Going through a divorce is tough on everyone involved – both spouses, any children, and even extended families and friends. Although some marriages end amicably, others end at the other extreme, with explosive and wrenching divisions. Most marriages, however, wind up somewhere in the middle. Certainly, the financial aspects of a divorce are some of the worst parts, since property division and division of debts can have a long-lasting impact. Student loans are a larger issue than ever in divorce today. People graduating with a bachelor’s degree in 2016 received their sheepskins with an average of more than $28,000 in student loan debt. That number doubles for those earning an advanced degree, so it’s easy to see how student debt can be a huge sticking point in a divorce settlement.
For most people, learning the difference between separate and marital property is key to civil discussions about who gets to keep what, and who has to pay. Luckily, California Family Code law guides divorcing spouses, each divorce lawyer or family law attorney, and domestic court judges on these things. Student loans under CA law are presumed to be separate property, rather than falling under the more typical community property category. However, the law does allow for extenuating circumstances and has a reimbursement statute for some cases.
So, what does this mean for divorcing parties? Also, what if you live in a different state when you divorce? The answer is complicated. There are a lot of variables involved, and each variable needs to be addressed before you can come to the proper conclusion.
As legal experts point out, a common misconception about marital debt is that educational debt incurred before marriage always becomes marital debt after the wedding. Perhaps the reason for so much confusion is because, in general, separate property is that which is obtained before marriage (or after the date of separation, when that applies). Additionally, some items always remain separate property, such as inheritances and gifts.
In the case of student loans taken out before you were married, even if you were cohabiting with your eventual spouse, these loans are your separate property in the event of a divorce. What if you took out those loans before the wedding, but your spouse happily took them on as part of the community debt and helped you pay them for many years? That might change things. This outcome can be considered a commingling of separate and marital property, essentially turning the debt into marital property.
Since California is a community property state, each spouse is considered an equal owner of all marital property, with assets split 50-50 in the event of a divorce. Of course, items like inheritances and gifts are excluded from the marital property calculations. Debts are divided equally as well, using the same principles. Certainly, there is as much disagreement over debts as there is over property.
Loans taken out during marriage are nearly always considered marital property. In addition, you should track what the loan proceeds were actually used for. For instance, if you borrow money for living expenses and your spouse benefited from that money, your loans are definitely considered marital debt. On the flip side, did you use loan proceeds for tuition only but failed to complete your degree? If your loan proceeds did not help your spouse in any way, you might need to shoulder the cost on your own; your spouse’s divorce lawyer could use an opening to refuse the debt.
Professional couples in particular can have high-dollar balances on their student loans. If the debt was incurred while they were married, some key factors must be considered:
How was the money used?
If used for tuition, books and fees in pursuit of a degree, the debt could easily be considered separate debt for that spouse. However, living expenses can throw a monkey wrench into this element.
Was the degree earned?
If the loan was used to pay for courses for a professional degree, the loan is considered separate debt.
Has the other spouse benefited from the degree?
For how long? Dividing student loan debt incurred during a marriage can be tricky when the other spouse definitely benefited from that degree. This will matter more if you were married for a substantial time after the degree was earned, and it might cause a judge to include it as marital debt. Family Code, Section 2641 contains some reimbursement provisions in the event of a pay down of the debt during marriage using community property funds.
With so many cases on record, you would think precedent would be set for the division of student loan debt. However, the number of variables in each situation makes student debt truly judged on a case-by-case basis.
Protecting yourself from paying for your spouse’s student loans can be as simple as drawing up a prenuptial or postnuptial agreement. Seriously, don’t get married to someone with high-balance loans unless there is a clear agreement beforehand. Drawing up a common-sense prenuptial financial plan helps both of you to think through your debts and assets. On the other hand, if you’re already married, but one of you would contemplate taking on debt for education, know that a postnuptial agreement serves the same purpose. This is particularly important in the event of legal or medical degree funding, whether that funding dates to before or after the marriage. However, as a general rule of thumb most court will consider the student loan debt separate property unless it can be shown that the money was used for purposes other than school-often that is a difficult task of tracing.
Contact the Family Law attorney at the Edgar & Dow to discuss this issue as well as any other divorce related issues. We have a free consultation. 888-251-9618
Sources:
WSJ.com – Who Is Responsible for the Student Loans After Divorce?
Forbes.com – Are Student Loans Incurred During The Marriage Considered Marital Debt?
DivorceSource.com – Division of Student Loans in Divorce Cases
Lendedu – Average Student Loan Debt Statistics
https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=2641.&lawCode=FAM
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