Child Education Support: What Happens to RESPs and Student Loan Debt in a Divorce?
Divorce in Alberta carries several financial complexities, and understanding how to divide different debts, as well as Registered Education Savings Plans (RESPs), is a key responsibility for divorce and child support lawyers in Calgary. These financial matters can impact the futures of any involved children and both parties in a separation or divorce.
In this blog post, we’ll explore these issues and offer insights into how couples can navigate child-related educational finances in a divorce.
Dividing Student Loan Debt in Divorce
Alberta’s Matrimonial Property Act governs how all debts—including student loan debt—are divided in divorce. How this particular type of debt is handled by a divorce or child support lawyer depends on whether the debt was incurred before or during the marriage.
When dividing student loan debt, it’s important to consider what the loan was used for. In some cases, a student loan covers living expenses, which benefits the entire family or couple. This could be taken into consideration when coming to an agreement on loan responsibility. The earning power of each spouse is also important to consider, as it’s important for each spouse to have the means to support themselves after a divorce.
Student Loan Debt Incurred Before Marriage
If you and your spouse both have equally steep student debts and comparable incomes, it may be easiest to divide among yourself. This means you both take responsibility for your share of the loan. However, this issue becomes more complex when only one spouse holds student loan debt or when one’s loan is significantly higher. Legally, any student debt you incurred before getting married is considered separate property. Therefore, after a divorce, it should remain separate property. If you borrowed money from the bank prior to getting married, that debt will become completely yours after the divorce.
Student Loan Debt Incurred During Marriage
If loans were obtained after marriage, the court could rule that the student debt is shareable marital property. This is because, in some cases, the spouse who has the debt isn’t the one paying the loan payments or because the other spouse co-signed the lease. Co-signers are usually required for private student loans and, therefore, are fairly common in loans acquired after marriage. However, some private loaners will allow you to submit a co-signer release. This will relieve the other partner from his or her obligation to the loan. You can also refinance your student loan under one name. This could give you a better rate and ensure your partner does not have to be responsible for any part of the loan.
Managing RESPs in Divorce
Alberta case law deems that RESPs are treated as funds held in trust for beneficiaries (children) and are not considered marital property to be divided. The funds are considered to be for the children’s education, and typically, who manages the funds is to be addressed in a separation agreement.
How RESPs Are Used After Divorce
In most situations, parties include a clause in their separation agreement that requires RESP funds to be used for a child’s living expenses and education while they pursue post-secondary education. In the event these funds aren’t sufficient to cover these expenses, parties can determine in their separation agreement who will be responsible for covering the remainder of this expense.
If Children Don’t Attend Post-Secondary
If funds in an RESP are not used for the children’s support for education, for whatever reason, the RESP may be closed, and the funds from the plan will be returned to the plan contributors or the beneficiaries. Income earned on the contributions is taxable in the hands of the contributor. Unused Government contributions and income earned on those contributions go back to the Government. It is also important to note that RESPs can remain open for 35 years, so if you’re unsure about your child’s future at the time of divorce, you do have some flexibility. You may also add beneficiaries in the future should you have another child.
Get Help with Separation and Divorce from Experienced Child Support Lawyers in Calgary
Navigating the complexities of divorce and separation is never easy, especially when it comes to financial matters. When it comes to equitably dividing student loan debt or determining how an RESP should be managed after divorce, it’s important to seek advice from an experienced lawyer who understands Alberta’s laws and the Alberta Matrimonial Property Act.
At Jones Divorce & Family Law, our team of experienced child support lawyers in Calgary is here to provide you with effective representation and compassionate support throughout this difficult time. Contact us to set up an initial consultation.
The content provided in the blog posts of Jones Divorce & Family Law is general information and should not be considered legal advice. Please contact a lawyer for legal advice tailored to your specific situation. All articles are current as of their original publication date.
