July 2011 Archives

Do I Have to Pay My Ex-Spouse's Student Loans?

It is becoming increasingly common for at least one member of a married couple to carry a heavy student loan debt. The price of a college education has soared in recent years. As more people go back to school to obtain college or graduate degrees, or additional training, they have been forced to apply for federal and private loans to cover the costs. Since these loans come with high interest rates, paying them off can become a real burden over time. One recent study found that more students were defaulting on their loans than ever before.

Many clients worry that they will be stuck having to bear the burden of their soon-to-be ex-spouse's student loan debt. The following are some questions that clients typically ask a San Diego divorce attorney.

Since California is a community property state where the division of property is split evenly, will I be responsible for paying off half of my ex-spouse's student loans?

Not necessarily. While it is true that most debts that are incurred during a marriage are subject to equal division between the spouses, a debt incurred for education debt may be an exception. Pursuant to California Family Code section 2641, the spouse who takes out the loans can be the one responsible for paying for them, depending on how long ago the loan was taken out, and other facts.

What if I have already helped pay for part of the loans? Will that money be returned to me?

Spouses often do have a right to reimbursement for "community" funds paid toward one spouse's education. Any income earned during the marriage, by either spouse, is considered part of the community fund. So if one spouse uses his or her earnings to pay for the other spouse's education, his or her income would be viewed as community income that was used as a community contribution to education.. In this case, the community may be entitled to reimbursement if the education enhanced the other spouse's earning capacity. Whether the community is reimbursed, however, depends upon a variety of circumstances, including length of time that has elapsed since the loans were taken out.

Are there circumstances where I would not be repaid for the money I paid for part of my spouse's student loans?

There are two typical circumstances where the spouse might not be reimbursed. One is if 10 years have passed since the degree was awarded. Then the other spouse might successfully argue that you have already benefited from the increase in wealth that resulted from the advanced degree. If you cannot successfully refute that argument, you will not be reimbursed. Some of the other circumstances would be whether you also obtained an advanced degree, education or training during the marriage that your spouse paid for out of his or her community income. The two degrees, would then, in effect, cancel each other out. You will also not be repaid if you and your spouse have an express written agreement to the contrary.

What if I have benefited from my spouse's advanced degree, but never helped pay back the loan? Would I be responsible for repaying it after the divorce?

No. The spouse who took out the debt would still be responsible for paying the debt in the event of a divorce. "Benefit to the community" is only weighed when the non-debtor spouse helped pay off part of the debt during the marriage.

Does it make a difference whether my spouse took out his loans during the marriage or before the marriage?

No, the circumstances remain the same. The debt would still be your spouse's to pay off, whether he or she took out education loans before or during your marriage, although if he or she took out loans before the marriage, and many years elapsed before your divorce, you might have trouble proving that you deserved reimbursement because your spouse would argue that the "community" had already benefited.

If you live in California and are considering a divorce, contact an experienced San Diego divorce attorney and learn the facts about student loan debt, other debts, and division of property laws.

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Do I Still Receive Part of My Spouse's Retirement Benefits?

Many San Diego clients come from marriages where one spouse was the primary wage earner, while the other stayed home to raise the children. The stay-at-home spouse now worries that the divorce will leave him or her without long-term security. Even though in California, spousal income is community property and distributed equally, there is still a question of whether the division of property entitles the stay-at-home spouse to a share of the other spouse's pension benefits or stock options. Below are some questions that clients often ask a San Diego divorce attorney.

Am I entitled to a share of my spouse's pension benefits if he joined the pension plan before our marriage?

Generally, yes, per California Family Code section 2610. What matters is whether your spouse's retirement benefits continued to accrue during the years you were married. If at the time of divorce, your spouse was eligible to retire, the court would use proration formula to determine your share of the benefits. The proration formula divides the years you were married and your spouse's benefits accrued by the total number of years your spouse was part of the pension program. The result is a percentage that represents the community's share of that pension.

Thus, if you were married to your spouse for 15 years and during thos 15 years your spous's benefits were accruing, and if your spouse was employed and also accrued benefits from that same employer for a total of 30 years, the community's share would be 15/30, or one half of the pension benefits, and you would be entitled to half of that, or one fourth.

What if my spouse is eligible to retire, but chooses not to? Does that affect how much I receive?

No, because your spouse's pension benefits mature at the time he is eligible to retire, not when he actually retires.

What if my spouse is not eligible to retire at the time of our divorce?

You would still be entitled to receive half of the community's share of your spouse's pension benefits. Tthe court could issue an order for you to receive your share when your spouse is eligible to retire. Some divorcing parties may agree that the spouse with the pension may "cash out" the other spouse, but a court could not make this type of an order.

Do stock options work the same way as pension benefits?

Yes, in the sense that you receive a share of your spouse's stock at the time it matures, or "vests," based on the number of years you were married. The difference is in the way your share is calculated. The portion of community property is based on the intent of the employer who granted the option. If the court finds that the employer awarded the stock option to reward your spouse for past services, then it uses the Marriage of Hug formula, which calculates community property based on the date your spouse started working. If the court finds that the employer awarded the stock option to encourage your spouse to stay with the company, it uses the Marriage of Nelson formula. Marriage of Nelson calculates community property based on the date the options were first granted. While both formulas can be a little confusing, what matters is that the stay-at-home spouse is entitled to a portion of the stock option.

If my spouse receives severance pay, would I be entitled to a share?

There is no clear-cut rule for severance pay. Some have argued successfully that it is not community property because it replaces lost income the spouse would have earned after the divorce. Others have argued successfully that it is community property because it was paid for by employment during the marriage.

If you are in the middle of a divorce and have questions about pension benefits, stock options, and other retirement issues, find a knowledgeable San Diego divorce attorney who can prepare you for what to expect.

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The "7-Day Rule" for Premarital Agreements Revisited and Reinterpreted

Premarital Agreements ("PMA") can be very tricky. As experienced San Diego family law attorneys, we work hard to keep up with changes to the PMA rules. The rules for "PMA's are contained in California Family Code Sections 1600-1617. In addition to parties essentially creating their own agreed upon law (within the boundaries set by the PMA Act) for what is to occur in the event a marriage ends, the rules and the courts interpretation of the rules are constantly changing.

PMA's may cover the following subjects:

• Property rights and obligations, property management and control, and disposition of property;
• Making wills, trusts or other arrangements to carry out the premarital agreement provisions;
• Life insurance ownership rights and disposition of death benefits;
• Choice of law; and
• Any other matter, including personal rights and obligations that do not violate public policy or statutes imposing criminal penalties.

Although PMA's may not limit child support, spousal support may be limited if certain conditions are met. One of the conditions for limiting spousal support in a PMA is the "7-Day Rule," which requires that PMA's be presented at least seven calendar days in advance of signing.

California Family Code §1615(a)(1) states that a PMA is not enforceable if the party did not execute the agreement voluntarily. §1615(c)(2) states that a PMA was not executed voluntarily unless the court finds that the party had not less than seven calendar days between the time that party was first presented with the agreement and advised to seek independent legal counsel and the time the agreement was signed.

The California Court of Appeal recently decided a case interpreting the "7-Day Rule" for PMA's. In the case In re Marriage of Cadwell-Faso & Faso, the Court of Appeal held that the seven-day waiting period mandated by FC §1615(c)(2) does not apply to parties who are represented by counsel.

In Faso, both parties wanted a PMA. In December 2005, Husband's attorney drafted the PMA. Husband provided it to Wife and advised her to obtain her own attorney, which she did. Wife requested her attorney prepare an Addendum to the PMA providing money to her in the event of divorce. Husband rejected four different versions of the Addendum. On May 17, 2006, Wife called off the wedding because they could not agree to terms for the PMA/Addendum. The parties subsequently spoke, agreed to terms, and Wife's attorney prepared a new version of the Addendum. The revised Addendum was faxed to Husband on May 19, 2006 and forwarded to his attorney. The parties signed both the PMA and the Addendum. Prior to signing, Husband was advised by his attorney that the Addendum was not enforceable because it was not being signed seven days after he received it (it was being signed 6 days after). Wife was not told this information. Wife signed the PMA/Addendum and married Husband believing the Addendum was valid. Husband signed the PMA/Addendum believing it was invalid.

Although the trial court condemned Husband's behavior finding that he "shrewdly" maneuvered Wife to the alter "in a manner that frustrated her desire to reach a mutually acceptable agreement," it ruled that the Addendum was unenforceable due to the seven day waiting period. The fifth version of the Addendum was not presented to Husband seven days in advance of signing.

Wife appealed and the Court of Appeal reversed, holding that the Addendum was enforceable and that the seven day waiting period only applies to unrepresented parties.

This reinterpretation (or clarification) of the Family Code is just one of the many pitfalls clients and their attorney's face when preparing, enforcing or disputing PMA's.

I do wonder if the decision would have been different if the trial court did not find that Husband was the "bad guy", who hid his belief the Addendum was invalid from Wife and shrewdly maneuvered her to the alter. Under different facts in a future case, the court very well may "clarify" the statute to arrive at a different result, particularly to protect a more innocent party. Also, this "represented party" exception to the seven day rule may not apply to PMA's signed prior to January 1, 1986, when the Uniform Premarital Agreement Act became effective.