What Happens to Our Student Loans in a California Divorce?

More and more, student debt – especially for people in their 20s, 30s, and even 40s and beyond – is the primary debt obligation individuals carry for years, eclipsing credit card and auto loan debt (and often an obligation that makes even acquiring home mortgage debt difficult). In a divorce between a couple where one or both has significant student loan debt, the question of who will be responsible for that debt after the marriage can be a major point of contention, as well as the question of whether the other party should be reimbursed for any paydown of that debt during the marriage with community funds (income earned during marriage).

Assigning Student Loan in a California Divorce

The general rule for debt obligations in a divorce is that, if the debt was taken out during the marriage, then both parties are responsible for paying it, and a court will split these debts 50-50 between the parties in a divorce. That is not the case generally with student loan debts, however.

California law takes the view that debt incurred to finance a person’s education continues to benefit that person throughout his or her life beyond the marriage, and so it would be unfair to make the other spouse have to continue to pay for that educational debt after the marriage when that spouse is not receiving the benefit of the education in the form of increased family income.

Courts apply three primary exceptions to this general rule pursuant to California Family Code section 2641, however, and may require the non-student spouse to be responsible for at least some of the debt post-marriage where:

  • “The community has substantially benefited from the education, training, or loan incurred for the education or training of the party” (note that courts presume that the community, as in the two spouses, did not “substantially benefit” from the education when the contributions were made less than ten years before the filing of a divorce action, and courts will presume that the community did benefit when more ten years have passed since the contributions were made; both presumptions can be rebutted, however);
  • “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.” (in other words, both parties received the benefit of an education paid for by community funds and/or debt); and
  • “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.” (meaning the court will take into consideration how spousal support numbers are affected by either party’s education in assigning the debt obligation).

If you are looking for hard-and-fast rules in the above factors about what exactly will happen to your student loans (or those of your spouse) in a divorce, you won’t find them, and courts have a fair amount of discretion in making this call. But the above factors should guide any negotiation or litigation if need be in reaching a determination.

The Question of Getting Reimbursed for Funds Used to Pay the Other Spouse’s Student Debt

The above discusses who shoulders the outstanding student loan obligation after a divorce, but what about community property funds (again, funds earned during the marriage) that are used during the marriage to pay down the educational debt where only one person is walking away with that education?

Here, the general rule is that “the community should be reimbursed” for such payments, meaning that the student-spouse should essentially have to pay back the money that was used to pay down loans (or to pay for education outright even without a loan), and that reimbursed money will be split 50/50 between the parties. Another way of saying this is that the student-spouse will have to pay the other spouse half of the money used to pay for education during the marriage.

This general rule is subject to the same exceptions as above, however, and so courts and attorneys negotiating agreements will look at whether: 1) the community has already benefited financially from the education; 2) whether both parties received educational benefit; and 3) how the educational benefits impact support numbers.

In the recent case of In Re Marriage of Mullonkall and Amplakkil, a California appeals court addressed a situation where one spouse paid down $130,000 of her student loan debt during three years of marriage while the couple lived a very frugal life otherwise, leading her husband to request that the court reimburse him for the community funds spent to pay down her loan. The court there said that a general principle in addressing this situation is to prevent either party from getting a “windfall” at the expense of the other and that “mutual benefit” should be the goal in determining whether an exception applies. In this particular case, the court determined that it would be unfair for the student-spouse to walk away from the marriage with both no student loan debt and the benefit of the education and thus ordered a reimbursement to be made.

Again, these are fact-specific situations, and it can be difficult to predict with accuracy what a court might do in your situation. Speak with a family law attorney however to receive guidance on your situation and how best to navigate reaching a fair settlement or positive result in court.

Guidance on Your California Family Law Questions From a Westlake Village Family Law Attorney

If you would like to learn more about how our office can provide guidance on any California family law issues you are facing in Ventura County or Los Angeles County, contact the Zonder Family Law Group office today at (805) 777-7740 or (818) 877-0001, or schedule your strategy session using easy-to-use online form here.