Who pays student loans in a California divorce?

Why student debt has its own rule

California divides a marriage's property and debts into two kinds. The Judicial Council's self-help page on property and debts explains that community property includes debt taken on while married, and that separate property includes what either spouse owned or owed from before the marriage or after the date of separation. Family Code section 2550 then directs the court to divide the community estate equally, unless the spouses agree otherwise in writing or by oral stipulation in open court.

If those rules alone applied, a loan one spouse borrowed during the marriage to pay for a degree would be a community debt, owed half by each. Section 2641 changes that result for education and training. The self-help page summarizes the outcome: generally, a loan to pay for one spouse's education or training is treated like that spouse's separate property, and after the divorce that spouse is responsible for it.

Section 2641 applies upon dissolution of marriage or legal separation. Subdivision (b) is subject to the limits in the rest of the section, and subdivision (e) lets the spouses agree to something else.

Subdivision (a): what a community contribution is

The section begins with a definition. "Community contributions to education or training" means payments made with community or quasi-community property for education or training, or for the repayment of a loan incurred for education or training.

Two features of that definition are worth noticing. It counts both direct payments, such as tuition paid out of a paycheck earned during the marriage, and payments on an education loan made with community money. And it applies whether the payments were made while the spouses lived in California or while they lived in another state, so a couple who paid tuition before moving here is measured the same way.

Subdivision (b): the loan goes with the education, and the community is reimbursed

Subdivision (b) has two rules that work together. Paragraph (1) says the community shall be reimbursed for community contributions to a spouse's education or training that substantially enhances that spouse's earning capacity. The reimbursement carries interest at the legal rate, accruing from the end of the calendar year in which each contribution was made.

Paragraph (2) says a loan incurred during the marriage for a spouse's education or training is not included among the community's liabilities for the purpose of division. It is assigned for payment by that spouse.

How the two rules apply to a loan

Paragraph (2) answers the question about the balance still owed at the divorce. The loan is taken out of the community debts to be divided and assigned to the spouse whose education it paid for. The other spouse is not given half of it.

Paragraph (1) looks backward at payments already made. If the couple used wages earned during the marriage to pay tuition, or to make payments on the education loan, those were community contributions under subdivision (a). When the education substantially enhanced the student spouse's earning capacity, the community is reimbursed for them, with interest. The self-help page describes the effect from the other spouse's side: in some cases, the spouse who did not get the education can be reimbursed for their share of community money spent on the other spouse's education.

The statute sets the timing of the interest, from the end of each calendar year in which a contribution was made, and calls the rate the legal rate. It does not state the rate itself, and it does not define what makes an enhancement of earning capacity substantial.

The reimbursement rule depends on the education substantially enhancing earning capacity. The assignment rule in paragraph (2) has no such condition in its text: it applies to a loan incurred during the marriage for a spouse's education or training.

Subdivision (c): when reimbursement or assignment is reduced

Subdivision (c) provides that the reimbursement and the assignment shall be reduced or modified to the extent circumstances make them unjust. It gives three examples and says the list is not exclusive.

The first example is that the community has substantially benefited from the education, the training or the loan. For community contributions, the statute supplies rebuttable presumptions that affect the burden of proof: contributions made less than 10 years before the proceeding began are presumed not to have substantially benefited the community, and contributions made more than 10 years before are presumed to have substantially benefited it.

The second example is that the education or training one spouse received is offset by education or training the other spouse received with community contributions. The third is that the education or training lets the spouse who received it work in gainful employment that substantially reduces that spouse's need for support that would otherwise be required.

What the 10-year presumption means in practice

The presumptions in paragraph (1) of subdivision (c) are measured from the commencement of the proceeding, which is the start of the divorce case, not from the date of separation or the date of the judgment. They are rebuttable, so either spouse may try to show the opposite, but the presumption decides which spouse carries the burden of proof.

Read with the rest of the section, the structure is this. Where community money paid for education within the 10 years before the case began, the starting point is that the community has not substantially benefited from those contributions, so paragraph (1) does not reduce the reimbursement unless that presumption is rebutted. Where the payments were made more than 10 years before, the starting point is that the community has substantially benefited, which is one of the circumstances subdivision (c) names for reducing or modifying the reimbursement. The statute does not say how a court weighs the evidence beyond the presumption, and it does not say what happens to contributions made exactly 10 years before.

The offset in paragraph (2) addresses couples who each went to school during the marriage. Where both used community money for their own education, one spouse's education can be weighed against the other's.

Subdivisions (d) and (e): the exclusive remedy, and agreements

Subdivision (d) makes reimbursement and loan assignment under section 2641 the exclusive remedy of the community or a spouse for the education or training and any resulting enhancement of earning capacity. The same subdivision adds that nothing in it limits consideration of the education, the enhancement or the amount reimbursed for the purpose of an order for support, which its text ties to section 4320.

Subdivision (e) provides that the section is subject to an express written agreement of the parties to the contrary. That fits the general rule in section 2550, which lets spouses divide the community estate by written agreement, and the self-help page's statement that spouses can agree to something different if both think it is fair. In an agreed divorce the settlement agreement is where the spouses state who pays each education loan and whether any reimbursement is owed. If it says nothing different, section 2641 supplies the default.

Section 2641 governs how the debt is treated between the spouses. It says nothing about the lender, a cosigner, or the terms of any loan program, and nothing in the text speaks to a lender's right to collect from either borrower.

Listing student loans in the disclosure and the agreement

Family Code section 2104 requires each spouse's preliminary declaration of disclosure to identify every liability for which that spouse is or may be liable, regardless of whether it is community, quasi-community or separate. A student loan belongs on the declaration even when both spouses expect it to stay with the borrower, and the declaration may also state how the declaring spouse characterizes each debt.

Where a student loan is one of the debts in an agreed divorce, it is listed on the declaration of disclosure of each spouse who is or may be liable for it and is then assigned in the written settlement agreement along with the other debts. Acting for only one of the two spouses, Law Offices of Rozsa Gyene prepares and reviews, for a flat fee, every document, and the engagement is limited in scope under rule 5.425 of the California Rules of Court. The client files the documents with written filing instructions reviewed by the attorney. The office does none of the following: filing or serving papers, appearing in court, providing a notary, or preparing or recording deeds. Rozsa Gyene, State Bar of California No. 208356, 3500 W. Olive Ave., Suite 300, Burbank, CA 91505.