How to Deal with a Car Loan in Your New Jersey Divorce

With divorce comes many inevitable questions, among the most challenging of which is how to fairly and equitably divide marital assets. The division of assets process has the potential to become highly contentious, as couples disagree over how marital property will be divided and who will walk away with certain significant items such as the marital home. One often overlooked issue that can present problems during the division of assets process is what to do with a car that is not yet paid off. How should you best deal with the loan? Who is responsible for the car payments? And what happens if one spouse fails to make the necessary payments? In this article, we will thoroughly examine this issue, providing you with the information you need to protect your financial interests during the divorce process.

First and foremost, it is essential to include some provisions regarding your car loan in the marital settlement agreement. Failure to do so may lead to future conflict, stress, and aggravation that is entirely preventable if you address the issue in advance. The most ideal solution for handling a car loan is to sell the vehicle before finalizing the divorce. This way, you can effectively resolve the debt issue and equitably divide the value associated with the vehicle. However, selling the vehicle is not always easy to accomplish, particularly if finances are tight during the divorce process. In addition, your work schedule, child-care responsibilities, and other commitments may make not having a vehicle, even for a temporary period, simply untenable.

If you cannot sell the vehicle, the next viable alternative is to have either you or your spouse refinance the vehicle in his or her own name. By transferring the loan and the vehicle’s title to one spouse, you can avoid being bound to a loan as a unit after your divorce is finalized. However, this process is not as simple as requesting that one spouse’s name be removed from the loan. The spouse who intends to keep the vehicle must submit a loan application and qualify for financing as an individual in order to take full ownership of the vehicle and become solely responsible for the remaining payments.

It is important to note that removing your name from the title of the vehicle will only terminate your ownership of the vehicle, and will not abdicate your responsibility for the loan. As a result, you will be held responsible for the payments, and your credit may be damaged if payments are not made. If you and your spouse agree to sell or refinance the vehicle, make sure to address the time frame within which this must be done.

The crux of the matter is this: if you and your spouse applied for a car loan together, and signed an agreement with a bank or an automobile financing company while you were married to pay back the loan, this contract is legally binding, regardless of whether or not you are divorced or in the process of divorcing. In other words, you and your spouse are legally responsible for the cost of the loan, period. If one spouse fails to make the payments, the other is responsible. Even if your final divorce decree says that one spouse is responsible for making the payments, your divorce agreement is irrelevant to your auto loan contract.

If your ex-spouse is supposed to make the car loan payments and fails to do so, the lender can sue both you and your ex-spouse to obtain the remaining balance. In addition, failure to make payments will negatively impact your credit, as well as your ex-spouse’s. To ensure that you avoid these serious consequences, it is critical to address the car loan issue during the divorce. Often, you and your spouse can establish an arrangement in which the loan is subtracted from alimony and/or child support payments. In other words, if your spouse is responsible for monthly spousal and child support payments, he or she can pay the car loan directly and subtract the amount from the total support payments. If you choose to pursue an arrangement of this kind, be sure to have loan statements and payment information sent to both of your new addresses, in order to monitor that payments are being made.

At Townsend, Tomaio & Newmark, our highly experienced New Jersey divorce lawyers assist clients with a wide variety of divorce-related issues, including complex property division, division of debt, and high net worth divorce. Contact our Morris County offices today at 862-242-3987 to receive a cost-free initial consultation.