Managing Student Loans During Divorce

Posted by: Gerald A. Maggio, Esq.

Best Orange County divorce lawyers; The Maggio Law FirmIn California, student loans can be considered to be community property, but it depends on the circumstances.

So who pays?

According to California Law, if the student loan was incurred after marriage, it can be considered community property and will be split between both the spouses regardless of whose name is on the loan. If the loan was incurred before marriage, then it is judged to be separate property and has to be paid off for the spouse who opted for it.

While this may seem simple, there are multiple circumstances that could change the provisions made above.  The length of the marriage is a key factor that affects the court’s decision. In a long term marriage, the person that took out the loan will likely have proof that both they and their spouse benefited from the education. The other party will have a hard time proving that they did not benefit and the court usually splits the loan payments.

If both spouses had student loans before marriage and ended up consolidating their loans, both parties are equally responsible for it. The court will not consider the individual loans and terms that were in place before consolidation. The date of consolidation will be regarded as the date of the loan and both parties will continue making payments.

California Family Code sections 2641(b)(1) and 2627 maintain that the community should be reimbursed for community contributions to education or training of a spouse that substantially enhances that person’s earning capacity. The amount reimbursed must include interest at the legal rate, accruing from the end of the calendar year in which the contributions were made.   However, if the parties agreed in writing that there would not be such reimbursement or the contributions were for regular living expenses, then there is no right of reimbursment.

Also, there is a rebuttable presumption under California law that the community has not substantially benefited from community contributions to the education or training made fewer than 10 years before the commencement of the divorce, while it is generally held that the community did substantially benefit from community contributions to the education or training made more than 10 years before the commencement of the divorce.

Couples that are worried about student loans are often advised to have a prenup before marriage. Many take the opportunity to outline their terms for loans and debts. If such a document exists, the Court will follow the same guidelines at the time of the divorce. If there is no prenup or the validity of the prenup is in question, the parties will have to negotiate debt division with each other. If this does not work, mediation might be the only solution before going to court.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

The Disposition of Student Loan Debt in a Divorce

Posted by: Gerald A. Maggio, Esq.

orange county divorce attorneys; The Maggio Law FirmA student loan, nowadays, can be quite significant. It may very well run into six figures. A number of professional couples carry student loan debts from their college years. Now, in a divorce, just like the assets are divided, the debts have to be divided as well. The question is whether student loan debts are considered as marital debts or separate debts.

For what purpose the student loan was used for

If the student loan was used solely for the purpose of pursuing the degree of one spouse, then it may be considered as a separate debt. For example, the money was used only for paying the tuition fee, to buy study materials, for projects, and so on. However, if the money was used for living expenses as well, apart for education purposes, then the debt may be considered as marital debt. Since the money benefited both the parties, both of them have the responsibility to pay it back together. In California, the enhanced earning ability of a spouse as a result of acquiring a degree remains with that person itself. That is, the income earned by that spouse belongs to him/her, the other party does not have any right to that income.

The earning ability of each spouse

The court will look at the earning capacity of the parties involved while deciding on the student loan debt. If one spouse has literally no income or his/her income is very low or the earning potential of that spouse is very low, then the court may ask the other spouse to take care of the student loan debt. While this may not seem fair to the spouse burdened with paying off the student loan debt, especially if the money was also used for household expenses, the court sees it only as fair since the other party has no income or only limited income.

The tax benefits

The tax benefits may make it desirable for one party to assume the whole student loan debt if the other part agrees to take care of another debt, maybe the credit card debt. This is more or less a negotiation. If both the parties find it working to their benefits, then it is something that they will no longer have to argue about or ask the court to decide.

The intended purpose of a student loan is to use it for educational purposes. If it is used only for educational purposes, then a lot of complications can be avoided during debt division.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

 
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