Shared assets and financial obligations can make divorce a complicated process. Spouses have to find ways to split their property in a fair manner in accordance with the state’s equitable distribution statute. They also need to address their shared debts.
A financed vehicle is both an asset and a source of financial obligation. The vehicle itself may be necessary for getting to work or caring for children in the family. However, there may still be a significant balance due on the loan before the couple actually owns the vehicle outright.
How can spouses appropriately address a financed vehicle as they start negotiating property division matters?
There are many potential solutions
There is no one answer for how to address a vehicle that still has a balance due on the loan acquired to purchase it. In some cases, the spouse currently driving the vehicle agrees to retain it and take full responsibility for the loan. They may need to factor in the value of the vehicle’s equity accrued during the marriage when making other property division decisions.
Other times, couples might agree to allow one spouse to keep the vehicle even though they cannot afford the loan without support. Arranging for a higher-earning spouse to pay the vehicle loan can be one way to make the outcome of property division proceedings as fair as possible.
Considerations ranging from the overall marital estate, custody plans for minor children, whether both spouses are on the loan and the income of both spouses can influence the most effective arrangements. Typically, refinancing is necessary if both spouses are on the vehicle loan or the agreement regarding the vehicle involves withdrawing equity to compensate the other spouse.
Usually, both spouses generally have an interest in the accumulated equity, even if the title of the vehicle is in the name of one spouse only. Additionally, both spouses share responsibility for the remaining balance owed on the loan, even if only one of them is technically on the loan paperwork.
Identifying assets that are likely to cause conflict can help spouses set appropriate property division goals. Any asset with a loan attached likely requires careful consideration to ensure a fair outcome.