The financial consequences of divorce may have lasting effects on a party’s monetary stability for years following the conclusion of the case. Virginia is an equitable distribution jurisdiction, meaning that in any divorce proceeding, the circuit court has the authority to classify the property of the parties as separate, marital or hybrid. The court then uses this designation when distributing the debts and property of the parties. Pursuant to Virginia’s equitable distribution statute, Virginia Code § 20-107.3, the court must consider all debts and property belonging to the parties, which includes all real, personal, tangible and intangible property.
While Virginia’s equitable distribution statute is intended to create a fair system for the division of property and debt, it may have unintended results for parties involved in a divorce who either entered the marriage with student loan debt or acquired student loan debt during the duration of their marriage.
§ 20-107.3 affords Virginia courts the authority to apportion and order the parties to a divorce proceeding, one or both of them, to make payments towards their joint or separate debts. These debts include student loans acquired by one or both parties during the course of the marriage. The court must engage in a factor-specific, fact-driven analysis to determine whether the student debt is marital, separate, or hybrid.
Pursuant to §20-107.3, all debt incurred by either party from the date of marriage to the date of separation is presumed to be marital, regardless of the name or title on the debt. However, § 20-107.3(E) states that as long as a party can show by a preponderance of evidence that the debt, or a portion thereof, was incurred, or the proceeds secured by incurring the debt were used, in whole or in part, for a non-marital purpose, the court may designate the entire debt as separate or a portion of the debt as marital and a portion of the debt as separate.
The party who argues that the student debt should be designated as separate or hybrid debt has the burden to do so by a preponderance of the evidence. When considering the designation given to student debt, the court engages in a fact-specific analysis based on the factors described in §20-107.3, which were further enunciated by the Supreme Court of Virginia in Gilliam v. McGrady. The Supreme Court of Virginia made clear that a court facing the question of what classification student debt should receive must be guided by the factors set forth in the Code, in order to arrive at a fair and equitable award.
In determining whether student loans should be designated as separate, marital, or hybrid debt, the court will analyze the factors delineated in §20-107.3(E) and place specific emphasis on the original purpose of the debt and who benefited from it. For example, in Layne v. Layne, the Court of Appeals considered whether the wife’s student debt was marital or separate property. In deciding this question, the Court considered (1) the original purpose of the student loans; (2) whether the debt continued during the course of the parties’ marriage; (3) whether the debt increased during the length of the parties’ marriage for the benefit of the family; and (4) whether both parties benefitted from the education obtained based on the loans. The Court held that the wife’s student debt benefitted the family because a portion of the student loans went toward family expenses. Based on this analysis, the husband was ordered to pay for the portion of the student loans that were used for family expenses and the wife was ordered to pay the remaining amount.
Additionally, in the case of Seonyoung Kim v. Lee, the Court of Appeals of Virginia weighed the factors outlined in the Virginia Code and “focused on the length of the parties’ marriage… the original purpose of the loan, and the disparity in the parties’ earning potential…” when it decided how to allocate each parties’ student debt responsibility.
If you have questions regarding divorce and student debt, be sure to consult with an experienced family law attorney in your jurisdiction. From offices in Fairfax, Arlington, Manassas, Leesburg and Fredericksburg, the attorneys at Livesay & Myers, P.C. handle divorce cases across Northern Virginia. Contact us to schedule a consultation today.