How are Student Loans divided in a Texas Divorce?

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Family Lawyers Houston: A student loan is a type of debt- one that many folks have in the State of Texas. Debts as well as property are divided up in a divorce based upon whether they are community debts or separate debts of one of the parties to the divorce.

Suffice it to say that multiple factors will be taken into consideration by a Court when determining how to categorize a student loan debt- as either separate or community debt.

At the outset of a divorce, there is understandable concern on the part of the spouse who did not initially incur the student loan debt that the debt could be considered community debt by a Court which leaves them as partially responsible for its repayment to the lender.

Separate Property

What is considered a “separate property” debt would seem to be a relevant question to pose at this juncture. Separate property includes debts (or property) that were acquired by a party prior to the time at which the parties got married.

This can either be by purchase, gift or inheritance. To prove that property is separate, someone must produce evidence that the Court considers to be clear and convincing.

Student Loan Debt

Family Lawyer in Houston: Student loan debt is taken on by people ostensibly to pay for school and the other costs associated with trying to earn a degree of some sort. This includes room and board, textbooks, food, etc.

If a person utilized their student loan for one of these items then the odds are good that a judge would rule that debt to be separate and not community in nature.

This means that the liability for the debt would fall to the person in whose name the loan was taken out. If the loan was utilized in a way that benefited both spouses then a Court may order both parties to bear some degree of responsibility for paying that debt.

An example of a use of that student loan that could stand to benefit both parties would be the purchase of a vehicle that both parties drove during the marriage. This “dual” use of the loan money could establish the debt as community rather than separate in nature.

Suppose that the student loan helped the wife in the marriage to earn a degree in a lucrative field, which in turn allowed her to earn a substantial income that has allowed the wife and her husband to enjoy a highly desirable lifestyle.

Even though the loan may be in the name of the wife only, since the husband saw financial and material gains in his life he may be found to be partially responsible for the payback of this debt by a divorce Court.

Reimbursement

Houston Family Law Lawyer: Another issue that has been raised before in conjunction with divorces in Texas is the concept of reimbursement of student loan funds that were taken out to “benefit” the other spouse. Suppose that a husband, while attending school, took out a student loan to pay for groceries and other household items for his wife.

Years later when the parties were divorcing, the husband may try to argue that the student loan he took out (in his name) was for the benefit of his wife and therefore he should be entitled to getting his money back for having done so.

Under section 3.042 of the Texas Family Code, a person is entitled to reimbursement is a right that arises if the funds of one estate are used to benefit another estate without any benefit to itself. It is the burden of the party asserting the reimbursement right to prove that the funds paid to the other spouse were actually made and are reimbursable.

The husband, in our above hypothetical, would be making an argument based on his position that the student loan was his separate debt and not part of the community estate.

The clear and convincing evidence standard discussed at the outset of this essay comes back into focus now. What the husband is not taking into consideration is the fact that a debt taken out during a marriage is assumed to be community absent evidence to the contrary.

The husband’s taking out the loan during the marriage and then passing the funds onto his wife to pay for groceries is textbook community debt in that the groceries stood to benefit both spouses. Unless the husband can produce evidence showing that the food purchased never passed his lips he would have a tough time arguing otherwise.

What’s more- section 3.409 in the Texas Family Code specifically notes that there is no way for a spouse to argue a reimbursement claim for money spent towards their spouse’s living expenses.

Get it in Writing

Family Lawyers in Houston: How can potential disagreements between spouses be avoided when it comes to how student loan debt is treated upon divorce?

Pre-Divorce Partition

For starters, it always pays to have a plan laid out and in writing before the heat of a divorce becomes too much for the parties to handle.

A pre-divorce partition of the debts associated with earning a college or graduate degree can go a long way towards deciding the issue before it even becomes an actual issue in a divorce case.

Mediation

Even if the issue is not resolved prior to the divorce proceedings having begun, the parties do not have to wait for a court to decide how the student loan debt will be handled.

The parties can seek to attend a mediation session along with their attorneys in hopes of arriving at a pre-trial settlement.

Mediation stands as a cost effective alternative to leaving it up to the discretion of a judge and allows the parties themselves to find a creative solution to a sometimes difficult problem.

When it comes to advising clients on how to handle student loan debt, the Houston divorce attorneys with the Law Office of Bryan Fagan, PLLC are both knowledgeable of the laws in the State of Texas and cognizant of the particular financial situations of our clients. Having an advocate who can help guide you based on your own personal situation is incredibly important during a divorce.

For a free of charge consultation please contact our office today ... Continue Reading