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Student Loan Payments During Marriage… Is the Community Entitled to Reimbursement?

When one spouse pays off his or her student loan debt during marriage, questions may be raised upon divorce as to whether the community should be reimbursed for such payments. Recently, a California court shed some light on this issue and determined that the community may be entitled to a reimbursement when one spouse pays off his or her separate educational loans with their earnings during marriage.

In this case, Wife finished paying off her student loans using the income she earned during the marriage. On appeal, Husband contended the community was entitled to reimbursement.

The Family Code tells us that upon dissolution, the community shall be reimbursed for community contribution to student loans. However, the reimbursement may be reduced based on the circumstances such as the following:

  1. Where the community has substantially benefited from the education;
  2. Where the education of one party is offset by the education of the other party, for which the community also contributed; and
  3. Where the party’s education substantially reduced that party’s need for support payments.

The court emphasized that if community contributions to education costs are made less than ten years before the dissolution proceedings begin, there is a rebuttable presumption that the community has not substantially benefited.

The court looked in detail at these exceptions and noted that the common denominator in each exception, and thus the main inquiry it must make, was whether both spouses derived commensurate benefits from one spouse’s education. Thus, the court reasoned that it must limit exceptions to circumstances in which both parties received benefit and no one party received a “windfall.”

The court noted that Husband in this case did not receive commensurate benefits, nor did he enjoy the standard of living the community could have afforded during the marriage because Wife’s income went to pay off the debt. Based on this, the court concluded that the community should be reimbursed for community payments towards Wife’s education loans.

This case provided insight for any spouse who incurs a student loan and makes payments toward that loan during marriage. However, the court also noted that the potential reimbursement owed for such payments is subject to an express written agreement of the parties. Based on this, spouses can create a Premarital Agreement to address this issue. If you or your spouse plans to make payments toward a student loan during marriage you should consult with an attorney and be sure he or she understand the full financial story related to your loans.