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Don’t pay your spouse’s student loan without a prenup

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Picture: Evelyn Hockstein/REUTERS Activists demonstrate outside an entrance to the White House calling for the cancellation of student debt in Washington, US, April 27, 2022.

By Erin Lowry

The federal government’s decision to forgive $10,000 of student loan debt is good news not only for millions of borrowers, but also for their partners. While student loans taken out before marriage are generally considered separate debt (as long as no one co-signed), couples often deal with each other’s financial baggage in some way or another.

Still, today’s typical undergraduates with loans have close to $25,000 in debt upon graduation, according to a Department of Education analysis. That means there will be plenty of student borrowers whose debt remains.

A month after I got married in 2018 a personal finance article sparked widespread debate. The gist was a man had helped his new wife pay off an undisclosed amount of “large debts” – including student loans – within two years of saying “I do”. With the debt resolved, the wife sought a divorce. Hot takes flooded social media and I lobbed my opinion: Don’t pay off any debts for your partner until you’re married, and be sure to get a prenup.

It’s a belief I still hold today.

In 2019, 12 percent of millennials were unmarried and cohabiting, while 44 percent were married, according to the Pew Research Centre. No matter the depth of commitment, unmarried couples – even those cohabitating – should not directly pay off a partner’s debts, unless they are the cause of the debt.

This by no means implies that an unmarried couple is in a less committed relationship, since there are ample financial reasons why people would want to avoid a marriage license, including the impact on student loan payments. Getting married and filing a joint tax return can significantly affect borrowers on income-driven repayment plans because their spouse’s income will be included in the calculation for how much they owe.

The reason for not paying off a partner’s debt is purely practical. It’s harder to recoup losses in a breakup compared with how assets and debts are split in a divorce. The money you gave your partner to pay off debts will usually be considered a gift. Outside of taking them to small claims court, where you might lose, it’s unlikely you’ll ever be paid back. There are other ways for those with more means to be supportive, though, like covering more household expenses so partners with debt can actually increase the amount they put toward repaying loans.

Paying off debt in a marriage, however, should be a joint venture. You’re a team now and your partner’s financial situation does directly affect you. This doesn’t mean that married couples become an amorphous financial blob. In fact, I advocate for the “yours, mine, and ours” style of banking in which each person has an individual checking account and a monthly stipend to spend however they see fit. But, if you’re looking down the barrel of forever together, well, it makes sense to tag-team your debts. This is especially true if one partner makes significantly more or is entirely debt-free.

Of course, there is nuance here depending on the type of debt. Student loans that are eligible to be discharged through a forgiveness programme like Public Service Loan Forgiveness needn’t be aggressively paid off. A low-interest-rate mortgage is usually a debt not worth attacking ferociously when you could be investing the difference.

Back in 2018, the viral article hit a nerve because I, too, had married someone with student loan debt, and I was the breadwinner in the relationship. We were on course to pay off more than $50,000 before our two-year anniversary. We made aggressive repayment a priority and funnelled most extra money earned from side hustles toward getting free of debt. If my husband had come to me with divorce papers right afterwards, well, I would have been just like the jilted husband in the article. The difference: We had a prenup.

Prenups still contend with a frustratingly negative reputation when in fact they’re simply marriage insurance. An insurance policy for something you hope doesn’t happen and for which you pay the premium upfront instead of in monthly instalments. Then, if divorce does happen, you have already drastically reduced the financial fallout. A prenup doesn’t mean you assume you’ll get divorced, just like auto insurance doesn’t mean you assume you’ll get into a wreck. It’s a practical step to take, especially when, as my attorney said to me, “Everyone has a prenup. It’s just the default laws of your state.”

In the US, each state has its own laws about how to handle assets and debts during the dissolution of a marriage. Without a prenup, you’re simply agreeing to abide by your state’s laws, or ultimately by a judge’s ruling.

A prenup agreement shouldn’t heavily favor one party either. Instead, it should create a fair and balanced distribution of your assets and debts based on what makes sense in the ecosystem of your relationship. Prenups can also account for what ultimately is a vesting schedule on debt repayments. The jilted husband could have paid off his wife’s debts and then prorated how much she would have owed him back each year if the marriage ended quickly.

Romantic? No, it’s not. Practical? Yup. Because much of Western culture is now based on marrying for love, no one really likes to discuss the fact that it’s still a contract and likely the largest financial decision most people will make. You shouldn’t sign any business contract without feeling the terms are fair and equitable, and the same goes for your marriage. And if you’re already married and didn’t do it, don’t despair. There’s always a postnup.

Lowry is a Bloomberg Opinion columnist covering personal finance. She is the author of the three-part “Broke Millennial” series.

This article was published in The Washington Post