Although splitting assets in a divorce is well-worn and guided by law, the division of debt, including car loans, can be a murky area depending on where you live. A car loan may be purchased, financed and registered in one spouse's name, but as the "New York Times" reports, each divorce case takes many factors into account. It is possible, depending on the particulars of your case, that a judge may order you to pay for your spouse's car if it was acquired during the marriage. There are even circumstances where it might make sense for you to agree to pay the car note. The bottom line is, if you are proactive about your case and get things in writing before appearing in court, you can avoid many of the hassles involved with divorce and debt.
Debts and Divorce
A divorcing couple's problems are far from over when the final decree is issued. Getting spouses to abide by court orders to pay debts is difficult and often drags on for years. Here's a simple principle that should guide your thinking as you approach divorce: No family court can sever the contract one spouse made with an auto finance company. However, if you have been ordered to pay, or assist with paying, that debt and you don't, you can be held in contempt of court, which comes with severe penalties.
Equitable Distribution or Community Property
According to LegalZoom, most states follow equitable distribution laws when splitting property in divorce. In equitable distribution states, property acquired during the marriage belongs to the spouse who earned it. In the case of divorce, the property will be divided between the spouses in a fair and equitable manner. There is no set rule about who receives what or how much. Equitable does not mean equal, but rather what is fair.
In a community property state, the spouses equally own all income earned and property acquired during the marriage, regardless of who signed for it. They also equally own debt incurred during marriage. Both spouses are equally liable for debts, including car loans, as well as unpaid balances on credit cards and mortgages. Community property is observed in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Washington, Wisconsin and Puerto Rico. Many tribal communities also follow community property laws.
Property Settlement Agreements
When discussing the pending divorce with your spouse, it is best to come to an agreement about how you will divide your property--and your debts--and then put it in writing before you get to court. If you live in a community property state and your income and ability to pay for debts exceeds that of your spouse, this agreement will benefit you, and there's a good chance the court will uphold the agreement so long as no coercion took place.
If you are reasonably sure that your soon-to-be-ex-spouse will have trouble paying the car note, let him or her know that selling the vehicle before ruining his or her credit is an option. Offer to help get a more affordable car, if possible. Considering how much acrimony is involved in divorce, this is a difficult conversation, but if cooler heads prevail, you can avoid the financial fallout of divorce.
Set-Off Arrangements
Another proactive arrangement that will help you, especially if you live in a community property state, is to establish a set-off arrangement, according to Divorcenet. For example, if you are ordered to pay alimony and child support, you can try to work out an arrangement with your spouse to make the car payment instead of the support payments. This way you can pay the loan directly, protect your credit, receive credit toward your support obligations and proactively avoid feeling unfairly saddled with your ex's debt.
Extra Steps to Protect Yourself
Whatever options you choose, be sure to sever your relationship with the car. When you move to a new residence, inform your car insurer that you are to no longer be on the policy. Following the divorce, ensure your name is removed from the registration if it is jointly titled.
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