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I have a student loan in my name and I just got engaged (Yay!) about 2 months ago. My fiancée has been saving up and is really interested in helping us get out of debt before the wedding. I think we can do it but I would most certainly need her help.

Question:

Are there any tax issues (or any issues for that matter) with her transferring me money to pay off the loans or should I add her on my loans and directly take it out of her account? I don't want to make it seem like I made that money.

Joshua Olson
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Phil
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    Note FAFSA is not a loan type. FAFSA stands for Free Application for Federal Student Aid. There are several different types of loans that could have used the data on the FAFSA to determine eligibility. They do have different rules regarding interest, the ability to consolidate.... – mhoran_psprep Mar 15 '16 at 23:51
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    I knew a girl who got married straight out of college, talked her new hubbie's grandparents into paying off her student loans - and then divorced the poor guy so she could putter around writing poetry and making pottery, unconstrained by such mundanities as "housework" or "cooking" or (God forbid) "children". I kid you not... – Bob Jarvis - Слава Україні Feb 15 '19 at 17:13

2 Answers2

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Congratulations on your engagement, and on your desire to begin your marriage debt free.

Your fiancée can give you up to $14,000 per year as a gift without having to pay any gift tax. Above that, there are lifetime gift/estate tax exclusions that apply. You, as the recipient of the gift, do not pay any tax on it. (It is not considered income for you.)

Having said that, I would not advise the two of you to have her pay money on your debt before you are married. The reason is this: You aren't married until you are married. If something happens between now and then and the wedding is postponed/called off, you do not want to feel like you are in debt to her, and you do not want her to feel that she lost money because of you.

Obviously, you do not want or expect that to happen. So, instead, I recommend that your fiancée saves up her income. I'm assuming that the two of you don't want to go into debt paying for the wedding/honeymoon, so make sure that you have enough cash to pay for that. After that is covered, she can save money toward your student loans, but keep the money in a savings account. Once you are married, the money and the debt both belong to both of you. The day after the two of you get back from the honeymoon, she can write the check to pay off the debt, and you've got a great start to your future.

Ben Miller
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    At the same time, entering into marriage with zero debt is a beautiful thing. If the OP feels confident in the engagement, it can be really very good for a marriage to go in with a clean slate. Edit: However, student loan debt isn't the same as credit card debt, so the strain it imposes isn't necessarily worth the vigilance of paying it off early. Also keep in mind that after paying off that account, you may see bit of a drop in your credit score (one less account, shorted credit history perhaps, etc.) – nod Mar 16 '16 at 07:26
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    @nod Entering a marriage with zero debt is great, but so is entering a marriage with a plan to pay off your debt in the first month of marriage. Also, I would not recommend holding on to a student loan just to try to prop up a credit score. I don't think it's a given that paying off debts lowers your score; there are lots of factors that go into that. – Ben Miller Mar 16 '16 at 11:13
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    Paying off a debt lowers your credit score? Is the logic; "this guy is bad news - he pays his debts and robs us of all that interest..." – Oscar Bravo Mar 16 '16 at 12:32
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    "Once you are married, the money and the debt both belong to both of you." - depends on where in the world you are married. Community Property marriage is not necessarily the default everywhere and a pre-nup contract can also exclude it. – brhans Mar 16 '16 at 14:31
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    @brhans The statement might not be strictly true legally, but for all practical purposes it is true, especially if you are intending the marriage to last. – Ben Miller Mar 16 '16 at 14:33
  • I agree with everything except "paying off debt lowers your credit score" - that's not true. – Joe Mar 16 '16 at 15:55
  • This is an excellent answer. – JonH Mar 16 '16 at 18:07
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    @BenMiller That statement is not true, period. If it's not about the law, then what is it about? And what difference does the marriage make? For practical purposes, it's already true even before the engagement, if that's what the fiance wants… and it's still not true after the marriage if the fiance does not want to give her money. – Relaxed Mar 16 '16 at 18:59
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    @Relaxed I don't know about your marriage, but in mine, we share everything, especially when it comes to money. In my opinion, it is the best way. See this answer for more of my opinion why combining finances in a marriage is a good thing. – Ben Miller Mar 16 '16 at 20:00
  • To add to what @brhans stated. For at least some community property jurisdictions joint ownership is only for what is acquired while married. Pre-existing savings would be excluded. Also in at least some jurisdictions, debt obligations prior to marriage are not the responsibility of the spouse. – Shannon Severance Mar 16 '16 at 20:01
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    Totally agree with Ben Miller's advice about waiting until the actual marriage. Also, be sure you understand the other's viewpoint about when it is okay to go into debt/use credit cards and when it is not. Fiancee may expect when she pays off your student debt, the both of you will never go into debt again (or only for house, or only for secured asset). Don't expect the other person to think the same way you do about it, unless you have already discussed it in detail. – SeraM Mar 16 '16 at 20:10
  • Thanks for the opinions, I'm shooting for a 0 credit score and I we have talked at length about our financial goals; also, I am marrying this woman. – Phil Mar 17 '16 at 20:11
  • @Phil I have no doubt that you will get married; however, I would still urge you not to marry your finances together until you are actually married. Just my opinion. Good luck to the both of you. – Ben Miller Mar 17 '16 at 20:15
  • @BenMiller You seem to equate marriage and long-lasting relationship, I strongly disagree. My point is that your argument is really about the relationship. Historically and practically, the marriage is just a legal thing, which does not make a difference in that respect. Because legally, being married does not necessarily mean that the money and the debt belong to both (where I live, by default it does not). You can also divorce incidentally. – Relaxed Mar 17 '16 at 22:21
  • I didn't say that paying off debt always lowers a credit score, I said that it may. Closing accounts that are very old can shorten the age of your credit history. Age of credit history does factor into a credit score. I wouldn't advise holding on to debt for a long time just for a credit score, but if a couple was planning to make a large purchase, such as a home, it wouldn't be necessarily be advisable to close out old accounts until after such a purchase is made. It's just something to keep in mind. – nod Mar 18 '16 at 16:18
  • @Phil - I don't think anyone is implying you will change your mind, but unexpected life events happen. One of you might end up in fatal car crash tomorrow, for example. If your fiancee is the one to die, are you prepared to argue with her parents (or other default heir) about whether or not you now owe them the money she spent on your debt? – Bobson Mar 18 '16 at 17:34
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You don't state your age, debt amount, loan rate, and amount of retirement savings. These facts impact the strategy you pursue:

  • If your student loan interest is at low rate, it is more effective in the long run for you to prioritize 401k match contributions or Roth IRA contributions. Your student loan interest will be tax deductible.

  • You may be able to file taxes separately as a married couple. This will keep your monthly loan payments lower than if you file jointly, allowing you to do tax-deferred savings (401k/Roth).

I share the concerns about commingling your finances before marriage. You'll be married soon enough, and after that the $14k/yr gift tax concern won't even be an issue.

Stephen Grimes
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  • Unfortunately, the loan rate is nearly 7% so this is much more then anything that i can get with investments.

    Our joint goal is to become debt free prior to marriage. This goal was mostly pushed by her and not wanting to take on debt for herself.

     – Phil Mar 21 '16 at 14:32