Till Debt Do Us Part: Love, Marriage, and Paying Bills with Student Loan Debt

So, you’ve decided to tie the knot — congratulations! This decision likely came after careful thought and deliberation on multiple fronts by both you and your partner. However, of all the considerations you’ve made in advance of deciding to get married, did you remember to take into account your financial status?

Most young graduates fail to talk about finances upon deciding to get married, a mistake which can lead to major disagreements and a hefty dose of unhappiness in the future. It’s vital to have a serious discussion with your partner about all facets of their financial matters, from student loan debt to budgeting and paying bills. Here are some financial considerations that are likely to change upon marriage, which you and your soon-to-be spouse should discuss in advance:

Budgeting as a Couple

Once you’re married, your personal budget will soon turn into a family budget. Your new spouse will bring a variety of financial contributions to the table, including debt, assets, bills and savings.

Speaking of debt, the majority of new college graduates today have significant student loan debt; in fact, Americans, as a whole, owe more than $1.45 trillion¹ in student loans. Getting married today can often mean marrying your partner’s student debt to your own–thus impacting your monthly bill allotment, and overall debt-to-income ratio.

Subsequently, you both will need to create a budget that takes these new financial pieces into consideration. Sit down with your partner and look at your combined cash flow so that you know how much income you have to work with month over month. Consider what debt payments you both have, how much in savings you have, any and all monthly bills, and how you might be able to combine your expenses.1 Figuring out answers to these questions will help you form a realistic budget to start your married life with.

Planning for the Unexpected

In a marriage, you and your spouse become accountable not only for yourselves, but also for each other, so it’s wise to plan for the potential future events. From insurance to estate planning, you and your partner will need to discuss how to go about preparing for unexpected events that might not have seemed relevant before.

For example, if both of you are covered by a health plan by your respective employers, and you plan on merging coverage to one provider, it is important to gauge which plan will be most beneficial. Getting married is one of the “life events” that allows you to change your health insurance without having to wait for the enrollment period, so take advantage of this opportunity

You will also have to discuss life insurance. When you’re single, there is often not a dire need for life insurance, as you have no dependents to consider should something happen. However, this changes immediately upon marriage. As morbid as it may be to think about, you and your partner will need to discuss what would happen if one of you were left to support the household (and potential future children) alone, determining whether you need to invest in life insurance.²

Another reason to consider life insurance is that it might help to cover loan payments in the event that your partner passes away. If you live in a community property state, and acquired student loan debt through marriage, you could be liable to pay off your spouse’s debt after his/her passing. As we’ve mentioned, this wouldn’t usually be the case if your spouse took out these loans prior to marriage, unless you are a cosigner or have joined accounts. In the unfortunate event that you become liable for your spouse’s loans after his/her death, you could consider loan consolidation to help repay the loans. Life insurance also tends to help cover the difference in these circumstances.³

Considering Your Total Debt

If you aren’t already aware of how much debt you and your partner are bringing to the table, it is imperative to discuss this immediately. In the event that one person has debt and the other doesn’t, it might cause friction in your relationship, especially if one partner isn’t initially aware that the other has debt to pay off. Furthermore, a spouse might subconsciously be resentful if he/she acquires debt through marriage, when he/she previously had none of their own. It’s important to lay all debt matters out in the open from the very beginning, rather than being caught off-guard when it comes to figuring out payments. If you both have significant amounts of debt to pay off, it will affect the way you budget, and the way you plan for long term goals (such as buying a house and planning to raise a family).

A lot of people are unaware about debt transference upon marriage. In reality, spousal debt in the United States depends on the type of state you live in, namely, whether it is a community property state or common law state.4 In a community property state, you are not responsible for any debt your spouse incurred before marriage, but are jointly responsible for debt incurred by either of you going forward. That means your respective student loan debt, for example, remains your independent responsibility.

On the other hand, in a common law state, you are not responsible for your spouse’s debt before marriage, and you can typically avoid responsibility for your spouse’s debt after marriage as well. An exception is if the debt was incurred for joint household expenses, such as food, clothing, shelter, education or child care. If either of you goes back to school to earn more money, you will have to plan on sharing the responsibility of paying back any new student loans.

It is important to keep in mind that when you open a joint account with your spouse, you are accepting responsibility for that debt whether you live in a common law or community property state.5 Even if you don’t use that account personally, this still stands true. If at any time you sign an agreement to pay debt, you become responsible for it. For instance, you can inherit your spouse’s pre-wedding debt regardless of state type if you sign onto his/her existing account as a joint holder.

Consider Refinancing Student Loans Before Marriage

Student loans contribute to a large portion of debt, especially in new marriages. If this is a situation that sounds familiar to you, then make sure you understand the ramifications of marriage on student loans before tying the knot. For one, as we mentioned in our previous article on student loans and marriage, income-based repayment might no longer be an option for you. Filing your taxes as “married, filing jointly” combines your own and your spouse’s income, which can cause your payments to increase significantly or even make you ineligible for your current plan, depending on your joint income.

You may be able to avoid this issue by filing your taxes separately. However, this will not be an option with the Revised Pay As You Earn Program (REPAYE).  Furthermore, the student loan deduction lets you deduct up to $2,500 of loan interest paid in the previous tax year from your taxable income. If you and your spouse jointly earn more than $160,000, you will lose this deduction. Additionally, filing separately would render you ineligible to claim it at all.⁴

You might not be able to refinance or consolidate your loans. As an individual, if you have many different student loans, it is often a good idea to consolidate them into one payment or refinance your loans. However, due to the Higher Education Reconciliation Act of 2005, this option is only available for individuals and not couples (which avoids the messy split-up of consolidated loans in divorce cases). So even though you can refinance your own loans, you will not be able to do so after marriage.

Marriage is commonly seen as a social and emotional choice. But beyond this, it’s important to remember that you are also marrying into your partner’s finances. Figuring out how to jointly tackle financial matters in terms of budgets, debt, and future plans early on is absolutely essential to any marriage, and will serve you well in the long run.

Sources:

1. https://studentloanhero.com/student-loan-debt-statistics/

2. https://www.thebalance.com/planning-marriage-and-money-1289663

3. https://studentloanhero.com/featured/what-happens-to-student-loans-when-you-die/

4. http://budgeting.thenest.com/spouses-debt-marriage-22209.html

5. https://www.usatoday.com/story/money/personalfinance/2017/06/26/5-ways-marriage-affects-your-student-loans/405420001/