Divorce and Auto Loan Responsibility

The following information about divorce and auto loan responsibility can help you understand what your options are when dividing marital assets and debts. 

By Womans Divorce | Answers by Timothy McNamara, Financial Expert

Many people who get divorced are shocked to find out they can still be held responsible for their ex’s debts after the divorce is finalized. For example, if you and your ex both signed for a vehicle loan during the marriage, the creditor will hold both of you liable even if your divorce decree specifies your ex is responsible for the debt. This is because creditors are not party to divorce proceedings and the only agreement they have to comply with is the one you signed with them. 

Another instance where you could be held liable for your ex’s debts is if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin). In these state, both spouses remain responsible for the repayment of any debt acquired during the marriage, regardless of what the divorce decree says. Unfortunately, creditors can even come after you for debts that you didn’t know about. This is why it is so important to get full financial disclosure during your divorce.

So, what options do you have to get out from under any ongoing debt responsibility after divorce? Generally, the auto loan should go to the spouse who retains ownership of the vehicle. If your ex has a good enough credit score and was awarded the car in your divorce, refinancing the loan in his name can remove your liability for the loan. Another option is to pay off the loan with money from a cash settlement in your divorce. 

On the other hand, if neither of you wants to retain ownership of the vehicle, it might make more sense to sell the vehicle and pay off the loan. The worst thing to do is let the loan go into default and have the vehicle repossessed. This will damage the credit scores for both of you. 

Below the financial expert gives his input on how to handle auto loan issues after divorce.

Divorce and Auto Loan FAQs

How do I make him responsible for paying the auto loan after divorce?

Nancy's Question: His car loan is in my name (I had to cosign), as it shows up on my credit report, even though the bill is addressed to him? How do I get this debt out of my name, or make him responsible for paying for it?

Timothy's Answer: When a loan or credit account is established in your name, even as a co-signer, you will be held responsible for the repayment of the debt, regardless of the reasons you did so. The same applies for the auto loan you assumed. It does not matter that the bill has his address on it. You too are responsible for the entire loan amount. You should also reclaim the automobile or at the very least, have him purchase it from you. 

In the latter, you then can pay off the loan in your name and he would then own the vehicle outright. If he does not cooperate, you can either keep paying for his car (which I can only assume you don't want to do) or you can get help from law enforcement in reclaiming the vehicle from him. If you don't need or want the car, you can then sell it on your own or to a dealer. The dealer however, will not pay you as much as you could get by selling it on your own.

Am I responsible for the car loan if it's in his name?

Alexandra's Question: My soon to be ex purchased a car for me during our two years together. He made the payments since I was not earning much money. I recently purchased a car for myself, and am trying to get him to take responsibility for the old car. Is it my responsibility to cover the payments or any loss he may experience in selling it? The loan and registration were all in his name.

Timothy's Answer: Your ex purchased and registered a vehicle solely in his own name. During the period you were together, he allowed you to use the vehicle and made all the required payments. Today, you are no longer together and therefore should not expect to be able to use the vehicle unless the two of you had otherwise reached some sort of agreement.

As far as who is responsible for the making payments on the vehicle, you are not responsible for making payments on a vehicle he purchased. He is the registered owner of the vehicle and thus is responsible for not only making required payments, but also to insure the vehicle and keep it registered. If he no longer wants the vehicle and decides he wants to sell it, you would not be responsible for any loss he may incur, nor or you entitled to any profit. It is his vehicle and thus he bears all the responsibility automobile ownership brings.

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