A hot topic in the family law arena is whether reduction of premarital student loan debt during the course of a marriage should be included as marital asset subject to division in the divorce proceeding. This Iowa Court of Appeals recently found that student loan debt incurred prior to the marriage is “a nonmarital obligation.” In re Marriage of Campbell, No. 13-1383, 2014 WL 1999231, at *5 (Iowa Ct. App. May 14, 2014). In Campbell, the Court went even further to cite that:
…joint funds were used to make periodic payments that resulted in a principal reduction of [student loans of] approximately $10,200. As at least one other court has done, we consider the amount of principal reduction obtained with marital funds an asset to be divided. See, Gangwish v. Gangwish, 678 N.W.2d 503, 509 (Neb. 2004) (“We agree that [one party’s] award should have been reduced by the total student loan debt that she brought into the marriage because the debt was paid off with marital assets.”). In order to reach an equitable distribution in a short- term marriage, we give Jennifer credit for half of the amount of principal reduction. Accordingly, we reduce the property equalization payment owed to Joel by $5100.
As is evident by the above, there is a new argument to be made if either party comes into a marriage with student loan debt. Clearly, reduction of the debt during the marriage, if the marriage is of a short duration, may be grounds to reduce the eventual property settlement. In this day and age of increased student loan debt, this issue is of paramount consideration in any settlement.
For more information on family law issues, please contact Shannon Simpson of Simpson Legal Group, LLC at (712) 256-9899.