Are Student Loans Community Property?

Student loan debt is community property if it was borrowed during a marriage while the couple was living in a community property state like California or Texas.

If you’ve ever organized your finances for a marriage (or a divorce), you may have encountered the term community property. Community property laws are what help designate property and debt as separate or joint.

While most states use equitable distribution laws, not community property laws, understanding community property is essential for millions of Americans, particularly when considering marriage or taking on financial responsibilities like student loan debt.

Read on to find out what student loans have to do with community property and how marriage affects student loan debt.

Marital property is the legal term for a married couple’s property  acquired during the marriage. In some states, this property is considered “community property” — meaning that all income and property gained after a couple marries is owned jointly and equally by both spouses.

Similarly, in community property states, community debt or marital debt is debt that is the equal responsibility of both parties in a marriage. Business debt incurred during a marriage is an example of community debt.

Most property acquired prior to the marriage — as well as inheritance, gifts, or payouts from personal injury cases — is typically considered separate property.

Understanding your state’s laws will help you determine what is and isn’t community property. Community property is not recognized in all jurisdictions. Here are the nine community property states:

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin

In addition, Alaska, Tennessee, and South Dakota have optional community property systems in place for couples who choose to hold marital property. States that are not community property states are called common law or equitable distribution states. In these states, the division of marital property and marital debt is determined by the couple or a judge.

In community property states, all income, property, and debt obtained in those states during a marriage is considered community property. In other words, those things are shared equally by both parties in a relationship.

Following a divorce, property distribution will be determined by the laws of the state where the divorce takes place. For example, if you get married and take out a student loan in Nevada  — a community property state — but are living in New York — an equitable distribution state — at the time of your divorce,  New York’s equitable distribution laws would apply. In other words, the student loans from Nevada would not be considered community debt.

If a married couple moves from a community property state to a common law state, in the event of a divorce, a judge will determine the distribution of property and debt based on the state’s laws.

Related: Student Loan Forgiveness & Divorce

Student loan debt is considered community property as long as it was (1) borrowed during a marriage and (2) while the married couple were living in a community property state. Student loan debt that meets these two criteria will most likely be recognized as community property or marital debt.

In common law or equitable distribution states, only those named on the borrower agreement will be liable to pay the student loans. In community property states, however, you may be held responsible through a court order for a portion of your spouse’s debt in the event of a divorce, whether you are a cosigner or not.

In most cases, unless your spouse is listed as a cosigner, any student debt taken on prior to the marriage will be considered separate debt. Whether you get married or divorced, you will be responsible for payments to the lender.

There are some exceptions. In California, for example, state law says that student loan debt can not be considered community property, even though California is a community property state. It’s important to consult with a divorce attorney or family law attorney who can help you understand your state’s laws.

Related: Marrying Someone With Student Loan Debt

When determining how debts should be divided in a divorce, judges in community property states may consider how money from the loan was spent. For example, if the loan money was used only for tuition, books, and other education-related expenses, it may be considered separate debt. If the money was used to support both spouses, then it may still be seen as marital debt.

Some couples choose to sign a prenuptial agreement or postnuptial agreement that makes each spouse responsible for certain debts. Prenups or postnups can even override state laws. Make sure that your prenup is created with the help of a family law attorney. Remember that even with a prenup, all cosigners are still responsible for repayment.

For loan payment plans that are based on income, your monthly payments may change if you are in a community property state where income is owned jointly.

If you are married and on an Income-Based Repayment (IBR), Income-Contingent Repayment plan (ICR) or Pay As You Earn (PAYE) Plan and you live in a community property state, filing your taxes separately could lead to lower monthly payments. This is only the case if you earn less than your spouse.

As a general rule, if your spouse takes out a student loan while living in a community property state, you may be responsible for some portion of that debt in the event of a divorce or legal separation. But even in these states, it’s possible that the courts may decide to divide property and debts differently if they believe it is more equitable for both spouses.

Learn More: Am I Responsible for My Spouse’s Student Loans?

If you are having trouble paying off student loan debt, you have a few options. With a good credit score and steady income, you can apply to refinance your loans. Refinancing allows you to replace your debt with one that’s lower interest.

If you have federal student loans, you can apply for an income-driven repayment plan (IDR). This plan ties the amount you pay each month to your income. After 240 monthly payments, IDR plans will cancel any remaining balance.

A student loan lawyer can help you explore these and other solutions and find one to suit your needs. The Department of Education has many programs available to help people struggling with debt.