It can seem like the largest part of divorce is about untangling your joint finances.
But the hardest part of divorce is understanding your emotions, dividing your kids times and adjusting to a new future. It can feel like a large dark blob out there.
Just know that your life will get better. It may take longer than you wish. But it will.
One way to speed the healing process is to untangle your lives with the least amount of conflict possible.
Knowing the rules around community property will help.
Are His Student Loans My Student Loans?
In a California divorce debt that was incurred during a marriage is generally shared by the spouses. However, as always, there is an exception.
Under the Family Code, loans incurred during a marriage for education or training should be assigned to the party who received the training. FMC 2641(b)(2).
https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=2641.&lawCode=FAM) Seems pretty straightforward, if you borrowed money to go to school then the debt is usually yours.
But what if you have been making payments on your spouse’s student loan?
The Family Code states that, if the community money was used to make payments on a student loan then the community should be reimbursed. FMC 2641(b)(1).
Pretty simple, so far.
Except, what if her education allowed her to get a better job which then improve the family’s lifestyle? Everyone benefited so why should there be a repayment?
That seems unfair.
Student Loans Can Partially Morph into Community Property
If the community has “substantially benefited” from the education then it can be partially liable for the debt. It’s becoming more complex.
After all, what is a “substantial benefit?”
A thousand dollars, twenty thousand dollars or 37 1/2% increase in living standards. And an education can increase a now ex-spouse’s income for their entire career. It is important to protect the spouse who won’t receive this benefit.
Because everyone’s situation is so different, the Family Code can’t deliver a clear cut answer that will satisfy everyone. Instead of delivering an incomplete answer the Family Code created a structure to find an answer.
There is a presumption that the family won’t have experienced a “substantial benefit” if the loan was incurred ten years prior to the divorce. So any payments by the community would need to be repaid.
And there is the very real possibility that a spouse’s education will increase their income for the rest of their career.
But still, ten years before there is a substantial benefit?
Just about every school administrator in the world will argue that your life will improve almost immediately upon graduation. After all, that was the point of going to their school.
The legislature understood this, which is why this ten year waiting period is only a presumption. That if the spouse whose student loans were repaid can demonstrate that the community experienced a substantial benefit they may not have to repay the entire community contribution.
And If Both Spouses Have A Student Loan?
It is possible that the family’s checking account has been used to pay for both spouses’ student loans. Then what?
The law provides a framework for a solution.
The amount the of the that should be repaid to the community can be modified if the family has paid for the other spouse’s student loan. FMC 2641(c)(2).
Granted some training leads to a higher level of compensation than other training. And maybe a spouse borrowed money to learn a skill that had an impact on the family’s quality of life but outside the family it won’t produce much income.
The Student Loan Reduces the Need For Spousal Support
Something else to be considered,
The Family Code states that the community property interest in being repaid can be reduced by the educated spouse’s ability to get a job that lessens their need for support. FMC 2641(c)(3)
And what does that mean?
What if the family borrowed money to send a spouse to school after he stepped off the career track to raise the kids. He graduates, the family makes loan payments and then they get divorced.
Normally their community property interest would have some expectation of repayment. But, in this case education has allowed him to get a better job which reduces his need for spousal support.
Because of this increased earning capacity the amount of spousal support or alimony could be reduced.
That seems pretty fair.
A Case to Clarify Student Loans
In order to be free of debt a family lived very frugally and use all their income to quickly pay off a student loan. This is exactly what Dave Ramsey and the other finance guru’s often advise.
It’s good financial advice.
But what if after the last payment is made there is a divorce?
In Marriage of Mullonkal & Kodiyamplakkil (2020) 51Cal.App5th community property was used to quickly paid off the wife’s substantial student loan. After the loan was paid off she sued for divorce. Naturally the husband requested repayment.
The trial court agreed with the wife. However but the Court of Appeals disagreed.
They ruled that it is unfair for one spouse to get a “windfall” at the expense of the other. And in order to determine if a spouse had received a windfall they considered whether the family had received a “Mutual Benefit.”
In this case they decided that the spouse who received the benefit of the education should pay for it.
What It Means to You
The crux of student debt is considered thru the lens of who received the benefit of that education.
So whoever receives the benefit of the education should pay for it. If the family received part of the benefit then maybe the family should pay a portion.
What was the benefit? Did both spouses benefit? Or will only one spouse benefit in the future?
As always the answer is, “it depends.”
But now, hopefully, you’ll have a better idea of what “it depends” depends on.
That the law rarely dispenses an answer. Rather it is the framework through which facts and arguments are considered.
The process you use to design your solution is up to you. But it should be based on fairness, with an understanding that all of these points are open to interpretation and a ton of time and money can be spent litigating them.
This leads to the big question which is, “When will this be over so the rest of my life can start.”
Hopefully sooner rather than later.
Ted Andrews is a mediator living in Southern California. He practices throughout California using online tools.
Disclaimer - The information provided in this post is for general information purposes only and should not be construed as legal advice. You should not act or rely upon this information without seeking formal professional counsel. The information provided in this post is not intended to create an attorney-client relationship.