Managing Student Loans During Divorce
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.
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