Parental liability as co-signers on kids’ school loans subject to divorce decree

Student loan liabilities of parents who co-signed for their two children should have been a consideration in dividing property in a divorce proceeding, the Indiana Court of Appeals ruled Thursday.

The panel affirmed in other respects the ruling from the court of Marion Superior Judge David Dreyer, but remanded John Luttrell v. Melinda Luttrell, 49A02-1301-DR-85, to consider the student loans.

“While there is little relevant Indiana case law regarding disposition of contingent liability in divorce proceedings, we believe the loans should have been considered by the trial court,” Chief Judge Margret Robb wrote for the panel that included Judges James Kirsch and Patricia Riley.

The court cited In re Marriage of Lay, 512 N.E.2d 1120, 1123-24 (Ind. Ct. App. 1987) that established the court may not divide assets or liabilities that don’t exist, but said that should not be the case for liabilities in which the parents have guaranteed payment in the event of a default.

“While it is possible that neither John nor Melinda will be called upon to make good on their promise to repay the loans, at the same time, their names cannot be removed from the loans,” Robb wrote. “If one of the children defaults, the co-signers will be liable on the debt. We remand to the trial court for consideration of the Luttrells’ liability under the children’s student loans.”