Family Code 2641 discusses student loans and how they are treated upon divorce. Family Code Section 2641 states: (a) “Community contributions to education or training” as used in this section means payments made with community or quasi-community property for education or training or for the repayment of a loan incurred for education or training, whether the payments were made while the parties were resident in this state or resident outside this state. (b) Subject to the limitations provided in this section, upon dissolution of marriage or legal separation of the parties: (1) The community shall be reimbursed for community contributions to education or training of a party that substantially enhances the earning capacity of the party. The amount reimbursed shall be with interest at the legal rate, accruing from the end of the calendar year in which the contributions were made. (2) A loan incurred during marriage for the education or training of a party shall not be included among the liabilities of the community for the purpose of division pursuant to this division but shall be assigned for payment by the party. (c) The reimbursement and assignment required by this section shall be reduced or modified to the extent circumstances render such a disposition unjust, including, but not limited to, any of the following: (1) The community has substantially benefited from the education, training, or loan incurred for the education or training of the party. There is a rebuttable presumption, affecting the burden of proof, that the community has not substantially benefited from community contributions to the education or training made less than 10 years before the commencement of the proceeding, and that the community has substantially benefited from community contributions to the education or training made more than 10 years before the commencement of the proceeding. (2) The education or training received by the party is offset by the education or training received by the other party for which community contributions have been made. (3) The education or training enables the party receiving the education or training to engage in gainful employment that substantially reduces the need of the party for support that would otherwise be required. (d) Reimbursement for community contributions and assignment of loans pursuant to this section is the exclusive remedy of the community or a party for the education or training and any resulting enhancement of the earning capacity of a party. However, nothing in this subdivision limits consideration of the effect of the education, training, or enhancement, or the amount reimbursed pursuant to this section, on the circumstances of the parties for the purpose of an order for support pursuant to Section 4320. (e) This section is subject to an express written agreement of the parties to the contrary.
This formula applies to situations where community property is used to pay down the principle on a home that was the separate property of one spouse. This can happen when a spouse purchases a home prior to marriage, but still owes on the home, or inherits a property that still has a mortgage that is paid down during the marriage. Such application prevents the spouse who uses community funds to pay for a separate property asset, which would belong only to them upon divorce, from gaining an unfair advantage when dividing the assets during a dissolution. There are no reimbursement rights for the portion of the payments that represent interest, taxes and insurance. The appreciation and reduction of principle are also used in this calculation. The formula is complicated, so if this type of situation applies to your case, you should consult an attorney to make sure this is performed properly.
Family Code 2640 applies to situations where separate property of one spouse was used to purchase a community asset. FC 2640 states (a) “Contributions to the acquisition of property,” as used in this section, include downpayments, payments for improvements, and payments that reduce the principal of a loan used to finance the purchase or improvement of the property but do not include payments of interest on the loan or payments made for maintenance, insurance, or taxation of the property.
(b) In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party’s contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source. The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division. (c) A party shall be reimbursed for the party’s separate property contributions to the acquisition of property of the other spouse’s separate property estate during the marriage, unless there has been a transmutation in writing pursuant to Chapter 5 (commencing with Section 850) of Part 2 of Division 4, or a written waiver of the right to reimbursement. The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of the division.