Marriage of Speirs, 956 P.2d 622 (Colo. Ct. App. 1997); McConathy v. McConathy, 632 So. 2d 1200 (La. Ct. App. 1994); Hicks v. Hicks, 969 S.W.2d 840 (Mo. Ct . App. 1998); Forristall v. Forristall, 831 P.2d 1017 (Okla. Ct. App. 1992).
In general, the nationwide trend appears to characterize student loans as marital debt subject to equitable apportionment/division only where the other spouse benefitted substantially from the loan by use of the loan proceeds for family expenses.