Student Loans in Divorce

Student loans as a form of debt may be subject to division during divorce proceedings.  However, unlike smaller debts, student loans can be a contentious issue during division. For one, the benefits derived from student loans are intangible and difficult to measure. One spouse may not be so keen to help pay off the other’s student loans, and yet the marital community may have benefited from the education.

In this article, we will be providing an overview of student loans, their character, when they are considered separate and community debts, and how the court will treat them in divorce.

Separate Property: Student Loans

Student loans are quite straightforward if they were incurred before the marriage or after the date of separation. Student loans acquired before the marriage or after the date of separation are considered the separate debt of the spouse who incurred them. Separate debt is not subject to division. The spouse who incurred the separate debt will be the one to pay it, and the other spouse cannot be made to share in the payments. 

Community Property: Student Loans

Student loans are considered community or marital debt if incurred after the date of marriage but before the date of separation. Take note that the date of separation is different from the date of entry of judgment. The date of entry of judgment is when the divorce or legal separation becomes final and binding, while the date of separation occurs when parties intend to end their relationship. The spouses don’t need to live separately before the date of separation can be established. 

If a student loan is a community or marital debt, it will be divided as equitably as possible between the parties. Take note that in certain instances, the division may not be necessarily equal. For example, when a party receives more of the community property, it is not unusual for the court to also assign a larger amount of the debt to that party. 

Student loans are also considered community property if the spouses agreed to consolidate their loans during the marriage. The student loans are then considered as community debt because it is the date when the agreement was made that matters now, not the date when the loans were obtained. Thus, a loan that was originally separate debt can be converted into a community debt if there was an agreement made during the marriage. 

Reimbursement

There is also the possibility of the court ordering reimbursement to the community if community funds were contributed to the education or training of a party and such education enhances the earning capacity of that party. The reimbursement will also be made with interest, accruing from the calendar year when the contributions were made. 

However, the court may also order that the reimbursement amount be modified or reduced in the following circumstances: 

• 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. There is a similar presumption 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. 
• 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. 
• 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 the support that would otherwise be required.