‘I Do’ Want More Debt: How Louisiana’s Community Property Law Punishes Premarital Education

By Alex Hotard, Senior Associate

October 11, 2016

Introduction

The Louisiana Fourth Circuit has found a convenient quirk of Louisiana law that allows individuals to boost or reduce their student debt by a whopping 50% with a simple “I do;” but which way the needle moves depends entirely on timing.[1] In Gisleson v. Deputy and Katner v. Katner, the court held that Louisiana’s community property regime requires students to reimburse their spouse if any pre-marriage student debts have been paid with community funds. [2]  In Gisleson the court also noted that when a student takes out loans during a marriage the other spouse is responsible for half of that debt even after divorce.[3]

Spousal debts have always received this treatment in Louisiana,[4] but these cases explicitly applied the traditional rules to student loans.[5] The harsh inequities of the situation demonstrate a legal bias against premarital education. Love-struck students should take stock and plan accordingly.

I. Community Property and Obligations

Louisiana’s default matrimonial regime,[6] the “system of principles and rules governing the ownership and management of the property of married persons,”[7]  distinguishes between those rights and obligations that are community and those that are separate.[8]

The couple shares an undivided one-half interest in community property,[9] and each spouse retains exclusive ownership of his or her separate property.[10] Community property is property acquired by the couple during the marriage through the labor or skill of either spouse, property gifted to the couple during the marriage, property acquired through the use of community property, the fruits derived from community or separate property, and any other property acquired during marriage that is not specifically designated as separate property.[11] Separate property is property that was owned by one spouse before the marriage, property donated or bequeathed to one spouse alone, property acquired from a breach of contract claim between the spouses, and property derived from the expenditure of existing separate property.[12]

Obligations are divided along the same lines as property rights.[13] Community obligations are those that are incurred by one spouse during the marriage either for the benefit of the other spouse or for the benefit of both spouses.[14] Separate obligations are those that are acquired before the marriage, after the marriage, or even during the marriage if they are not acquired for the benefit of the other spouse or for the benefit of both spouses.[15] When community property is used to satisfy separate obligations, the obligor spouse owes to the other spouse an amount equal to one-half of the community property that was expended to satisfy the debt.[16] Likewise, when separate property is used to satisfy community debt, the spouse who owned the separate property is entitled to reimbursement equal to one half of the value of the property that was expended. [17]

II. The Fourth Circuit’s Decisions

In Katner v. Katner, the court held that Ms. Katner, who had acquired a legal education prior to marriage, was obliged to reimburse Mr. Katner in the amount of $7,002.[18] Some of Ms. Katner’s student debt was still outstanding at the start of the marriage, and community funds were used to satisfy these debts.[19] Mr. Katner argued that he should be entitled to reimbursements for half of the payments made on Ms. Katner’s student debt.[20] With little discussion, the court first determined that the debt was a separate obligation because it preceded the marriage and then awarded the reimbursement.[21]

The court’s decision never addressed the inequities of the outcome. The Katners were married for a decade[22] during which time all of Ms. Katner’s income became community property,[23] so Mr. Katner had already benefitted financially from his wife’s education.  Under these circumstances, it is reasonable that Mr. Katner should bear some of the price for that income. Instead, Mr. Katner enjoyed all of his wife’s income with none of the cost; and Ms. Katner was forced to pay for the fault of educating herself prior to marriage.[24]

In the more recent Gisleson v. Deputy, the court held that Dr. Deputy, who had acquired a medical education before his marriage, was obligated to reimburse Ms. Gisleson in the amount of $85,000.[25]  The two were married for 19 years before divorcing one year after Dr. Deputy’s treatment for bone cancer and Ms. Gisleson’s completion of undergraduate studies.[26] Unfortunately for the recovering Dr. Deputy, some of his premarital student debts were paid during the marriage.[27] The court determined that the premarital debts were a separate obligation, and Dr. Deputy was obligated to reimburse Ms. Gisleson for half of the amount paid during their marriage.[28] Additionally, Dr. Deputy was obligated to pay for half of his wife’s outstanding student debt because she took out her loans during the marriage and before deciding to leave the marriage.[29] Dr. Deputy’s student debt, which improved life for his family, went up by 50% during the marriage; his wife’s debt, which went towards improving her own post-marital life, was effectively cut in half.[30]

Unlike the terse Katner opinion; the Gisleson opinion directly addressed Dr. Deputy’s arguments for a more equitable interpretation of the law.[31] Dr. Deputy first argued that Ms. Gisleson had already been reimbursed by virtue of the increased income that his education brought to the marriage;[32] the revenue allowed her to stay at home with her children and to pursue her own college education. [33] The court acknowledged this benefit, but it determined that article 2364 left “no room for interpretation.”[34] Dr. Deputy next argued that his income was a “fruit”[35] derived from his education and that, because the fruits of separate property become community property,[36] the interest expenses that supported his separate education should be treated as a community obligation.[37] This argument has been successfully applied to interest payments on mortgages burdening separate, revenue-generating property;[38] but the court refused to extend the jurisprudence to include student debts.[39] Dr. Deputy’s arguments presented a way out of the Katner precedent, but neither swayed the court.[40]

Conclusion

Given the state of the law, Louisiana legislation seemingly punishes premarital education and rewards education kept within the confines of marriage. Because about 47% of Louisiana’s university students carry student debt,[41] these quirks of the community property regime will undoubtedly frustrate and delight some unhappily married persons in the future. Unless the law of matrimonial regimes is changed, a student’s best course of action is to become familiar with Louisiana’s treatment of student loans and plan around it by strategically timing their marriages or by entering into a prenuptial arrangement.[42]

[1] Gisleson v. Deputy, 122 So. 3d 1089, 1093 (La. 4th Cir. Ct. App. 2013); Katner v. Katner. 28 So. 3d 566, 575 (La. 4th Cir. Ct. App. 2009). Notably, these decisions seem to be the first to expressly address the issue of premarital student debt as a separate obligation.

[2] Gisleson, 122 So. 3d at 1093; Katner, 28 So. 3d at 575.

[3] Gisleson, 122 So. 3d at 1094-95. This principle has been settled for some time. See e.g., Munson v. Munson, 772 So. 2d 141, 145 (La. 3rd Cir. Ct. App. 2000).

[4] La. Civ. Code arts. 2360-2364 (2016).

[5] Gisleson, 122 So. 3d at 1093; Katner, 28 So. 3d at 575.

[6] La. Civ. Code art. 2327 (2016).

[7] La. Civ. Code art. 2325 (2016).

[8] La. Civ. Code art. 2335 (2016); La. Civ. Code art. 2359 (2016).  This method of dividing marital property into separate and community categories is commonly referred to as a “community property regime;” and, while Louisiana is not alone in its practice, the majority of states do not follow a community property regime.  Andrea Carroll & Elizabeth Carter, Louisiana Matrimonial Regimes, Cases and materials 7 (2014).

[9] La. Civ. Code art. 2336 (2016).

[10] La. Civ. Code art. 2341 (2016).

[11] La. Civ. Code art. 2338 (2016).

[12] La. Civ. Code art. 2341 (2016).

[13] See, e.g., La. Civ. Code art. 2360 (2016); La. Civ. Code art. 2363 (2016); La. Civ. Code art. 2345 (2016); La. Civ. Code art. 2357 (2016).

[14] La. Civ. Code art. 2360 (2016).

[15] La. Civ. Code art. 2363 (2016).

[16] La. Civ. Code art. 2364 (2016).

[17] La. Civ. Code art. 2365 (2016).

[18] Katner v. Katner, 28 So. 3d 566, 575 (La. 4th Cir. Ct. App. 2009)

[19] Id.

[20] Id. at 574

[21] Id.

[22] Id.

[23] La. Civ. Code art. 2338 (2016).

[24] Katner, 28 So. 3d at 574.

[25] Gisleson v. Deputy, 122 So. 3d 1089, 1092 (La. 4th Cir. Ct. App. 2013).

[26] Id. at 1091.

[27] Id. at 1092.

[28] Id. at 1092-94.

[29] Id. at 1094-95. The timing of the loan and Dr. Deputy’s inability to show bad faith meant that Ms. Gisleson’s loans were considered community obligations even though the marriage ended within a year from her graduation date. Id. It is worth noting that Louisiana law generally provides for reimbursements to spouses who subsidize their partner’s education with the expectation that the education will benefit the marriage only to be divorced soon after the education is finished. La. Civ. Code art. 121 (2016). Curiously, this reimbursement provision was not discussed by the court.

[30] Gisleson, 122 So. 3d at 1092-95.

[31] Id.

[32] Id. at 1092-93.

[33] Id.

[34] Id. at 1093.

[35] La. Civ. Code art. 551 (2016).

[36] La. Civ. Code art. 2338-2339 (2016).

[37] Gisleson, 122 So. 3d at 1093-94.

[38]See Gill v. Gill, 895 So. 2d 807, 817 (La. 2nd Cir. Ct. App. 2005) (stating “interest on a separate debt is chargeable to the community where the debt is part of the price of (or secured by mortgage on) separate property which itself produces revenue.”).

[39] Gisleson, 122 So. 3d at 1094.

[40] Id. at 1092-95.

[41] Project on Student Debt, State by State Data, Inst. for College Access & Success, http://ticas.org/posd/map-state-data-2015# [https://perma.cc/U66T-N48M] (last visited September 18, 2016).

[42] La. Civ. Code art. 2328 (2016).

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