What Happens with Student Loan Debt in Divorce?
In California, property division subject to a divorce follows community property rules. Most debts acquired during marriage are presumptively community property and equally divided between the spouses during divorce. However, when it comes to student loans, things work differently and understanding the difference can impact your financial future.
California recognizes that holding a professional degree often benefits one party over the other long-term, long after a divorce is finalized. This means that the law has developed in such a way that divorcing couples need to think about certain debt not simply in terms of dividing and deciding who owes what, but also assessing the long-term benefit gleaned from an investment.
Student Loans are Usually Separate Debt of the Incurring Spouse
Most debt acquired during the course of the marriage is presumptively community property and equally divided between spouses in the course of a divorce. It does not matter which spouse accrued the debt, as the couple is seen as a single entity that gained the benefit taken from shouldering the debt.
However, an important exception exists when it comes to student loan debt because educational loans are taken out to earn a degree or specialized training that belongs to one person. While both spouses may benefit during the marriage from increased income, the long-term earning power created by that degree stays with the degree-holder even after divorce. California courts recognize this imbalance and as a result, under California Family Code section 2641, student loan debt is treated as the separate responsibility of the spouse who incurred it, rather than something automatically divided between the spouses down the middle. However, the marital estate is entitled to reimbursement if any community funds were used to pay the student loan debt.
Impact on Spousal Support
Student loan debt does not just affect property division, but it can influence spousal support as well.
Under California Family Code section 4320, courts must consider each spouse’s earning capacity when determining support. If you hold an advanced degree or professional license, the court may determine that you have a higher earning capacity even if you current income is lower than expected. On the flip side, if you spouse earned a degree during marriage and now earns significantly more, that earning potential could impact your support award.
Contact Cardwell Steigerwald Young, LLP
Student loan debt touch upon various issues in divorce: property division, reimbursement rights, spousal support, and long-term financial planning. The details of your own case should be carefully analyzed in order to determine next best steps. The San Francisco divorce attorneys of Cardwell Steigerwald Young LLP can help you understand what to expect, and how to move forward with confidence. Contact our office to begin speaking with our team.
Source:
California Family Code section 2641.
