A couple sat with their attorneys to discuss dividing their assets during their Texas divorce. They expected to wrangle over the house, the cars, retirement accounts, etc. However, not knowing how student loan debt is dealt with in a Texas divorce, they didn’t expect to be caught up in such a heated debate over the wife’s student loans.
She had taken out loans during their marriage to finish her degree. While her education helped secure a better income for the family, her husband didn’t think he should be responsible for her student loan debt.
Tensions rose, and the couple quickly learned that student loan debt was much more complicated than they had imagined.
How Does a Texas Court Deal With Student Loan Debt?
- Community vs. Separate Debt — First, the court will assess whether the student loan is considered community or separate debt. If the loan is made before the marriage, it is generally regarded as a separate debt and remains the responsibility of the individual who incurred it. However, the situation becomes more complex if the loan is made during the marriage.
- Use of the Loan — If the loan was incurred during the marriage, the court may examine how the funds were used. If the loan was explicitly used for tuition, books, and other direct educational expenses, the debt may be assigned solely to the spouse who benefited from the education. On the other hand, if some or all of the loan funds were used for household expenses, improvements, or to help the family, a portion of the loan may be deemed community debt.
- Earning Capacity—Another consideration is whether the education funded by the loan increased the earning capacity of the spouse who incurred the debt. Texas courts sometimes consider whether or not the non-student spouse has indirectly benefited from the enhanced earning potential. This, too, could affect whether and how student loan debt is distributed.
Ultimately, Texas courts aim to reach a “just and right” distribution of debts and assets. However, this does not necessarily mean an equal distribution. Both parties should consult competent family law s who understand how student loans and other debts will be handled in their case.
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