Splitting up your marital estate requires dividing not only marital property, but also marital debts. In going through a divorce, some people think of "marital debt" as being the equivalent of "joint debt," thereby removing from their calculations debts such as car loans in their own name. But even if a car loan is only in one spouse's name, it can still qualify as marital debt.
Marital Debt Division at a Glance
States divide marital property and marital debt under the laws of either community property (CP) or equitable distribution (ED). The key difference is that while CP courts seek an equal division, ED courts seek an equitable, or fair, division. Since fair and equal don't always mean the same thing, ED laws allow a court to make an unequal division in some cases. In both types of states, the name on a debt doesn't matter. If a party incurred a debt after the date of marriage and before either the date of separation or some other date specified by state law, it will generally be a marital debt.
How You Can Be Held Responsbile for the Other Side's Debts
ED and CP rights aren't automatic; you have to assert them. If your spouse does not insist on ED or CP in a marital settlement agreement, or doesn't file a claim against you before the entry of a divorce decree, he's stuck with the loan on his own. But ED and CP don't mean you'll be paying half the car loan directly. Marital estates are divided by adding property together, subtracting debt and trying to ensure that each party gets a certain percentage of the net. If the car loan really is a debt -- he owes more on the car than it's worth -- this just means that he has more debt that you have to balance off with more property.
What Happens When the Other Side Doesn't Pay
If your spouse has a car loan in her name alone, and quits paying on it even after she receives the debt in your settlement or court order, this will not affect you. If you didn't co-sign the loan, your Social Security number and credit won't be associated with the debt at all, and you won't be personally liable for any deficiency that results if the repossession and sale of the car don't bring enough to cover the outstanding debt. The only detriment you may suffer will be if you receive jointly titled real estate and a judgment is entered against your ex before you can change the deed over. Depending upon your state and circumstances, this could hold up the property transfer.
What Happens if She Trades the Car In After You Split
Marital debt stops accruing on either the date of separation or whatever date your state specifies. As such, if he owes a thousand dollars more than his car is worth on that date, the loan is a marital debt to the tune of a thousand dollars. If he later trades the car in and rolls the negative equity into a new loan, that thousand dollars is still there on the ED or CP balance sheet. It does not mean that you are now responsible for his new car loan.
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