When a couple divorces, the court looks at the best way to divide both party’s debts as well as their assets. Just as there are community and individual assets, there can be community and individual (separate) debts. For example, if one spouse takes out a student loan to pay for their school during the marriage, the student loan would generally be considered a separate debt. In California, when divorcing, there are exceptions when the student loan can be considered a community debt. It is best to seek legal advice if you are in this situation.
Student loans are taken out for different reasons, sometimes it’s to pay for college tuition and books and sometimes it’s to support the student (or family) while pursuing an education. Often it’s a little bit of both. So trying to figure out who is responsible for paying back the loan after divorce can be complicated.
A degree is not considered community property so therefore the debt incurred while achieving it is not usually considered community debt. However, if the marriage greatly benefited from the boost in income that comes with a degree (say, for example, one party goes to law school and after passing the bar is able to get a much higher paying job), then the family court might consider the cost of that degree when dividing debts. In the absence of substantial benefit to both parties, the repayment of the loan is the responsibility of the student.
When a divorce occurs shortly after one spouse graduates from college, the court more often than not holds the former student responsible for the repayment of the loans.
Please call us for a Divorce settlement consultation so we can help you determine the best divorce option for you. California Family Code 2641 is listed here for your reference.
FAMILY.CODE SECTION 2641
2641. (a) “Community contributions to education or training” as used in this section means payments made with community or quasi-community property for education or training or for the repayment of a loan incurred for education or training, whether the payments were made while the parties were resident in this state or resident outside this state. (b) Subject to the limitations provided in this section, upon dissolution of marriage or legal separation of the parties: (1) The community shall be reimbursed for community contributions to education or training of a party that substantially enhances the earning capacity of the party. The amount reimbursed shall be with interest at the legal rate, accruing from the end of the calendar year in which the contributions were made. (2) A loan incurred during marriage for the education or training of a party shall not be included among the liabilities of the community for the purpose of division pursuant to this division but shall be assigned for payment by the party. (c) The reimbursement and assignment required by this section shall be reduced or modified to the extent circumstances render such a disposition unjust, including, but not limited to, any of the following: (1) The community has substantially benefited from the education, training, or loan incurred for the education or training of the party. There is a rebuttable presumption, affecting the burden of proof, that the community has not substantially benefited from community contributions to the education or training made less than 10 years before the commencement of the proceeding, and that the community has substantially benefited from community contributions to the education or training made more than 10 years before the commencement of the proceeding. (2) The education or training received by the party is offset by the education or training received by the other party for which community contributions have been made. (3) The education or training enables the party receiving the education or training to engage in gainful employment that substantially reduces the need of the party for support that would otherwise be required. (d) Reimbursement for community contributions and assignment of loans pursuant to this section is the exclusive remedy of the community or a party for the education or training and any resulting enhancement of the earning capacity of a party. However, nothing in this subdivision limits consideration of the effect of the education, training, or enhancement, or the amount reimbursed pursuant to this section, on the circumstances of the parties for the purpose of an order for support pursuant to Section 4320. (e) This section is subject to an express written agreement of the parties to the contrary.