One of the biggest problems in moving forward is that couples often have joint lines of credit for everything from their mortgage to credit cards, bank accounts, and car loans. Once the divorce has been finalized, the property settlement/divorce decree dictates which spouse has the right to specific joint assets and who has the responsibility for payment of outstanding loans. Unfortunately, decrees and settlements are only legally binding between ex-spouses and do not affect their contractual obligations to third parties. The following list of common situations will hopefully clarify the position and responsibilities of each spouse with regards to pending car loans post-divorce:
1. Spouse A and Spouse B each have a car in their respective names:
As there are no credit issues, each spouse will be granted use of and given responsibility for due payment, of their respective cars.
2. Spouse A and Spouse B have taken out a joint loan for a car. Spouse A is granted use of the car (because Spouse A is responsible for taking the children to school, etc.), Spouse B ceases to make payments:
This is perhaps the most harrowing (and common) car problem following a divorce.
All couples who have decided to divorce should attempt to sell the family car prior to the divorce. This is because the spouse who is awarded the use of the car could face repossession of the vehicle or staggering debt if his/her ex-spouse stops making payments.
If Spouse A has not taken this precautionary initiative, and post-divorce, Spouse B refuses to upkeep payments, Spouse A can take Spouse B to court to enforce the latter’s obligations. This could, of course, involve significant delay and Spouse B could continue to neglect payment duties.
The situation could grow even more complex: Spouse B could file for bankruptcy, which would discharge him of his/her duty to pay the car loan, leaving Spouse A responsible for the entirety of the payment (an impossibility for most people following a divorce).
Once again, it is vital to take a precautionary stance; during the period of separation, if you suspect your spouse may file for bankruptcy, include a ‘bankruptcy-proof clause’ in your divorce settlement, stipulating that if your spouse were to file for bankruptcy, they would still be liable to you for any debt with a third-party/creditor. This option will, of course, be impossible if you and your spouse are not communicating with each other.
3. The car loan is exclusively in Spouse A’s name but Spouse B has the responsibility to pay for it and ceases to pay:
Car payments may be considered part of Spouse B’s alimony/child support responsibilities. If he/she refuses to pay, Spouse A will once again be forced to sue Spouse B to enforce payment. Alternatively, Spouse A could attempt to pay the entire debt (which is probably untenable following a costly divorce).
4. The car loan is in the name of both spouses. Spouse A has been granted use of the car but refuses to pay his/her share – Spouse B is worried about his/her credit rating taking a dive:
If your spouse is likely to be granted use of the car because they need a vehicle for children, business, etc., make every attempt possible to refinance the car under your spouse’s name exclusively, prior to the divorce.
5. Spouse B is left without a car in the settlement and will need to buy a car but has a bad credit rating because of expenses incurred during the divorce (legal fees, division of assets, etc.):
If your credit score has been seriously affected by a divorce, fear not; there are many banks and companies which make it easier to obtain car finance with bad credit. These companies understand that although your rating may have been affected by circumstances, you may still be a good payer, and all you need to get back on your feet is a strict payment plan. Moreover, credit issues may be temporary, pending successful enforcement of payments owed to you by your ex-spouse. If you are granted a car loan, your low credit score will probably translate into higher interest rates but fortunately, the terms of your loan aren’t cast in stone; as your credit score improves, you can always refinance your loan at a more acceptable rate. Whilst the initial picture isn’t that great, as time moves on you will eventually be able to obtain credit easier and be viewed as a more viable prospect separate from your spouse.
6. Spouse B is left without a car in the settlement and needs to buy a car but has an inexistent credit rating because he/she has never taken out a loan:
Starting from scratch is one of the biggest challenges when a marriage ends; establishing a sound credit history takes a bit of time but as long as you are a good payer, you will soon have a positive score that will stand you in good stead for bigger loans. Build up your credit by obtaining a credit card from the bank where you have your checking account and apply for a credit card from your favorite shops (shops have generally low credit limits and grant credit cards freely). To prove you know how to use credit responsibly, purchase items on credit schemes which charge no interest if payment is made within a set period.
Going about it slowly but surely is fine if you can wait a few months to buy a new car. If, on the other hand, a vehicle is a matter of urgency, your only option is to ask someone you trust to co-sign your new car loan. If they have a solid credit rating, this will reflect positively on your own.