IS CONTINGENT DEBT SUBJECT TO DISTRIBUTION? A Student Loan Guaranty Needs to be Addressed in Divorce
A panel decision issued April 27, 2022 takes on an issue heretofore undecided in Pennsylvania but an issue of enormous consequence to many marital estates; the matter of student debt.
Massar v. Massar involves a 20 year marriage that produced two children ages 23 and 19. During the marriage the eldest child attended Bloomsburg and Temple Universities and assumed $58,000 in student debt during the marriage, which Father guaranteed. In equitable distribution the husband asked the court to address the debt should the child default on the obligation and trigger father’s guaranty. In addition, husband took on what was termed a “Discover parent’s loan” of $13,000. Wife borrowed $5,000 toward graduation expenses.
The Hearing Officer decided that the $58,000 loan was not a marital debt as there had been no default triggering husband’s responsibility as of the time of the hearing. The officer also opined that should a default occur husband was in a superior position financially to address it. The trial court in Lebanon County approved that recommendation.
The Superior Court did not. In reversing the Court noted that “all liabilities accruing during the marriage” were marital debt whether incurred by one party or both. Goodwin v. Goodwin, 244 A.3d 453 (Pa. Super. 2020: on appeal to Pa Supreme Court). Passing this debt to husband in a case that otherwise involved his receipt of 45% of assets, payment of alimony and counsel fees was an abuse of discretion meriting further consideration.
There are some fascinating issues trapped in this ruling. Suppose one parent guarantees the debt of a child without the knowledge or consent of his/her spouse? Suppose the debt is for a child from another relationship preceding the marriage? Suppose one spouse asks the other to join in guaranteeing or assuming primary responsibility for a child’s student debt and that spouse declines to do it? Can that spouse still be liable? If, during marriage, I agree to guarantee my child’s home mortgage and the child does not pay, can I ask the court to assign part of the debt to my soon-to-be ex? The permutations are both vast and troubling. In the past year we encountered a case where on December 31 of one year, a parent gave his daughter a multi-million gift of stock in his business. One day later, daughter signed a shareholder’s agreement which committed her to guarantee the debts of dad’s corporation, if requested. Was the gift non marital while the debt arising from the guaranty something else? Put in a summary fashion, can one spouse form transactions which eradicate the marital estate without the other spouse even knowing about it?
More to come…..
Massar v. Massar, 316 MDA 2021 (4/27/22). Non precedential
