In the last couple of decades, the average debt accumulated by students attending four-year colleges has quadrupled, from around $10,000 per student to over $40,000 per student. For graduate students, the average debt per student is even higher.
Student loan debt has become a fact of life for many Californians. For current and former students who are married or contemplating marriage, it's important to understand the intersection between student loans and community property. Spouses who have a prenuptial agreement (prenup) or postnuptial agreement (postnup) can opt out of these rules, but more on that later. First, let's answer some of the big questions surrounding student debt for divorcing couples.
Frequently asked questions about student debt in divorce
Upon divorce, are student loans taken out before marriage treated differently from loans taken out during marriage?
Student loans that were taken out before marriage will not be considered community debt in California. This means that, at the time of divorce, any remaining balance on a pre-marriage student loan will only be assigned to the student spouse upon divorce.
Generally, any remaining balance on a student loan taken out during marriage will also be assigned to the student spouse upon divorce. But there are exceptions.
A court could require a lingering student loan balance to be divided between the spouses if:
- The student loan reduced the student spouse's need for spousal support.
- The student loan substantially benefitted the community. (For instance, if the loan proceeds were used to pay household expenses or the spouses enjoyed a higher marital standard of living due to the career that followed the student spouse's education).
If community earnings are used to pay a spouse's student loans during the marriage, is the community entitled to reimbursement for those payments upon divorce?
Regardless of whether the student loan is taken out before or during the marriage, the rules below will apply upon divorce.
If the student loan substantially enhanced the student spouse's earning capacity, the community would be entitled to reimbursement (plus interest) for any payments made on the spouse's loans. Exceptions apply, however, if the community substantially benefited from the student loans or if the loans reduced the student spouse's need for spousal support.
The purpose behind these rules is to make sure the community is repaid for helping one spouse obtain an education that leads to a lucrative career. But if the community has already benefitted‚ or if the non-student spouse already benefited (e.g., due to the student spouse's reduced need for support), then the community may not be entitled to full reimbursement.
What this also means, however, is that the community is not entitled to a reimbursement if the student loan did not substantially enhance the student spouse's earning capacity or did not substantially benefit the community. Therefore, the community benefits two-fold (by obtaining a right to reimbursement and by generally increasing both spouses' standard of living) when student loans are used to enhance the earning capacity of one spouse. In turn, the community loses out (by losing the right to reimbursement and by not benefitting from an increase in the standard of living) when student loans are not used to enhance the earning capacity of one spouse.
Can student loan creditors go after the community pot in divorce?
This may be a scary answer, but yes. For student loan debts incurred prior to marriage, the community estate (i.e., both spouse's earnings and accumulations during marriage) is liable for student loan debt incurred by either spouse unless the non-student spouse's community earnings are kept in accounts from which the student spouse has no right of withdrawal and which do not contain the student spouse's community earnings.
For student loan debt incurred during the marriage, on the other hand, the community estate is liable for student loan debt incurred by either spouse and segregating the non-student spouse's community earnings will not protect against creditors.
However, if creditors go after the community pot, the non-student spouse would be entitled to reimbursement (but the claim would need to be brought against the other spouse).
How can dividing debt be simpler and less anxiety-provoking during a divorce?
The rules regarding the treatment of student loan debt during and after marriage are complex and full of exceptions. Because of this, a prenuptial or postnuptial agreement can be a great tool for current and former students who are married or contemplating marriage.
In these agreements, fiancées and spouses can create a legally binding contract that sets forth whether their student loan debt will be considered a community or separate obligation and how reimbursements for payments during the marriage will be handled.
It's not too difficult to see why we believe prenups and postnups can be wonderful tools, and we're here to help draft a student loan prenup or postnup that fits your needs!
FAQs
Are student loans considered marital debt in California?
In California, student loans are generally considered the responsibility of the spouse who incurred them, but certain exceptions may apply if marital funds were used to repay the debt.
What happens if marital funds were used to pay one spouse’s student loans?
If community property funds were used, the other spouse may be entitled to reimbursement for their share, even if the loans remain the borrower’s responsibility.
Can student loan debt be divided between spouses in divorce?
Typically, each spouse is responsible for their own student loan debt, but the court may consider fairness factors in unique cases.
How does refinancing or consolidation affect divorce and student loans?
If you refinanced or consolidated loans jointly, both spouses may remain liable, and division may depend on agreements made in the divorce settlement.
Can spousal support be impacted by student loans?
Yes. A spouse’s loan payments may factor into their ability to pay or need for support, influencing the court’s calculations.
What should I do if I’m worried about student loans in my divorce?
Gather loan documents, review payments made during marriage, and consult with a divorce attorney or financial advisor to understand your rights and obligations.
How to Handle Student Loan Debt in a California Divorce
Identify all student loans
Collect records for any loans taken out by you or your spouse, noting balances, payment history, and whose name is on the account.
Determine source of payments
Review whether payments were made with community property funds, such as joint bank accounts, or with separate funds.
Check California reimbursement rules
If community funds were used, determine whether reimbursement to the other spouse may be required under state law.
Review loan terms for joint liability
If you co-signed, refinanced, or consolidated loans together, confirm whether both spouses remain liable.
Consider impact on support
Factor in how loan payments affect spousal or child support calculations, as these can influence financial negotiations.
Consult professionals
Work with an attorney or financial advisor to protect your rights, ensure accurate division, and plan repayment strategies.
