Students Loans: How Are They Divided in My Divorce?
Student loans have replaced credit cards as the leading category for consumer debt in America. Today, a revitalized focus on higher education and rising tuition costs, among other factors, have contributed to more than 44 million borrowers in the U.S. collectively owing over $1.5 trillion in student loan debt.
While the numbers may be difficult to digest, and are cause for ample concern about a potential national debt crisis akin to the subprime mortgage fiasco and economic recession, the fact remains that it is a current and often constant concern for former students carrying substantial debt loads.
Debt & Divorce: Addressing Student Loans
Whether taken by young students as a means to pay rising tuition and enter a competitive workforce, or by older adults who became non-traditional students in order to improve their employability, student loan debt can have far-reaching consequences – even when it comes to divorce.
Granted, most people don’t think about divorce when taking on student loans. Though they may understand the financial risks of unwinding a marriage – such as the possibility of dividing the family home or having to pay spousal support – it’s not always possible to foresee how obligations like student loans can impact a divorce any more than it’s possible to foresee a divorce in the first place.
However, when married spouses with student loan debt do make the decision to divorce, that debt must be addressed.
Property Division in Texas
When it comes to property division in divorce, Texas is a community property state. This means state law presumes all assets acquired during the marriage (by either spouse) to be community property subject to division. Under Texas property division laws, “division” doesn’t mean an equal 50-50 split, but rather division in a way that is “just and right.”
For example, community property like a family home purchased by both spouses after marriage, as well as vehicles, furniture, and other assets can be split disproportionately depending on the facts involved and the unique goals of the spouses involved.
Not all property is subject to being split, however. Spouses may prove certain assets are separate property exempt from division during divorce, particularly if those assets were:
- Acquired before marriage; or
- Acquired as an inheritance or a gift during the marriage.
Characterizing community property from separate property is a critical aspect of the divorce process, and one which requires extensive legal and financial experience (and possibly asset tracing) to do so accurately.
Addressing additional issues involving disproportionate awards, reimbursement, and complex or unique assets like investments and businesses, while negotiating agreements to achieve any personalized goals (such as keeping the family home), further demands the attention of an experienced lawyer. In short, there’s a lot going on in divorce, and having student loan debt doesn’t make it any easier – unless you had a prenuptial agreement outlining precisely what becomes of it.
The Division of Debt in Divorce
Property division is one of the most well-known (and hotly contested) aspects of divorce, but not everyone knows community property can include more than just income or tangible assets acquired during marriage. It can also include debt:
- Like any other asset acquired during marriage, Texas law presumes debts acquired by either spouse during marriage to be community property subject to division unless proven otherwise.
In order to prove debts or liabilities as exempt from division, spouses must provide clear and convincing evidence as to why it should be considered separate property. For some debts, this can be as easy as demonstrating how a personal loan was taken out by one spouse years prior to them getting married. For debts like student loans, however, things can be a bit more challenging.
Factors in Dividing Student Loans in Divorce
During the divorce and property division process, many spouses are concerned about whether they will have to pay a portion of their spouse’s student loan debt, even if they were not the one who went to school.
Because every marriage is different, there are a few factors to address in determining whether student loans should be divided in divorce. These may include:
- Before or after marriage? – Courts will take into account when a student loan debt originated (i.e. was it taken out by one spouse before a marriage, or after?). Texas courts have traditionally held that the community property presumption applies to all assets and liabilities, including student loan debts. This means that when a loan was taken out prior to a marriage, it’s not presumed to be community property subject to division. When it is taken out during a marriage, courts may have some discretion in dividing it, and will focus on additional factors like (1) what it was used for and (2) how it benefited each spouse during that time and after.
- What was it used for? – Family courts will look at what a student loan was used for. If the loan was used strictly for school-related expenses, such as tuition, books, and other fees, it may be viewed as separate property. If the loan was used to support a marriage, such as by paying for an apartment in which both spouses lived, it may be considered community property.
- How did each spouse benefit? – Courts may also consider how the loan benefited the marriage in other ways. For example, if a student loan was used to acquire a professional or vocational degree that allowed a spouse to earn a higher income which benefitted both spouses, courts may find both spouses should have at least some responsibility for repaying the debt.
Resolutions & Solutions to Dividing Student Loans
Texas statutory law and case law on dividing student loans in divorce is relatively straightforward and can be boiled down into a few general concepts:
- Separate Property: Texas courts have consistently ruled that student loans taken out prior to a marriage are separate property, and therefore not subject to division.
- Loans Used to Benefit the Marriage: In cases where loan funds may have been used to support a marriage, there may be options for arguing that the non-loan-owning spouse would have some responsibility for a portion of the debt.
- No Reimbursement for Paying a Spouse’s Loan: In cases where one spouse helps pay off the other’s student loan during the marriage, Texas case law shows courts typically rule against reimbursement of those payments – meaning a spouse won’t have to pay the other back for any contributions they made to paying their student loan during the marriage.
While these points are important to understand, it is also equally important to know that every case is unique, and that there may be various available options for resolving property division matters involving student loans.
This may include reaching out-of-court agreements through negotiation or mediation about the fate of student loans, or crafting tailored arrangements which allow for the division of student loan debt (or a lump sum payment) in lieu of alimony, or in order to obtain other certain desired property.
Personalized Representation During the Texas Divorce Process
As with many issues of divorce, matters involving student loans, debts, assets, and property division are case-specific matters that require individualized assessments. At Hendershot, Cannon & Hisey, P.C., we know the importance of personalized representation when it comes to divorce, and are committed to the due diligence our clients’ cases demand.
If you have questions about student loans, property division, and your rights during divorce, our legal team is available to help. To speak with an attorney, call (713) 909-7323 or contact us online today.