Divorce can be complicated, and the situation becomes even more intricate when student loan debts are involved. Understanding how these debts are dealt with during divorce proceedings is crucial, especially given the rising college education costs and the corresponding growth in student loan debt.
In this article, we’ll explore how the assignment and reimbursement of student loan debt are managed during divorce under the Family Code section 2641, the exceptions to the general rules, and the concept of the community substantially benefiting from the education financed by the loan.
Dividing Student Loan Debt at the Time of Separation
Generally, in a divorce, the party who obtained the education and enhanced earning capacity is deemed responsible for any outstanding student loan debt. This principle is based on Family Code 2641(b)(2), which states that a loan incurred during the marriage for the education or training of one party should not be considered a community liability but should be assigned to the party who benefited from the teaching.
This rule differs from the treatment of other debts incurred during marriage, which are typically considered community obligations. However, like many aspects of family law, there are exceptions.
Reimbursement of Student Loan Payments
Family Code 2641(b)(1) governs the reimbursement of community contributions to a party’s education or training, significantly enhancing their earning capacity. If the community (meaning both spouses) has paid for one spouse’s education and substantially boosted that spouse’s ability to earn, the community is entitled to reimbursement.
However, as with most legal regulations, there are exceptions to this rule.
Exploring the Exceptions
Family Code 2641(c) allows exceptions to the rules outlined in 2641(b), guided by the principle of fairness. The court can reduce or modify the required reimbursement or debt assignment if it would be unjust under the circumstances.
There are three specific exceptions:
- If the community has substantially benefited from the education and training.
- If the education or training of the other spouse offsets the education or training.
- If the education or training enhances a spouse’s earning capacity, reducing the need for support from the other spouse.
The Community Substantially Benefits
A presumption exists that the community has not substantially benefited from an education obtained less than ten years ago. Conversely, it is presumed that the community has helped if the education was received more than ten years ago. This presumption can be rebutted based on the circumstances.
In the case of In Re Marriage of Mullonkall and Amplakkil, the Wife had paid some $120,000 towards her student loan debt during their three-year marriage. The trial court initially found that the community had substantially benefited from the Wife’s education, but the Court of Appeals overturned this decision.
Both Parties Receiving an Education
If both spouses have received an education funded by the community, it would be unfair to saddle only one spouse with the bill or require only one to reimburse the community.
Enhancing the Earning Capacity of the Supported Spouse
If the education financed by the community reduces the need for support from the other spouse, this could be grounds for reducing or eliminating reimbursement.
Beyond the Statute: Future Earnings and Support
A significant aspect that Family Code 2641 does not explicitly address is the impact of the educated party’s future earning capacity on the amount of child support and spousal support the other party will receive. Higher earnings due to education can result in higher support payments to the supported spouse, which could be considered a substantial benefit to the community.
In the Mullonkall and Amplakkil case, the marriage was relatively short (three years), and there were no children, so any future benefit to the community via support was minimal. However, in longer marriages or those involving children, the community could continue to benefit significantly from the educated spouse’s enhanced earning capacity.
The Importance of Fairness and Expectations
Understanding how student loan debt is dealt with in the event of a divorce is valuable, especially as many spouses enter marriages with significant student loan debt. The expectation that one may be required to reimburse the other spouse for one-half of any student loan payments made during the marriage or to take responsibility for any remaining student loan debt balance at separation can be a surprise.
However, the courts consider fairness and the education is an asset that one spouse will retain after the marriage. This factor should be appropriately assessed and the potential benefit to the other spouse through higher support payments.