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Appellate Division Considers Impact of Parental PLUS Loans on the Allocation of College Costs Between Divorced Parents and Split Custody Considerations

Allocation of higher education expenses for the children of divorced or non-married parents continues to be an area of litigation and developing law.  This week, the Appellate Division approved for publication the case of  Avelino-Catabran v. Catabran, in which the Appellate Division addressed the interpretation and enforcement of a Property Settlement Agreement between divorcedfile000195499258 parents that provided for allocation of college expenses not covered by a student’s financial aid package, where a parent had taken out PLUS loans.  The Court also addressed the support of college age unemancipated children where one child resided with one party outside of the U.S., and the other child resided at college in New York.

In this case, the parties married in 1993 and had two daughters.  After entering into a Property Settlement Agreement (PSA), that provided for the parties to share legal custody and that gave primary residential custody of the children to the Plaintiff, the parties divorced in 2002.   The PSA required Defendant to pay child support of roughly $600 per month on behalf of the two children, which was increased to $800 per month in 2009.   The custodial and parenting time arrangements also changed after the divorce when Plaintiff and the two children moved to Switzerland, with the consent of Defendant.  The parties’ PSA also included a provision requiring the parties to equally pay “net college expenses” of their children, with such expenses defined as those not covered by the children’s financial packages, scholarships, student loans and grants.

After completing high school, the parties’ elder daughter, Catherine, enrolled in college at New York University (NYU).  The cost for her to attend NYU was $62,768.  Catherine received a financial aid package that included $12,720 in scholarships, $3,000 in work study and $7,900 in student loans, not including the availability of $39,148 in PLUS loans.  PLUS loans are the maximum amount that a parent may borrow.  Plaintiff asked Defendant how much of the PLUS loans he thought they should borrow, and then asked him to borrow $12,770 to cover Plaintiff’s share of the balance owed for college. She asked Defendant to borrow this money “on behalf of” Catherine, which Defendant did. By this point, both parties were earning more than they were at the time of the divorce, with Plaintiff earning approximately $225,000 per year and Defendant earning approximately $113,000 per year.

In 2012, Defendant filed a motion in the family court in which he requested a modification of child support given that Catherine was attending college in New York and spending her off time with him, while their younger daughter remained in Switzerland with Plaintiff.   He also asked for Plaintiff to pay half of Catherine’s net college expenses at NYU pursuant to the PSA, and that judgment be entered against her for the amount of the PLUS loan.   Plaintiff denied any obligation to pay anything towards Catherine’s college expenses.  She argued that the financial aid package awarded to Catherine included the PLUS loans and, therefore, under the PSA there were not net college expenses to which she had to contribute.   She later also argued that she did not have the ability to pay 50% of Catherine’s net college costs because in 2013 she had applied for bankruptcy.

The Family Court ordered Plaintiff to contribute to the cost of Catherine’s NYU college expenses, and enforced the PSA.  The Court disagreed with Plaintiff that Catherine had received enough in financial aid that she did not need Plaintiff’s contribution, noting that the PLUS loan is for parents, not the student.  The judge reasoned that the correspondence between the parties demonstrated that Plaintiff was aware of the extent of financial aid and scholarships that Catherine received, and that Plaintiff expressly authorized and asked Defendant to take out a PLUS loan in the amount of plaintiff’s share of Catherine’s college costs.  The trial court considered the factors of Newburgh v. Arrigo, 88 N.J. 545 (1982) but relied on the requirement in the PSA that the parties equally pay for their children’s college expenses.  Finally, the court found that despite Plaintiff’s bankruptcy application, she still had enough resources for her to pay her share of college costs due under the PSA.

The trial court also modified child support, based on the view that there was now a split parenting arrangement.  The court considered the Child Support Guidelines and a plan submitted by Defendant as to how child support should be calculated.  Plaintiff did not submit any alternate plan for child support.  The court directed that Defendant pay $186 to Plaintiff on behalf of the younger child, and that Plaintiff be ordered to pay Defendant $281 per week in child support, resulting in a net payment of $95 per week to be paid by Plaintiff to Defendant.  Plaintiff appealed.

The Appellate Division affirmed the trial court’s decision to enforce the PSA and require Plaintiff to pay half of Catherine’s net college costs and for Plaintiff to be responsible for the PLUS loan. While noting that in general parents are not required to support their children over the age of 18, that Newburgh provides that part of the privilege of parenthood is for financially capable parents to pay for their children’s higher education.   The Appellate Division also reasoned that in this case, the parties had a PSA that provided for them to each pay half of their children’s net college expenses, and that the agreement had to be enforced absence any fraud, overreaching, unconscionability, or change in circumstance that made enforcement in equitable. In such a situation the Newburgh factors are not applicable.  The Appellate Division found no basis not to enforce the PSA.  The Appellate Division also disagreed with Plaintiff that the PLUS loan was part of Catherine’s financial aid, given that Catherine was not eligible for a PLUS loan. Also, given the extent of Plaintiff’s income, the Appellate Division did not feel that the trial court’s conclusion that Plaintiff had the resources to pay her share of Catherine’s college expenses was without support in the record.

As to child support, the Appellate Division agreed that there was a change in circumstance warranting a recalculation of child support, and disagreed that the trial court had changed custody.   The Appellate Division did agree, however, with Plaintiff that the family court erred in how it calculated the revised level of child support.  The Appellate Division found that the trial court erred by calculating child support based on the Child Support Guidelines, which are not applicable as to the support of college aged children living away from home, rather than on the statutory factors in the child support statute, N.J.S.A. 2A:34-23(b).    The Appellate Division also did not feel that the trial court’s explanation was sufficient as to how it calculated the child support figures and how it deviated from the Child Support Guidelines.   The appellate court remanded the matter to the trial court to recalculate child support.

Obviously, the allocation of expenses as costly as higher education between parties and support of adult unemancipated children pursuing full-time higher education is a matter that remains ripe for decision by our courts.  If you need assistance with resolving or litigating such disputes, the attorneys at James P. Yudes, P.C. can help you.