Student loans in a California divorce are treated differently than other debt or liabilities incurred during the marriage. The traditional analysis considers all debt incurred during the marriage as community in character which results in each party equally sharing the responsibility of repayment upon divorce. Student loans are treated differently. The California legislature, in response to an appellate court case litigated many years ago, enacted Family Code Section 2641 which states: “…(2) A loan incurred during marriage for the education or training of a party shall not be included among the liabilities of the community for the purpose of division pursuant to this division but shall be assigned for payment by the party [who obtained the education].”
Yet, because the circumstances under which married couples obtain and use student loans vary, the legislature provided guidance and instructions concerning the ultimate liability of the student loans. Family Code 2641 goes on to say “…c) The reimbursement and assignment required by this section shall be reduced or modified to the extent circumstances render such a disposition unjust, including, but not limited to, any of the following:
- (1) The community has substantially benefited from the education, training, or loan incurred for the education or training of the party. There is a rebuttable presumption, affecting the burden of proof, that the community has not substantially benefited from community contributions to the education or training made less than 10 years before the commencement of the proceeding, and that the community has substantially benefited from community contributions to the education or training made more than 10 years before the commencement of the proceeding.
- (2) 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.
- (3) 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.”
Student loans in a California divorce require careful scrutiny and expert counsel. The Family Law Code goes on to say “(d) Reimbursement for community contributions and assignment of loans pursuant to this section is the exclusive remedy of the community or a party for the education or training and any resulting enhancement of the earning capacity of a party. However, nothing in this subdivision limits consideration of the effect of the education, training, or enhancement, or the amount reimbursed pursuant to this section, on the circumstances of the parties for the purpose of an order for support pursuant to Section 4320.
(e) This section is subject to an express written agreement of the parties to the contrary. (Ad Stats 1992, C 162)”
The take away is to expect that in a California divorce no one will get a windfall when it comes to financing an education during the marriage. But be aware, unless someone raises the various nuances concerning the student loan, then the default analysis will be to require the student to repay 100% of the debt/liability from his or her 50% of the community property or his or her post judgment earnings and accumulations.