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College Loans and Divorce Settlements

Can You Require College Loans For Your Children Through A Divorce Settlement?

In 2018, the Appellate Division decided the case of M.F.W. v. G.O., A-1488-16-T2. This is an unreported decision (i.e., it is not precedential or binding). It is very instructive, however, on how courts are evaluating agreements between parents that require their child/children to obtain student loans to pay for their college expenses. College contribution, as well as the obligation of a child to obtain loans, are issues that arise routinely in divorces. New Jersey is one of the minority of the United States that can compel a parent to contribute to his/her child’s college expenses as a part of a divorce judgment.

In M.F.W., the parties were married in 1991. They had one child, Jane. The parties divorced in 2003. They amicably resolved the terms of their divorce through a Property Settlement Agreement. The Agreement included a statement that each party would contribute to Jane’s college expenses. The Agreement also required their daughter, Jane, to “apply for all loans, grants, aid and scholarships available to her, the process of which shall be first applied to college costs.”

In 2016, Jane gets accepted at Georgetown University, with the first semester tuition being $33,331.50. The parties didn’t agree on how much each should contribute to the Georgetown expenses. They filed motions and asked for the Court to issue a ruling.

The trial court found that since the divorce, Jane’s father’s net income had gone from approximately $80,500 per annum to $217,412 per annum. Jane’s mother’s income had also doubled. Given these figures, Jane’s father was directed to pay 70% of Georgetown, with her mother being directed to pay 30% of Georgetown. Importantly, the trial court “released” Jane “of any requirement to apply for or obtain loans and/or other financial aid for the duration of her college education.”

Why? After all, there was a written Agreement that required Jane to apply for loans. The answer is that the trial court found that it was “unfair and unjust” to require Jane to apply for “all loans…” because the child “should not be bound to a contract which she is not a party to” and because her parents “have a legal obligation to support” her “and cannot compromise that obligation even if they both agree.”

Jane’s father appealed the ruling. The Appellate Division affirmed the trial court. The Appellate Division explained that where the parties’ positions had drastically improved, “strict enforcement of the agreement would no longer be equitable.” Thus, it made its decision as a matter of fairness.

This case illustrates that Marital Settlement Agreements are not “commercial contracts” that will be enforced regardless of the facts or circumstances. The case also raises the question of when courts will enforce provisions of agreements requiring children (who are not parties to the agreement) to obtain loans.  Such provisions are commonplace in Marital Settlement Agreements. If there is a specific reason why the parents are including this language, perhaps it should be clearly stated. For example, if parents wish for their child to obtain a loan to appreciate the value of the education or for other reasons, perhaps that could be included in the Agreement. This would then explain to the Court why the provision was included and make it more likely to be enforced (assuming it is still fair).  While we await a published decision on this issue for further guidance, this ruling by the Appellate Division could change the landscape of parents who wish to allocate a portion of the total college costs to their children.